Porta-potty provider United Site Services Inc. is on track to exit bankruptcy later this week after a New Jersey bankruptcy judge confirmed its Chapter 11 plan with opt-out third-party releases intact, over the objection of a federal watchdog.

U.S. Bankruptcy Judge Michael B. Kaplan said during a bench ruling on Wednesday that USS' plan — which will eliminate $2.4 billion of existing debt and raise up to $1.08 billion in new capital, including exit loans and asset-based loans — and its releases protecting certain third parties from future litigation are appropriate, especially considering overwhelming creditor support.

Though USS, parent of Johnny On The Spot, entered bankruptcy just under two months ago with a prepackaged plan in hand, it initially faced pushback from creditor CastleKnight Management LP, which held nearly $276 million of its debt. The hedge fund manager argued it was left out of prebankruptcy negotiations and took issue with a 2024 "double dip" liability management exercise that nearly doubled the company's obligations.

Judge Kaplan suggested that the parties attend mediation, overseen by retired bankruptcy judge Robert D. Drain, which laid the foundation for a settlement with CastleKnight and led to a viable second amended bankruptcy plan, according to a revised disclosure statement and Tuesday's proceedings.

"With CastleKnight on board, the plan has massive support," debtor's counsel Dennis F. Dunne said during the hearing.

USS has over 140 locations across the United States and is the country's largest provider of portable sanitation and related services.

The settlement calls for the business to issue an additional $14 million of debt as exit term loans, and for CastleKnight and other existing amended term loan holders to receive it — along with $10.6 million in cash.

"The company was able to enter into Chapter 11 and conduct its business with little to no operational disruption or degradation to the enterprise value," Dunne said. "Everything went as seamlessly as we could have hoped."

Dunne called mediation a "resounding success" and thanked Judge Kaplan and Drain.

Under the plan, an ad hoc group of prepetition lenders and their investment managers — Apollo Capital Management, Canyon Capital Advisors, Clearlake Capital Group, Oaktree Capital Management, Searchlight Capital Partners and Sixth Street Partners — will take control of the reorganized company from its previous equity sponsor Platinum Equity Advisors.

The plan is fully backstopped by the ad hoc group and certain other creditors, pays general unsecured creditors in full, and was unanimously accepted by all classes of voting creditors.

While Judge Kaplan's bench ruling left several "nitty gritty" details of language to be finalized in proposed orders, the debtor was still on track to emerge from Chapter 11 on Friday or shortly thereafter, in keeping with its initial timeline.

"That in and of itself is a huge success," Dunne said. "This is really a red letter day for the company."

The Office of the U.S. Trustee had argued that USS' third-party liability waivers were not actually consensual because they assume creditors have accepted the releases unless they check a box indicating otherwise. Instead, since the U.S. Supreme Court barred nonconsensual releases in 2024, the watchdog has argued that truly consensual bankruptcy plans should require creditors to affirmatively opt into the releases.

In support of the watchdog's stance, trial attorney Samantha S. Lieb cited a December ruling from a New York bankruptcy judge in the Chapter 11 case of Brazilian airline GOL Linhas, which held that "consent cannot be implied from silence."

But Matthew Brod, another lawyer for USS, said the company has received "hundreds" of opt-outs in the case, which showed that creditors clearly read and understood the plan and disclosure statement.

Judge Kaplan said other courts in his district and circuit have repeatedly found that opt-out third-party releases are fair, including in other large cases he has overseen, such as those of BlockFi, Rite Aid and Powin.

He also mentioned a Feb. 12 decision in the Chapter 11 case of The Container Store from U.S. District Judge Lee H. Rosenthal in Texas, who agreed with the bankruptcy court's January finding that opt-outs for third-party releases in bankruptcies are governed by federal bankruptcy law, not by state contract law, as the U.S. trustee and the U.S. Securities and Exchange Commission had argued in that case.

"Applying state law would destroy uniformity," Judge Kaplan said during the hearing, adding that due process does not require an affirmative consent. "The result would be a nonuniform, unmanageable Chapter 11 landscape."

The opt-out mechanism is "straightforward and not burdensome," he said, also overruling the U.S. trustee's objections to USS' exculpations, gatekeeping provisions and a waiver of a provision that normally stays confirmation for two weeks.

The U.S. Trustee's Office declined to comment after the hearing.

The debtor is represented by Michael D. Sirota, Felice R. Yudkin and Daniel J. Harris of Cole Schotz PC and Dennis F. Dunne, Samuel A. Khalil, Matthew Brod, Lauren C. Doyle and Benjamin M. Schak of Milbank LLP.

The ad hoc group is represented by John W. Weiss, Leah M. Eisenberg and David E. Sklar of Pashman Stein Walder Hayden PC and Scott L. Alberino, Joseph L. Sorkin, Zachary D. Lanier and Amelia E. Danovitch of Akin Gump Strauss Hauer & Feld LLP.

CastleKnight is represented by Nicole Castiglione of Rolnick Kramer Sadighi LLP.

The U.S. Trustee's Office is represented by trial attorneys Jeffrey M. Sponder and Samantha S. Lieb.

The case is In re: United Site Services Inc., case number 3:25-bk-23630, in the U.S. Bankruptcy Court for the District of New Jersey.