Can KIK Use an Uptiering Transaction to Incur Superpriority Debt under the Secured Bond Covenants?
Sean Hanssler, J.D. - Director, Covenant Analyst, Covenant Review
5 September 2025
Insights into KIK’s uptiering superpriority debt covenants, sacred rights, lien subordination mechanics, carveout pathways, and investor watchpoints, including:
- Sacred rights and payment priority: Why changing the payment ranking of KIK’s Secured Notes would require unanimous affected-holder consent, constraining Serta-like payment subordination.
- Lien subordination mechanics: How the lien Serta Blocker, its carveouts, and the 66-2/3% override interact—implying supermajority consent plus a ratable participation offer to all holders for any priming liens.
- Carveouts and exceptions: Which financings can bypass blockers (DIP, ABL/purchase-money/cap leases, or ratable participation structures) and how they shape feasible uptiering paths.
- Practical path to priming: Why payment-priming appears off-limits, but a lien-priming uptier could be possible if 2/3 consenting holders participate and terms are offered ratably.
- Investor watchpoints: The absence of a Payments-for-Consent covenant and drafting tensions between clauses (9), (11), and the override—and what they mean for negotiating leverage and outcomes.
Overview
Bloomberg has reported that KIK Custom Products Inc. (“KIK”) is working with PJT Partners to evaluate its options to shore up liquidity amid earnings pressure. Additionally, a group of creditors to KIK have engaged Centerview Partners as an adviser.
In this report, we consider whether the covenants for the $550 million 8.25% Senior Secured Notes due 2031 (the “Secured Notes”), issued by KIK’s indirect parent Kronos Acquisition Holdings Inc. (the “Issuer”), would allow KIK to incur new debt that would prime the Secured Notes in an uptiering transaction. We have not seen the Indenture for the Secured Notes, so our analysis is based on the Offering Memorandum dated June 27, 2024 (the “Final OM”). We have previously published in-depth analysis on all of the covenants for KIK’s outstanding bonds. For detailed commentary, see our prior reports. In this report, we focus on the provisions of the covenants for the Secured Notes most relevant to a potential uptiering transaction. We do not address the terms of the Term Loan or Revolver in this report.
