Distressed Debt Toolkit: Exchange Offer Documents, Consent Solicitations, and Covenant Analyses

Document type: Toolkit Practice area: Finance — Restructuring and Distressed Debt Jurisdiction: United States Last reviewed: 5 September 2026

Tool 1 — Covenant analysis template

Complete this before any structure is proposed, and before any purchase.

Annotations.

• Transcribe the text verbatim in the third column. Summaries lose the words that decide cases.
• The capacity column is a computation, not a number from a summary. See Tool 2.
• The four rows in bold are where most transactions are enabled or blocked.

Tool 2 — Capacity computation schedule

CAPACITY COMPUTATION — [Borrower] — as of [date]

A. Consolidated EBITDA for the Test Period

Line	Amount	Definition reference	Notes
Consolidated Net Income		§ 1.01 "Consolidated Net Income"
Plus: interest expense		clause (a)
Plus: taxes		clause (b)
Plus: depreciation and amortization		clause (c)
Plus: non-cash charges		clause (d)	Cap? Excluded items?
Plus: cost savings and synergies		clause (h)	Cap []%; time limit [] months
Plus: other add-backs			Itemize each
Consolidated EBITDA

B. Reconciliation to delivered compliance certificates

Period	EBITDA per certificate	EBITDA per this computation	Difference	Explanation

C. Builder basket accretion

Period	50% of CNI	Cumulative	Prior usage	Available

D. Prior usage by basket

Basket	Original capacity	Used to date	Source of usage data	Remaining

E. Reclassification

Item	Originally classified	Reclassified to	Permitted by §	Conditions met

F. Aggregate available capacity: $[__]

G. Conditions

• No Default or Event of Default exists
• Pro forma compliance with § [__] confirmed
• Officer's certificate delivered under § [__]
• Ratio tested as of [date] on the basis required by § [__]

Prepared by: ______ Reviewed by (independent): ______

Annotations.

• Section B is the most important page. If the transaction's EBITDA differs from the certified EBITDA, one is wrong, and that discrepancy is the excluded lenders' best claim.
• Section G is where clean-looking transactions fail. Conditions get treated as boilerplate.
• The independent reviewer line is not decorative. The person who designed the structure should not validate it.

Tool 3 — Unrestricted subsidiary designation certificate

OFFICER'S CERTIFICATE — DESIGNATION OF UNRESTRICTED SUBSIDIARY

The undersigned, [title] of [Borrower], certifies pursuant to Section [__] of the Credit Agreement:

1. [Subsidiary] is hereby designated an Unrestricted Subsidiary effective [date]. 2. Immediately after giving effect to the designation and to the Investment deemed made thereby, no Default or Event of Default exists. 3. The fair market value of the Investment deemed made is $[__], determined as set forth on Schedule A [attaching the independent valuation]. 4. Such Investment is permitted under Section [] ($[] of capacity) and Section [] ($[] of capacity), and after giving effect thereto the remaining capacity under each is as set forth on Schedule B (the capacity computation). 5. [Subsidiary] has no Indebtedness for which any Restricted Subsidiary is liable, and no Restricted Subsidiary has any obligation to maintain its financial condition. 6. The Borrower is in pro forma compliance with Section [__] as set forth on Schedule C.

Annotations.

• Attach the schedules. A certificate reciting capacity without the computation is the first document an excluded lender will attack.
• Paragraph 3's independent valuation is what makes the fraudulent-transfer analysis defensible.
• Paragraph 5 matters — most agreements condition designation on the subsidiary being genuinely separate, and a designation that leaves obligations behind may be ineffective.

Tool 4 — Exit consent and supplemental indenture language

In the exchange offer:

By tendering Existing Notes, each Holder is deemed to have consented to the Proposed Amendments described herein, and tenders may not be made without delivering such consent.

The Proposed Amendments would, among other things: eliminate substantially all restrictive covenants, including the covenants limiting [indebtedness, liens, restricted payments, asset sales, transactions with affiliates, and mergers]; eliminate certain events of default; release the Subsidiary Guarantees; and modify certain definitions.

Holders who do not tender will remain bound by the Indenture as amended. Following the Proposed Amendments, the Existing Notes will have substantially no restrictive covenants and no Subsidiary Guarantees, will be effectively subordinated to the New Notes to the extent of the value of the collateral securing the New Notes, and will be structurally subordinated to obligations of non-guarantor subsidiaries. The market for and value of the Existing Notes are likely to be materially and adversely affected.

The Proposed Amendments will not reduce the principal amount of, or the rate of interest on, any Existing Note, change the stated maturity or any interest payment date, or impair the right of any Holder to institute suit for the enforcement of any payment on or after the due date. Such rights may not be amended without the consent of each affected Holder and are protected by Section 316(b) of the Trust Indenture Act.

