Careismatic Brands: $782M Debt Eliminated in Lender Recapitalization

Careismatic Brands' first-lien lenders took ownership of the medical-scrubs maker through a debt-for-equity recapitalization that eliminated about $782 million of secured debt, after a prearranged chapter 11 that moved from petition to plan confirmation in roughly four months. Investment funds led by Nexus Capital Management became the new owner when the company emerged on June 13, 2024.

Careismatic Brands, LLC and its affiliated debtors filed chapter 11 petitions on January 22, 2024 in the U.S. Bankruptcy Court for the District of New Jersey, lead case number 24-10561, before Judge Vincent F. Papalia. The filing was governed by a restructuring support agreement that contemplated either a debt-to-equity recapitalization or an alternative value-maximizing transaction; no topping bid emerged from the marketing process, and the case proceeded to confirmation on May 31, 2024.

What has changed in Careismatic Brands, LLC since this article was published?

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Debtor(s)	Careismatic Brands, LLC (22 jointly administered entities, including Careismatic Group Inc.)
Court	U.S. Bankruptcy Court, District of New Jersey
Case Number	24-10561
Petition Date	January 22, 2024
Judge	Hon. Vincent F. Papalia
Confirmation Date	May 31, 2024
Effective Date	June 13, 2024
DIP Facility	$125 million delayed-draw DIP from prepetition first lien lenders

Demand Normalization and an Overlevered Balance Sheet

Careismatic is a Santa Monica-based supplier of medical scrubs, uniforms, and related apparel, selling through wholesale, retail, and online channels to healthcare professionals and institutions. Chief Restructuring Officer Kent Percy stated in the First Day Declaration that the company employed roughly 800 full-time U.S. workers, operated a one-million-square-foot Texas distribution facility, and held more than 50% of the U.S. wholesale medical-apparel market across brands including Cherokee, Infinity, Med Couture, Healing Hands, and Dickies Medical. The business had been built through acquisitions: New Mountain Capital sold Careismatic to Partners Group in early 2021 in a deal valued at about $1.3 billion including debt.

Percy attributed the filing to a post-pandemic normalization in demand across 2022 and 2023, compounded by rising interest rates, supply-chain disruption, higher material and labor costs, and intensified online competition. The First Day Declaration also pointed to legacy integration and inventory-forecasting problems and ongoing litigation burdens, and framed chapter 11 as both a liquidity event and a deleveraging transaction for an overlevered capital structure. Independent reporting described the same combination of supply-chain delays and inflationary cost pressure and a nearly 19% revenue decline from the company's 2021 peak.

Reported revenue fell from $687 million in 2021 to about $559 million in 2023, a decline that left the company unable to service a debt load assembled during the leveraged-buyout era. Careismatic entered chapter 11 after securing restructuring financing and lender support for the recapitalization track.

Prepetition Capital Structure and the Pre-Filing ABL Payoff

The Amended First Day Declaration states that the debtors entered chapter 11 with about $832.9 million of funded debt, split into approximately $590 million of first-lien term loans, $100 million of first-lien revolving loans, $110 million of second-lien term loans, and $32.9 million of sponsor loan claims. The first-lien term loans were scheduled to mature in January 2028 and the first-lien revolver in January 2026, with the second-lien term loans maturing in January 2029.

Percy also disclosed in the Amended First Day Declaration that the debtors had repaid a separate $30 million asset-based lending facility on January 18, 2024, four days before the petition date, leaving the term-loan and second-lien tranches as the principal targets of the restructuring. The filing announcement framed the transaction as eliminating roughly $833 million of prepetition debt, the figure the confirmed plan would later cut to a reported $782 million of secured debt actually equitized.

The restructuring carried lender support from the outset. Careismatic stated the deal had backing from 76% of first lien lenders and 70% of second lien lenders under the restructuring support agreement. To protect trade continuity during the case, coverage described a critical-vendor program with about $21.6 million in interim-approved payments against a targeted $36 million overall.

DIP-to-Exit Financing and the 120-Day Confirmation Track

The debtors obtained a $125 million superpriority delayed-draw DIP facility, with $50 million available on entry of the interim order and another $75 million after the final order. The DIP Motion described the facility as backstopped by members of the first-lien ad hoc group and the cross-holder group, and Joshua Abramson stated in his DIP declaration that the loan bore interest at SOFR plus 6.00%, with a 2.00% default-rate step-up, plus an 11.00% backstop premium, a 3.5% commitment premium, and a 3.5% exit premium.

