Executing or Resisting a Liability Management Transaction: A Practical Guide

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

Part one: the company's execution

Stage 1 — The covenant map

Before any structure is proposed, produce a covenant map: a document setting out, provision by provision, what the credit agreement and indentures actually permit.

What it must compute:

• Every investment basket, with its current availability, its growth mechanics, and whether usage can be reclassified
• Every restricted payment basket, and whether capacity can be reallocated to investments
• The builder or "available amount" basket, computed from the closing date with each component traced to a definition
• Ratio-based baskets, and whether the ratio is currently met
• Debt and lien baskets, including incremental facilities and the ratio debt capacity
• The unrestricted subsidiary designation mechanics, and what conditions apply
• The sacred rights list, verbatim, and what it omits
• Pro rata sharing provisions and every exception, including open market purchase and Dutch auction mechanics
• Guarantee release mechanics, including whether "all or substantially all" permits releasing most guarantees
• Any blocker provisions — IP transfer restrictions, anti-layering, designated asset lists

Do this before deciding on a structure, not after. Structures are chosen from available capacity, not the reverse.

Stage 2 — The capacity computation

This is where transactions are won and lost in later litigation.

Compute every basket from first principles, tracing each component to its definition. The recurring errors:

• Using reported adjusted EBITDA where the definition requires something narrower;
• Overstating builder basket accretion by including items the definition of consolidated net income excludes;
• Double-counting reclassified capacity;
• Failing to deduct prior usage correctly;
• Testing a ratio at the wrong date or on the wrong pro forma basis;
• Ignoring a condition — no default, pro forma compliance, a certificate requirement.

Document the computation in a schedule that a third party could follow, and have it reviewed by someone who did not prepare it.

Stage 3 — Diligence and opinions

• An officer's certificate confirming capacity, attaching the computation, and confirming no default.
• A solvency opinion where assets are being transferred, addressing solvency before and after, adequacy of capital, and ability to pay debts as they mature.
• A valuation of any transferred assets, from a qualified independent firm.
• A legal opinion on the effectiveness of the designation, the transfer, and the amendments.
• A board record showing that the directors considered the transaction, the alternatives, the effect on creditors, and the advice received.

The board record matters more than people expect. Where a company is in the zone of insolvency, directors' decisions become the subject of creditor scrutiny, and a decision documented as a considered response to a genuine financing need is very different from one that appears in the minutes as a fait accompli.

Stage 4 — Assembling the group

For an uptier or a non-pro-rata exchange, the company needs holders above the amendment threshold.

The mechanics: identify holders through the agent's register and market intelligence; approach under confidentiality agreements with defined cleansing provisions; negotiate the economics with an ad hoc group and its advisers; and obtain signature commitments before the transaction is announced.

The problems:

• Information. Holders who receive material non-public information cannot trade until cleansed. Negotiate the cleansing mechanics up front — a defined date, or the announcement of the transaction — because holders will not engage otherwise.
• Leakage. Approaching holders creates rumors. Assume the market will know.
• Cooperation agreements. If a group has already signed one covering more than the residual, the transaction is blocked. Check before spending money on structuring.
• Defection. A holder who signs and then sells creates a hole. Require transfer restrictions in the commitment.

Stage 5 — Execution

Sequence matters and is unforgiving:

1. Amendments executed by the required percentage, effective on satisfaction of conditions
2. Designation of any unrestricted subsidiary, with the certificate delivered
3. Asset transfers, with the transfer documents recorded where necessary — IP assignments must be recorded
4. New debt incurred and secured, with liens perfected
5. Exchange effected
6. Notices delivered to the agent and, where required, to all lenders
7. Public disclosure, where the company is a reporting issuer

The perfection step is the one most often botched. New collateral requires filings, recordations, control agreements, and mortgages, and a transaction that moves IP without recording the assignment has created an exposure that a later trustee will find.