Annotations.

• The bolded consequences paragraph is required and is the recurring disclosure failure. Understating what happens to non-participants converts a contract dispute into a securities claim.
• The final paragraph is both a legal limit and a defense. Marblegate confined § 316(b) to the legal right to payment, but the safe course is to leave payment terms untouched and to say so.
• Confirm the consent threshold per amendment. Guarantee release and lien release frequently require a higher percentage than covenant elimination.

Tool 5 — Cooperation agreement

COOPERATION AGREEMENT

1. Purpose. The parties (each a "Member") each hold Term Loans under the Credit Agreement dated [__]. The Members wish to coordinate their response to any proposed transaction affecting their holdings.

2. Core Covenant. No Member shall, without the prior written consent of Members holding at least [66⅔]% of the aggregate Covered Holdings: (a) consent to, vote in favor of, or participate in any amendment, waiver, exchange, refinancing, or other transaction affecting the Term Loans; (b) enter into any agreement with the Borrower or any Affiliate relating to the Term Loans; or (c) negotiate individually with the Borrower or any Affiliate regarding any such transaction.

3. Transfers. No Member shall transfer any Covered Holdings except (a) to a person who executes a joinder, or (b) with the consent of Members holding [66⅔]%. Each Member shall promptly notify the Members of any transfer.

4. Information. Members shall share information received regarding the Borrower, subject to Section 8. No Member shall receive material non-public information without the agreement of Members holding [66⅔]%.

5. Advisers. The Members appoint [counsel] and [financial adviser], whose fees shall be borne [pro rata by Covered Holdings / by the Borrower as a condition of any engagement].

6. Term. [Six] months from the date hereof, extendable by Members holding [66⅔]%. A Member may withdraw on [15] days' notice, provided that the withdrawing Member shall be subject to Section 2 for [30] days following withdrawal.

7. Remedies. The Members acknowledge that damages are inadequate and that specific performance is an appropriate remedy.

8. Securities Law. The Members do not intend to form a "group" for purposes of Section 13(d) of the Securities Exchange Act and shall not act together with respect to any equity securities of the Borrower or its Affiliates. Each Member is responsible for its own compliance with applicable securities laws and its own trading restrictions.

9. No Fiduciary Duties. No Member owes any Member any fiduciary duty. Each Member acts in its own interest.

Annotations.

• Section 2 is the whole agreement. Everything else supports it.
• Section 3's transfer restriction is essential. Without it, a member sells to a defector and the blocking position evaporates.
• Section 4's information provision protects members' liquidity. A group that goes private without agreement has trapped its members.
• Section 6's post-withdrawal standstill prevents a member from leaving on Monday and transacting on Tuesday.
• Section 8 is deliberate. These agreements concern debt, not equity, and the members should be explicit about not coordinating on equity.

Tool 6 — Blocking position notification letter

[Date]

[Borrower]; [Administrative Agent]

Re: Term Loans under the Credit Agreement dated [__]

We represent an ad hoc group of Lenders (the "Group") holding, in the aggregate, [__]% of the outstanding Term Loans. The members of the Group have entered into a cooperation agreement under which no member may consent to or participate in any amendment, exchange, or other transaction affecting the Term Loans except with the agreement of the Group.

Accordingly, the Required Lender threshold under Section [__] of the Credit Agreement cannot be satisfied without the participation of the Group.

The Group is prepared to engage constructively regarding the Borrower's capital structure, including with respect to new money and a maturity extension, on terms available to all Lenders on a pro rata basis. We would welcome a discussion.

The Group reserves all rights, including with respect to any transaction undertaken without its participation, and requests that the Agent provide notice of any proposed amendment.

Annotations.

• The arithmetic sentence is the point. A company that cannot reach the threshold will not spend money structuring a transaction.
• The constructive paragraph matters as much. A group that only refuses eventually faces a filing. A group that offers new money on pro rata terms controls the outcome.
• Copy the agent. It creates a record and typically causes the agent to seek additional comfort before executing anything.

Tool 7 — Excluded lender demand letter

Re: Transaction dated [__] — demand for information and reservation of rights

We represent Lenders holding [__]% of the Term Loans who were not offered participation in the Transaction.

1. Demand for information. Pursuant to Section [__], we demand: (a) the officer's certificate delivered in connection with the designation of [Unrestricted Subsidiary] and all schedules thereto; (b) the capacity computation supporting the Investment; (c) any valuation of the transferred assets; (d) any solvency opinion; (e) the executed amendment and all signature pages; and (f) the compliance certificates for the four preceding quarters.