The facility was structured as a "DIP-to-exit" loan rather than ordinary bridge financing. Under the restructuring term sheet, the DIP commitments would convert into an exit term loan in the recapitalization, with a nine-month outside maturity for the DIP and an option for lenders to convert the DIP premiums into new common stock at a 40% discount to plan enterprise value. The Final DIP Order authorized the DIP premiums, granted superpriority claims and priming or replacement liens, and provided adequate-protection rights to the prepetition secured parties, including payment of certain first-lien fees and replacement liens for the second-lien parties.

Term	Summary
Facility size	$125 million delayed-draw DIP
Availability	$50 million after interim order; $75 million after final order
Interest rate	SOFR + 6.00% (default + 2.00%)
Premiums	11.0% backstop; 3.5% commitment; 3.5% exit
Outside maturity	nine months
Exit mechanics	converts into exit term loan; option to convert premiums to equity at 40% discount to plan enterprise value

The DIP and RSA embedded a compressed milestone schedule. The First Day Declaration required entry of an interim DIP order within five days of the petition date, a final DIP order within 30 days, a plan and disclosure statement within 45 days, disclosure-statement approval within 90 days, and confirmation within 120 days. The court entered the interim DIP order on January 24, 2024 and the final DIP order on February 29, 2024, keeping the case on the prearranged timetable. The DIP terms drew opposition from the unsecured creditors' committee before the final hearing, with creditors arguing the financing unfairly prioritized prepetition lenders and shielded enterprise value from junior stakeholders; the court entered the final order over those objections.

Bidding procedures and no topping bid. Alongside the recapitalization, the Bidding Procedures Order entered in February 2024 established an April 3, 2024 bid deadline and an April 30, 2024 sale hearing, with stalking-horse bid protections capped at a 3% break-up fee plus expense reimbursement and a 10% good-faith deposit excluding any credit-bid portion. No qualifying buyers emerged, Law360 reported, and the marketing process gave way to the lender-led plan.

Plan Class Treatment and the GUC Trust

The Second Amended Plan filed May 24, 2024 classified Class 1 other secured claims and Class 2 other priority claims as unimpaired, while Classes 3 through 6 and Class 9 were impaired, with Classes 3, 4, and 5 voting. Class 3 first-priority claims were allowed at approximately $589.875 million for the term-loan tranche and $100 million for the first-lien revolver, plus contractual add-ons, and in exchange Class 3 received its pro rata share of 100% of the new common stock, subject to dilution from the management incentive plan, DIP premiums, and any second-lien warrants.

Class 4 second-lien secured claims were deemed allowed at $85 million only if the plan's "second-lien condition" — acceptance by the second-lien class — was satisfied. If satisfied, Class 4 received a package of five-year warrants to purchase up to 8.5% of new common stock at an $818 million strike price and without Black-Scholes protection; if the condition failed, Class 4 received nothing. Class 5 general unsecured claims received pro rata shares of the net assets of a GUC Trust, a liquidating trust administered by a GUC trustee with standing to reconcile and object to claims and to pursue trust causes of action. Class 6 subordinated claims and Class 9 existing equity interests received no recovery, and existing equity was cancelled on the effective date.

DIP claims were left unclassified and, on the effective date, were either converted into the exit term loan facility or paid in cash in full, including the DIP premiums, if an acceptable alternative exit facility or sale transaction had been used. The Second Amended Plan and supporting materials confirm the recapitalization route was the one carried out.