Part two: the excluded lender's response

Early warning signals

Lenders who learn of a transaction from a press release have already lost. Watch for:

• The borrower or the sponsor engaging a liability management adviser — the advisers are known and the engagement is usually visible;
• Requests for amendments that appear technical but expand capacity;
• The formation of new subsidiaries, particularly holding entities with no operations;
• Transfers of assets disclosed in periodic reporting or discovered in compliance certificates;
• Unusual trading in the debt, particularly accumulation by funds known for these situations;
• Approaches to other holders, which leak;
• Deteriorating financial performance combined with a maturity inside two years;
• A refusal to provide information that was previously provided routinely.

Organizing

Do this before a proposal arrives. The leverage belongs to whoever moves first.

Steps:

1. Identify holders. The agent has the register for loans; bondholder identification is harder and usually requires a solicitation agent or an intermediary.
2. Retain advisers as a group — counsel and a financial adviser — with fees shared or, in some structures, paid by the company as a condition of engagement.
3. Execute a cooperation agreement among the group.
4. Reach the blocking threshold. For an uptier, holding more than the residual after the amendment threshold — that is, more than 49.9% for a majority-amendment agreement — blocks it entirely.
5. Notify the company that the group exists and holds a blocking position. This alone frequently ends the matter, because the company will not spend on structuring a transaction it cannot execute.

What a cooperation agreement should contain

• The core covenant: no member will participate in, consent to, or support any transaction affecting the debt except with the agreement of holders of [66⅔]% of the group's holdings.
• Transfer restrictions: no transfer except to a person who joins the agreement, with limited exceptions.
• Information sharing among members, subject to confidentiality.
• A term — commonly three to six months, with extension by group vote.
• Adviser appointment and fee sharing.
• Remedies for breach, including specific performance and, in some agreements, liquidated damages.
• An exit mechanism for a member who wishes to leave, with notice and a standstill.
• Provisions addressing securities law group status, trading restrictions, and information barriers.

The hard issues to negotiate: what threshold binds the group; whether a member can be forced into a transaction the majority accepts; how to handle members with different bases; and what happens if the company offers a deal that some members find acceptable.

The information and trading problem

A lender who joins a group and receives non-public information about the company's plans is restricted from trading. For funds that mark to market and manage liquidity, this is a real cost.

The mechanisms:

• Big boy letters and public-side arrangements, where the group operates on public information only;
• Cleansing provisions requiring the company to publicly disclose the substance by a defined date;
• Information barriers within a fund between the restricted deal team and the trading desk;
• Deliberate non-receipt: some funds decline private information and participate only on public terms, accepting less influence in exchange for liquidity.

Advise clients on the trade-off explicitly. A fund that goes private gains a seat at the table and loses the ability to sell.

Building the claim

Even where a transaction has closed, the analysis is the same and the leverage is real.

The order of investigation:

1. Recompute capacity. Obtain the company's certificate and computation, and test every input against the definitions. This is where claims are found.
2. Test the conditions. Was a default outstanding? Was pro forma compliance actually satisfied? Was a required certificate delivered?
3. Read the exception relied upon. "Open market purchase," "Dutch auction," "all or substantially all" — the transaction may fall outside the exception it invoked.
4. Check perfection. Were new liens perfected? Were IP assignments recorded? An unperfected transfer is vulnerable.
5. Assess solvency and value. Was reasonably equivalent value given? Was the company solvent? These are the fraudulent transfer elements.
6. Review the board record, obtainable through discovery or, for a corporate borrower, potentially through other means.

Then consider the forum. A contract claim in the governing-law court; a fraudulent transfer claim; or, where the company files, objections and avoidance actions in the bankruptcy case. Excluded lenders frequently pursue litigation and negotiation simultaneously, and the litigation is leverage for the negotiation.

Part three: the negotiation that usually resolves it

Most of these situations end in a negotiated transaction, and the terms follow a pattern.

