A Delaware bankruptcy judge on Monday approved School Specialty Inc.'s new $155 million debtor-in-possession financing deal, a replacement package designed to give the insolvent educational supply company greater flexibility by taking out its private-equity secured creditor.

The new facility, which pays off Bayside Finance Inc. in full, gives control of the Chapter 11 case to School Specialty's unsecured creditors, a bloc that opposed the PE firm's plans to hold a late-March bankruptcy auction with itself as the stalking horse bidder.

Furnished by an ad hoc collection of noteholders, the replacement DIP resolves the contest for control and will keep the company funded through the end of May as it pursues a dual path toward either sale or reorganization, debtors' counsel Elizabeth R. McColm of Paul Weiss Rifkind Wharton & Garrison LLP told the court.

The new facility promises a lower interest rate, more flexible milestones and “peace in the valley,” McColm said.

As previously reported on ABL Advisor, School Specialty sought court protection Jan. 28 after violating a liquidity covenant in its loan agreement with Bayside, and the firm offered a $50 million DIP package that mandated a Section 363 sale process ending no later than April 11.