Class	Claim	Treatment
1 / 2	Other secured / other priority	Unimpaired; paid in full or reinstated
3	First-priority (senior secured)	Pro rata share of 100% of new common stock
4	Second-lien secured ($85M if condition met)	Warrants for up to 8.5% of equity, or no recovery
5	General unsecured	Pro rata share of GUC Trust net assets
6 / 9	Subordinated / existing equity	No recovery; equity cancelled

Committee Objection, Plan Releases, and Emergence

The official committee of unsecured creditors mounted the main confirmation fight. Bloomberg Law reported in early March 2024 that the committee was already challenging the compressed timeline and labeling the preliminary plan disclosures inadequate for creditor voting. Its April 9, 2024 objection to the disclosure statement argued that the debtors had failed to provide valuation support for their assets, collateral, enterprise value, and released causes of action, and that the plan unfairly favored second-lien lenders by treating a purported $60 million secured component differently from other unsecured creditors. The committee also attacked the release mechanics as effectively coercive, because an unsecured creditor receiving no recovery had to both vote against the plan and opt out, or separately object, to avoid being bound, and it demanded more disclosure of the independent directors' investigation and the financial analysis supporting the releases.

The debtors' omnibus reply said they had amended the plan and disclosure statement to clarify that the releases and injunction did not extend to non-derivative or non-estate claims, and had added projections, a liquidation analysis, recovery information, and expanded disclosure of the investigations, while reserving classification, release, and Rule 9019 disputes for confirmation. The committee separately pursued a standing motion seeking authority to challenge the prepetition secured parties' liens on behalf of the estates, asserting that categories of assets — including certain foreign equity interests, commercial tort claims, and insurance policies — were unencumbered or subject to unperfected liens.

The Confirmation Order entered May 31, 2024 found the plan a good-faith compromise, approved the debtor releases as a valid Rule 9019 settlement, and approved third-party releases as consensual, essential provisions supported by notice and opt-out mechanics. It also approved exculpation, an injunction, and a gatekeeper provision requiring bankruptcy-court permission before certain claims connected to released or exculpated conduct could proceed, while carving out non-released parties. The debtors gave notice that the plan went effective on June 13, 2024, the same day Bloomberg Law reported the company's emergence from chapter 11, with investment funds managed by Nexus Capital Management as the new owner and all third-party prepetition debt eliminated.

The committee's challenge continued briefly after confirmation. It filed a notice of appeal on June 3, 2024, but as the post-effective debtors told the court in their final-decree motion, the appeal had narrowed to a discrete issue over U.S. Trustee fees tied to the GUC Trust. On August 20, 2024, the district court dismissed the appeal under a joint stipulation after the U.S. Trustee agreed it would not seek those fees from the trust once the relevant cases were closed.

Professional Retentions and Fee Awards

The debtors' February 1, 2024 administrative fee motion identified Kirkland & Ellis LLP as lead co-counsel, Cole Schotz P.C. as local co-counsel, AP Services, LLC (AlixPartners) as financial advisor, PJT Partners LP as investment banker, and Donlin Recano as claims and noticing agent, with KPMG LLP, Kobre & Kim LLP, and McDonald Hopkins LLC in specialized roles. On the lender side, the emergence announcement listed Milbank LLP and Houlihan Lokey, and the committee retained Pachulski Stang Ziehl & Jones LLP with FTI Consulting and Province, LLC as financial advisors.

On August 21, 2024, the court entered separate final fee orders across the engagements totaling roughly $29.7 million in awarded fees, with the PJT Partners order and the Kirkland & Ellis order accounting for the two largest awards at about $8.82 million and $7.45 million respectively. Kirkland's award covered services through May 31, 2024, the confirmation date.

Professional	Role	Fees awarded
PJT Partners LP	Debtor investment banker	$8,818,952
Kirkland & Ellis LLP	Debtor lead co-counsel	$7,448,963
Pachulski Stang Ziehl & Jones LLP	Committee counsel	$2,949,039
KPMG LLP	Debtor tax/advisory	$2,765,920
Kobre & Kim LLP	Debtor special counsel	$2,482,053
AP Services, LLC	Debtor financial advisor	$1,500,000
FTI Consulting, Inc.	Committee financial advisor	$1,300,531
McDonald Hopkins LLC	Debtor special counsel	$1,075,769
Cole Schotz P.C.	Debtor local co-counsel	$339,374
Donlin, Recano & Company	Claims and noticing agent	$134,381

Post-Effective Claims Administration

After emergence, the case shifted into claims reconciliation run through the GUC Trust. In January 2025 the court entered an omnibus claims objection procedures order authorizing the trust to file substantive omnibus objections under Bankruptcy Rule 3007(c) and (d) plus additional grounds, with a 21-day response deadline and a minimum 30-day notice period before any hearing. The court then entered a first omnibus objection order in April 2025 and a second omnibus objection order in September 2025, disallowing or expunging categories of claims that included late-filed, duplicative, insufficiently documented, satisfied, no-liability, and overstated claims. The trust later sought to extend its deadline to object to general unsecured claims from July 28, 2025 to the later of January 26, 2026 or 180 days after a claim is filed or amended.