What excluded lenders ask for:

• Participation on the same terms, backdated, with the same exchange ratio;
• A fee compensating for the delay and the risk taken;
• Covenant tightening going forward — IP transfer blockers, lien subordination added to sacred rights, defined open-market-purchase language, reduced basket capacity;
• Information rights, including periodic reporting and compliance certificates with computations attached;
• Reversal of the asset transfer, or a lien on the transferred assets;
• Releases, in exchange.

What the company asks for:

• A maturity extension, which is usually what it needed all along;
• Releases of claims relating to the transaction;
• Covenant relief for a period;
• Support for a subsequent transaction or a plan.

Where the deal lands depends on three variables: the strength of the capacity claim; whether the excluded group holds enough to block the company's next transaction; and how soon the company needs something from its lenders. A company with a maturity in six months and an organized excluded group settles on the group's terms. A company with three years of runway and a clean computation does not.

Running an exchange offer

Where the transaction is an exchange rather than an amendment, the mechanics are securities mechanics, and they have their own timetable and pitfalls.

Registered versus exempt. An exchange of new securities for old can be conducted as a registered exchange offer, requiring a registration statement and review, or under an exemption — most commonly a private exchange with qualified institutional buyers and accredited investors, or an exchange with existing holders that fits within the exemption for exchanges by an issuer with its own security holders where no commission is paid for soliciting. The choice drives the timetable. A registered exchange takes months; a private exchange can be executed in weeks but reaches a narrower holder population and creates a restricted instrument.

The tender offer rules apply to debt. An exchange offer for outstanding notes is a tender offer, and the timing, dissemination, withdrawal, and all-holders considerations apply — though the framework for debt differs from equity in important respects, and abbreviated timelines are available for certain non-convertible debt offers meeting specified conditions. Confirm the applicable timetable before announcing a closing date.

Consent solicitation mechanics. Where the offer is paired with exit consents:

• The consent must be coupled to the tender, so that a holder who exchanges necessarily consents;
• The indenture's required percentage for each proposed amendment must be identified — some amendments require a majority, others two-thirds, others unanimity;
• Sacred terms cannot be amended by majority: principal, interest, maturity, and the right to sue for payment, protected both by the indenture and by Trust Indenture Act § 316(b);
• A consent fee, if paid, must be structured consistently with the all-holders considerations;
• The supplemental indenture is executed once the threshold is reached, typically effective on settlement.

The disclosure obligation. The offering document must describe the transaction, the consequences to non-participating holders, the resulting capital structure, and the risks — including, candidly, that the remaining instrument will have no covenants and will be structurally or contractually subordinated. Understating the consequences to non-participants is the recurring disclosure failure, and it converts a contract dispute into a securities claim.

Minimum conditions. Set them realistically. A condition requiring 95% participation in a fragmented holder base will fail; one requiring 66⅔% to achieve the consents needed is achievable. Provide expressly for waiver, and understand the timing consequences of a waiver near expiration.

Practical execution points. Engage an information agent and an exchange agent early. Confirm the depository mechanics for the exchange, which take longer than anyone expects. Coordinate with the trustee, whose cooperation is required for the supplemental indenture and who will have its own counsel and its own indemnity requirements. And build the timetable backwards from the settlement date with slack, because these transactions slip.

A worked sequence: the Halbrook situation

Month 0. Halbrook Industrial's term loans trade down to 74 after a covenant-lite quarter. A distressed adviser is engaged, which the market learns within a week.

Month 0, the lender response. A group of four funds holding 31% retains counsel immediately. Counsel's first task is not litigation; it is the covenant map. The map shows: an aggregate investment capacity of roughly $260 million against $850 million of loans; no IP transfer blocker; lien subordination absent from sacred rights; and an undefined open market purchase exception.

Month 1. The group expands to 44% and executes a cooperation agreement. It notifies Halbrook and the agent. Critically, the group takes the position that it will consider a transaction — it is not simply refusing — which keeps it at the table rather than being routed around.