2. Preliminary observations. Based on publicly available information, our clients note that: (a) the aggregate investment capacity available under Sections [] appears to be less than the stated value of the transferred assets; (b) the Consolidated EBITDA used appears **inconsistent with the compliance certificate delivered for the quarter ended []**; and (c) the Transaction relied on the "open market purchase" exception in Section [__], which by its terms applies to purchases made in the open market and not to a privately negotiated exchange with a pre-selected group of Lenders.

3. Reservation. Our clients reserve all rights and remedies, including claims for breach of the Credit Agreement, breach of the implied covenant of good faith and fair dealing, and avoidance of the transfers as fraudulent conveyances, and to seek all available relief.

4. Preservation. The Borrower and its affiliates are directed to preserve all documents and communications relating to the Transaction, including the computation, board materials, communications with participating Lenders, and communications with advisers.

Annotations.

• Paragraph 2's three observations are the standard framework: capacity, certificate inconsistency, and the exception's literal terms. State them specifically; generalized objection accomplishes nothing.
• Paragraph 4 matters. Preservation obligations attach on notice, and a company that deletes after receiving this letter has a second problem.

Tool 8 — Protective drafting: closing each opening

Sacred rights addition. "...and (viii) subordinate the Liens securing the Obligations to any other Lien, or subordinate the Obligations in right of payment to any other Indebtedness, or permit the incurrence of any Indebtedness secured by a Lien senior to or pari passu with the Liens securing the Obligations, in each case without the written consent of each Lender directly and adversely affected thereby."

Open market purchase, defined. "'Open Market Purchase' means a purchase of Term Loans effected through a broker-dealer or trading platform in a transaction available to all Lenders on the same terms, and shall not include any privately negotiated purchase or exchange with one or more Lenders selected by the Borrower or any Affiliate."

Material asset transfer blocker. "Notwithstanding anything to the contrary, no Loan Party shall Dispose of, transfer, exclusively license, or contribute any Material Intellectual Property or any asset listed on Schedule [__] to any Unrestricted Subsidiary or any Person that is not a Loan Party, and no Subsidiary owning any Material Intellectual Property may be designated an Unrestricted Subsidiary."

Designation limited to a single basket. "Investments in Unrestricted Subsidiaries may be made solely under Section [__] and may not be made under any other provision, and no capacity may be reallocated or reclassified to or from such Section."

Anti-double-dip. "No Loan Party shall (a) incur Indebtedness owing to any Subsidiary that is not a Loan Party, or (b) permit any Lien on any intercompany Indebtedness owing to any Loan Party, in each case where the effect would be to provide any Person with claims against Loan Parties in an aggregate amount exceeding the principal amount advanced by such Person."

Pro rata offer requirement. "Any Indebtedness incurred with a Lien senior to or pari passu with the Liens securing the Obligations, and any exchange of Term Loans, shall be offered to all Lenders on a pro rata basis on identical terms and on not less than [10] Business Days' notice."

Certificates with computations. "Each Compliance Certificate shall attach a computation, in reasonable detail, of the remaining capacity under each basket set forth in Sections [__], showing prior usage and any reclassification."

Annotation. The last provision is underused and does more work than its length suggests. A borrower that must publish its remaining basket capacity every quarter cannot assemble a surprise, and lenders can see capacity accumulating in time to act.

Tool 9 — Settlement term sheet

1. New money. $[] of super-priority term loans, offered pro rata to all Lenders, backstopped by the Ad Hoc Group for a backstop fee of []%. 2. Exchange. Existing Term Loans exchanged at [] into second-out term loans, offered to all Lenders on identical terms. 3. Maturity. Extended to [date]. 4. Pricing. [SOFR + ]% on the new money; [SOFR + ]% on the second-out. 5. Covenant amendments. Sacred rights expanded per Tool 8; open market purchase defined; material asset transfer blocker added; investment capacity reduced to $[] and made non-reallocable; designation subject to Required Lender consent; anti-double-dip added; compliance certificates to attach capacity computations. 6. Standstill. For [24] months, the Borrower shall not effect any transaction of the type described in Section [] unless offered to all Lenders pro rata. 7. Reversal. [Transferred assets] contributed back into the credit group and pledged, or a first-priority Lien granted to the Lenders. 8. Most favored nation. If within [12] months any Lender receives terms more favorable, all Lenders receive them. 9. Information. Monthly reporting during the covenant relief period; adviser access. 10. Releases. Mutual releases limited to the Transaction, excluding fraud and willful misconduct, effective at closing. 11. Fees. Group advisers' fees paid by the Borrower. 12. Conditions. Participation of []%; execution of amended documents; perfection; delivery of opinions.

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