A separate post-effective dispute drew the reorganized debtors back into litigation. The debtors filed a motion for declaratory and injunctive relief aimed at halting a California state-court fee action involving their sponsor and former management, brought by a law firm that the filings said had billed Careismatic entities about $39 million from 2012 through 2022. The debtors cited indemnification obligations, the risk of depleting directors-and-officers insurance through defense costs, and the prospect that alter-ego or veil-piercing theories could overlap with estate causes of action. The court entered a final decree closing the affiliate cases, including Careismatic Brands, LLC, and directing that remaining matters be administered in the Careismatic Group Inc. case.

Emergence also carried a workforce action. Careismatic gave WARN notice on May 2, 2024 of plans to close two Dallas distribution centers and cut 404 positions, effective May 31, 2024, the same date as plan confirmation. In July 2024, CEO Sid Lakhani discussed the company's post-restructuring priorities with WWD, citing supply-chain optimization and sourcing diversification as the principal operational focus under Nexus Capital Management's ownership.

Key Timeline

Date	Event
January 2021	Partners Group acquired Careismatic in a deal valued around $1.3 billion including debt
January 18, 2024	Debtors repaid the $30 million ABL facility
January 22, 2024	Chapter 11 petitions filed; Kent Percy first-day declaration filed
January 24, 2024	Interim DIP order entered
February 29, 2024	Final DIP order and bidding procedures order entered
April 3, 2024	Sale-process bid deadline
April 9, 2024	Committee files disclosure-statement objection
May 24, 2024	Second amended plan filed
May 31, 2024	Plan confirmed; Dallas workforce action effective
June 13, 2024	Plan effective; emergence with Nexus Capital Management as owner
August 20, 2024	District court dismisses confirmation appeal
April 2025	First omnibus objection order entered
September 2025	Second omnibus objection order entered

Frequently Asked Questions

When did Careismatic Brands file chapter 11 and where? Careismatic Brands, LLC and its affiliated debtors filed chapter 11 on January 22, 2024 in the U.S. Bankruptcy Court for the District of New Jersey, lead case number 24-10561.

What did the confirmed plan do? The plan was a debt-to-equity recapitalization that eliminated about $782 million of secured debt, handing 100% of the new common stock to first-priority lenders, conditional warrants to second-lien lenders, and GUC Trust interests to general unsecured creditors.

How much DIP financing did Careismatic obtain and on what terms? The debtors obtained a $125 million delayed-draw DIP from prepetition first lien lenders, priced at SOFR plus 6.00%, structured as a DIP-to-exit facility that converted into an exit term loan with backstop, commitment, and exit premiums.

Was there a sale process? Yes. Bidding procedures set an April 3, 2024 bid deadline and an April 30, 2024 sale hearing, but no qualifying buyers emerged and the case proceeded on the lender-led recapitalization.

What was the main confirmation dispute? The unsecured creditors' committee objected to valuation support, the disparate treatment of second-lien lenders, and the scope and opt-out mechanics of the plan releases. The dispute narrowed after confirmation to a U.S. Trustee fee issue tied to the GUC Trust and was dismissed by stipulation in August 2024.

Who owned Careismatic after emergence? Investment funds led by Nexus Capital Management became the new owner when the plan went effective on June 13, 2024.

Who is the claims agent for Careismatic Brands? Donlin Recano serves as the claims and noticing agent. The firm maintains the official claims register, and the post-effective GUC Trust used that register in the omnibus objection process that the January 2025 procedures order governs.

For more chapter 11 case coverage, visit the ElevenFlo bankruptcy blog.