Month 2. Halbrook approaches holders individually. Several are in the group and decline. The company can reach only 51% including holders whose participation is conditional. It cannot execute reliably.

Month 3. Halbrook engages the group. The group's financial adviser and the company's exchange information under a confidentiality agreement with a defined cleansing date sixty days out.

Month 4, the negotiation. Halbrook needs $200 million of new money and a two-year extension. The group offers both, on these terms: new money at super-priority, offered pro rata to all lenders with the group backstopping any shortfall; existing loans exchanged at 92 into second-out paper, offered to all; the maturity extended twenty-four months; and a covenant package with an IP transfer blocker, lien subordination added to sacred rights, a defined open market purchase provision, reduced investment capacity, and quarterly compliance certificates with computations attached.

Halbrook asks for releases; the group grants them, since no transaction has occurred to release.

Month 5. The transaction closes with 88% participation.

What made this work. The group organized before a proposal existed, reached a blocking position, and — this is the part practitioners under-appreciate — offered a solution rather than only an objection. A blocking group that has nothing to propose eventually faces a company willing to file. A blocking group that arrives with new money and a term sheet controls the outcome.

Working the capacity computation: a method

Because the computation decides both whether a transaction is defensible and whether an excluded lender has a claim, it deserves a method rather than a spreadsheet.

Step one: build the definitional chain. For each basket, write out the chain of definitions it depends on. A builder basket typically depends on "Available Amount," which depends on "Consolidated Net Income," which depends on "Consolidated EBITDA," which depends on a list of adjustments. Trace it to the bottom. Most disputes live three or four definitions deep.

Step two: identify every adjustment and test it. Add-backs for "run-rate cost savings," "synergies," "one-time items," and "extraordinary charges" are where the aggressive positions are. Ask, for each: is it permitted by the definition; is it subject to a cap; is it subject to a time limit; and has it been certified previously in a compliance certificate that is now inconsistent?

Step three: reconcile against the delivered compliance certificates. The company has been certifying EBITDA and leverage quarterly. If the capacity computation uses a different EBITDA than the certificates, one of them is wrong, and the discrepancy is the most productive line of inquiry available to an excluded lender.

Step four: trace prior usage. Baskets are consumed. Every prior investment, restricted payment, and designation reduced capacity. Reconstruct the usage history from compliance certificates, financial statement footnotes, and disclosed transactions.

Step five: test reclassification. Many agreements permit a borrower to reclassify a prior use from one basket to another, freeing capacity. Confirm the agreement actually permits it, that the conditions are met, and that the reclassified item genuinely fits the new basket.

Step six: check the conditions. No default. Pro forma compliance. A certificate delivered. A ratio tested on the correct date and basis. Conditions are where clean-looking transactions fail, because the structuring focuses on capacity and treats the conditions as boilerplate.

Step seven: have someone else check it. The person who built the structure should not be the person who validates it. For a company, this is a quality control step; for a lender, it is the whole engagement.

A note on what this costs. A thorough capacity analysis on a complex agreement is a real engagement — weeks of work by lawyers who do this specifically. It is nonetheless the cheapest thing either side will spend money on, because it determines whether the transaction stands and whether the claim exists.

Practice notes

For companies. Compute capacity conservatively and document it. Obtain the certificates, valuations, and opinions. Check for an existing cooperation agreement before structuring. Consider offering participation broadly — the litigation risk, the market reputation, and the need for cooperation on the next maturity usually make inclusion cheaper than it looks. Perfect everything. And put the decision to the board with the alternatives and the creditor effects on the record.

For lenders. Read the document at underwriting, not at distress. Watch the early warning signals. Organize before a proposal arrives, because the first mover holds the leverage. Reach a blocking threshold and say so. Understand the trading cost of going private and decide deliberately. Recompute capacity yourself. And bring a proposal, not just an objection.

For everyone. These transactions are contract disputes decided on specific language, and the law is unsettled enough that both sides face real risk. That uncertainty is why nearly all of them settle — and why the party with the better document reading, and the better organization, gets the better settlement.

