Lugano Diamonds & Jewelry Inc. and its affiliated entities filed a motion in the U.S. Bankruptcy Court for the District of Delaware seeking approval of $12 million in debtor-in-possession (DIP) financing from Compass Group Diversified Holdings LLC (CODI), the luxury jewelry retailer's majority owner and sole prepetition lender. The motion, filed November 17, 2025, comes just one day after the company filed for Chapter 11 bankruptcy protection.
The proposed DIP facility includes a $1.5 million interim draw, a roll-up of $2.2 million in prepetition debt, and subsequent draws following court approval of a final order. The financing is designed to fund operations through the 2025 holiday selling season and facilitate an orderly liquidation process through an agency agreement with Enhanced Retail Funding, LLC.
Background and Prepetition Debt Structure
CODI's relationship with Lugano dates to September 3, 2021, when it simultaneously acquired a 59.9% equity stake in Lugano Holding, Inc. for $256 million and entered into a credit agreement that has since been amended 23 times. According to court documents, those amendments progressively increased the revolving loan commitment from $140 million to $275 million and term loan commitments from $90 million to over $488 million to fund the company's boutique expansion and inventory costs.
As of the petition date, the outstanding principal balance under the prepetition credit agreement totaled approximately $718.2 million, consisting of $211.7 million in revolving loans, $466.7 million in term loans, and $2.63 million in letter of credit obligations. The filing states that CODI sent Lugano a notice of default on June 6, 2025, leading to a forbearance agreement on August 29, 2025.
The Twenty-Third Amendment to the Credit Agreement, executed October 2, 2025, enabled additional borrowing of up to $4 million, of which CODI advanced $2.2 million—the amount now proposed to be rolled up into the DIP facility.
DIP Facility Terms and Structure
The proposed DIP financing carries an 8% annual interest rate, paid in kind (PIK) rather than in cash, with interest added monthly to the outstanding principal. The default rate increases to 12% per annum. The facility includes no commitment fees, origination fees, exit fees, or similar charges—terms the debtors characterize as favorable compared to market alternatives.
The motion emphasizes the urgency of the financing request. Without the DIP facility, the debtors would be unable to continue operations for more than one to two weeks, according to the declaration of J. Michael Issa supporting the Chapter 11 petitions. The motion argues that access to the DIP facility and use of cash collateral will enable the debtors to continue operations through the holiday selling season and significantly increase the likelihood of maximizing estate value.
The DIP facility will be secured by priming liens on substantially all of the debtors' assets, with CODI consenting to the priming of its own prepetition liens. The facility also includes superpriority administrative expense claims, subject only to a professional fee carve-out.
The Roll-Up Provision
The $2.2 million roll-up represents prepetition advances made after CODI declared a default but before the bankruptcy filing. The debtors justify this provision by characterizing it as essential bridge financing that enabled continued operations while the sale process developed.
The motion notes that the roll-up ratio is approximately 1:4.4, with $2.2 million in rolled up loans compared to up to $9.8 million in new money. The debtors argue this ratio is well within the range of roll-ups approved in other cases, citing several recent Delaware bankruptcy cases with roll-up ratios ranging from 2.9:1 to 3.1:1.
The motion cites precedents including In re Wheel Pros, LLC (3:1 roll-up), In re Vyaire Medical, Inc. (3:1 roll-up), and In re Sientra, Inc. (2.9:1 roll-up) as support for the requested relief. The debtors assert the roll-up is an essential condition for the DIP lender to provide the DIP facility.
Sale Process and Agency Agreement
On November 16, 2025—the same day as the bankruptcy filing—Lugano entered into an Agency Agreement with Enhanced Retail Funding, LLC to facilitate an orderly sale process. The DIP facility is intended to fund operations until entry of a final order approving either the Agency Agreement or an alternative transaction.
A 13-week cash flow budget attached to the motion projects starting liquidity of $4.3 million, total DIP borrowing of $3.8 million through the 13-week period, and projected ending liquidity of $1.8 million.
Arms-Length Negotiations and Special Committee Involvement
The motion addresses the relationship between CODI as both majority owner and DIP lender. According to the filing, Lugano has operated independently of CODI since the appointment of a special committee of the board of directors. The motion states that CODI is technically an insider of the debtors as a result of its ownership of a majority of the equity in Lugano Holding.
The special committee of Lugano's board of directors and its professionals were actively involved in the negotiations of the DIP financing, according to the motion. The debtors maintain that negotiations were conducted in good faith and at arms-length with numerous drafts of the DIP documents exchanged between parties. The motion asserts that in connection with the negotiation process, CODI functioned solely in its capacity as lender and did not direct any decisions of the debtors.
The motion also notes that the company recognized it would be particularly difficult to secure financing because of fraud allegations. The document states that several potential lenders confirmed to the Chief Restructuring Officer or members of the GlassRatner team acting at his direction that they did not have an interest in providing financing to the debtors on a non-priority or junior lien basis. The motion further indicates that CODI was unwilling to consent to the priming of its liens by a third-party lender, which would have required expensive and potentially protracted litigation.
Carved-Out "Retained Actions"
The proposed DIP order explicitly carves out what the documents refer to as Retained Actions—claims or causes of action against CODI solely in its capacities as shareholder, officer, director, manager under the Management Agreement, or controlling person of the debtors. These retained actions are excluded from the DIP collateral and cannot be paid from DIP proceeds or the professional fee carve-out, except for up to $25,000 allocated for committee investigation and amounts budgeted for the Special Committee's investigation of fraud allegations associated with the borrowers' prepetition operations.
Professional Fee Carve-Out and Budget Compliance
The proposed interim order includes a professional fee carve-out covering U.S. Trustee and clerk fees, up to $10,000 for a chapter 11 trustee, allowed fees for debtors' and Special Committee professionals within budget limits, allowed committee professional fees within budget limits, and post-trigger caps of $100,000 for debtor professionals and $25,000 for committee professionals.
The debtors must comply with the approved budget subject to Permitted Variances—total receipts of at least 75% of projected receipts and no more than 110% of projected total payments for each four-week variance period, with a $200,000 cash cushion.
Key Milestones
The proposed interim order establishes several critical milestones:
- Entry of interim DIP order within 3 business days of petition date
- Filing motions to retain CRO, financial advisor, and sales agent within 10 days
- Filing motion for sales procedures approval within 10 days
- Entry of final DIP order within 30 days of petition date
The DIP facility matures on May 31, 2026, or earlier upon occurrence of specified events including an event of default, dismissal or conversion of the cases, or consummation of a sale of substantially all assets.
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