Sources

1. First Day Declaration /documents/66bc2937-9b07-44bf-b619-fbe096b3248c/
2. Amended First Day Declaration /documents/f91b913d-7628-4ee0-9854-bb79ff3058b0/
3. DIP Motion /documents/da733fd8-5e13-45de-85c3-4c6edd6ca4e1/
4. DIP declaration /documents/c1751c7a-b26e-4fd5-b7c5-ffbf8d5d9b76/
5. Final DIP Order /documents/5534b523-e019-49d5-a274-0eff2ed55b01/
6. Bidding Procedures Order /documents/40aa1d93-4712-4a46-8f06-fd098993e02b/
7. Second Amended Plan /documents/1c6a0f61-cb43-4528-9320-1f765a140845/
8. GUC Trust /documents/11b56d60-c229-40fa-8efd-a7366a13f6e3/
9. objection to the disclosure statement /documents/ad16ffbf-54cd-4ca6-9ccf-ba0b4cfe4d0f/
10. omnibus reply /documents/906faeee-75ea-4cb4-8a3b-c1754827be71/
11. standing motion /documents/715c82fd-28d6-4cec-9069-85939a5b9bb7/
12. notice that the plan went effective /documents/348824cf-db86-4036-806d-301ffa6a876f/
13. notice of appeal /documents/23e57769-e3a5-402c-9061-dc5c09e4734c/
14. final-decree motion /documents/69440b9a-7f09-434d-b4db-746d5881737b/
15. dismissed the appeal /documents/03a5ee85-a98f-4037-bea0-a4c8ff2a55e5/
16. administrative fee motion /documents/ca3bf1e5-dc17-4dd7-89ea-641b601944d3/
17. PJT Partners order /documents/b4cc247e-f281-44d6-a6d2-9be68f0942a0/
18. Kirkland & Ellis order /documents/1ce76328-7dcf-4590-af91-7ad7a1b6192d/
19. omnibus claims objection procedures order /documents/ce8f691d-e35e-44c9-86e0-41b6eab90974/
20. first omnibus objection order /documents/5d70f3b1-1d8a-4e13-9501-318981c62863/
21. second omnibus objection order /documents/57f5e1e2-7819-487b-8b14-d60b369af9af/
22. motion for declaratory and injunctive relief /documents/950fa0cf-564c-4fed-bc8c-da6f1a354d91/
23. final decree /documents/78cdb16a-166a-4a1b-a966-db0f7e865b03/
24. $782 million https://www.law360.com/bankruptcy-authority/articles/1842410/careismatic-gets-ok-for-ch-11-plan-with-debt-equity-swap
25. emerged on June 13, 2024 https://www.businesswire.com/news/home/20240613273747/en/Careismatic-Brands-Successfully-Completes-Financial-Restructuring-Positioned-for-Continued-Leadership-in-the-Medical-Apparel-Industry
26. filed chapter 11 petitions https://www.businesswire.com/news/home/20240122412807/en/Careismatic-Brands-LLC-Takes-Strategic-Action-to-Strengthen-its-Financial-Foundation-and-Position-the-Business-for-Long-Term-Growth
27. valued at about $1.3 billion https://pe-insights.com/partners-group-buys-scrubs-maker-careismatic-for-1-3-billion/
28. supply-chain delays and inflationary cost pressure https://www.supplychaindive.com/news/medical-apparel-scrubs-supplier-Careismatic-files-bankruptcy-supply-chain-woes/706123/
29. $687 million https://www.wfaa.com/article/money/business/giant-in-medical-apparel-close-dallas-facilities-cut-400-plus-jobs/287-fa5f32ca-f28f-4c88-846a-4a9511677154
30. after securing restructuring financing https://insideretail.us/careismatic-brands-files-for-chapter-11-after-securing-restructuring-financing/
31. creditors arguing the financing unfairly prioritized prepetition lenders https://www.law360.com/articles/1806781/careismatic-creditors-lash-out-at-dip-proposal
32. reported in early March 2024 https://news.bloomberglaw.com/litigation/careismatic-is-trying-to-rush-bankruptcy-process-creditors-say
33. reported the company's emergence https://news.bloomberglaw.com/bankruptcy-law/careismatic-emerges-from-chapter-11
34. Nexus Capital Management https://www.nexuslp.com/portfolio
35. discussed the company's post-restructuring priorities with WWD https://wwd.com/sourcing-journal/industry-news/careismatic-financial-restructuring-scrubs-sourcing-supply-chain-1238837307/