The agent's position

The administrative agent occupies an uncomfortable middle, and both sides should understand what the agent will and will not do.

What the agent does. Maintains the register; receives and distributes payments; delivers notices; and acts on the instructions of the Required Lenders. It does not exercise judgment about whether a transaction is fair.

What the agent's documents say. Credit agreements contain extensive agent protective provisions: no fiduciary duty to lenders; entitlement to rely on notices and certificates without investigation; no obligation to ascertain compliance with covenants; indemnification by the lenders; and the right to resign. The agent will act on a properly executed majority amendment and will not second-guess it.

Where the agent becomes a problem for a company. Agents increasingly resist executing amendments in contested situations without either unanimous direction, a court order, or an indemnity satisfactory to them. An agent facing litigation from excluded lenders may simply resign, which creates a real practical obstacle — the credit agreement requires an agent, successor appointment takes time, and no institution wants the role in a contested credit.

Where the agent becomes a problem for lenders. An agent that executes an amendment excluded lenders believe invalid has, in their view, facilitated the transaction. Claims against agents in these situations generally fail because of the protective provisions, but they are brought, and the prospect makes agents cautious.

Practical advice.

For companies: engage the agent early, provide the certificates and opinions it will want, and offer an indemnity if necessary. An agent that refuses to act can stop a transaction that is otherwise executable.

For excluded lenders: notify the agent of your position and your view of the amendment's validity, in writing, before it executes. This does not bind the agent but it creates a record and frequently causes the agent to seek further comfort, which buys time.

For agents: the protective provisions are broad but not unlimited, and the safest course in a contested amendment is to require either the full Required Lender direction with certification, an indemnity, or a court's blessing. Resignation is available and is sometimes the right answer.

Directors' duties in the zone

A liability management transaction is usually undertaken by a company in financial distress, which changes the fiduciary landscape and creates real exposure for directors who do not attend to it.

The basic framework. Directors of a solvent Delaware corporation owe duties to the corporation and its stockholders; creditors' rights are contractual. Insolvency does not transfer those duties to creditors, but it does give creditors standing to pursue derivative claims on the corporation's behalf, because they become the residual claimants. Directors continue to owe duties to the corporation, and the corporation's interest in the zone of insolvency is generally understood as maximizing enterprise value.

What this means practically. A board that approves a transaction benefiting the sponsor or a favored creditor group at the expense of enterprise value is exposed. A board that approves a transaction as a considered response to a genuine financing need, after evaluating alternatives, is not — even if creditors are worse off.

The recurring conflict: the sponsor. In sponsor-owned companies, the directors are largely the sponsor's designees, and the transaction frequently preserves option value for equity that would be wiped out in a bankruptcy. That conflict is real and should be managed. Where the transaction involves the sponsor providing new money, taking a fee, or receiving equity, the conflict is acute.

The management steps that work:

• A committee of directors without sponsor affiliation, where any exist, or the addition of independent directors specifically for the restructuring — increasingly common and increasingly expected;
• Independent advisers to that committee;
• A documented evaluation of alternatives: a bankruptcy filing, an asset sale, a broader financing process, a rights offering to all creditors;
• A market check on the new money, or a documented explanation of why one was impracticable;
• A record of the effect on each creditor constituency, and the reasons for the chosen allocation;
• Solvency and valuation analysis, obtained rather than assumed.

A candid note. These steps cost money and slow a transaction that is usually urgent, and companies frequently skip them. The consequence is that when the company files eighteen months later — as a meaningful proportion do — the estate's fiduciary or a creditors' committee investigates the transaction, and the absence of any process is the first thing found. The process is insurance, and it is cheap relative to the claim.

Timetables

Uptier or drop-down, company side.

Exchange offer.

Excluded lender, defensive.

The single most important timing point: the defensive timetable's week zero must precede the company's week ten. A group that organizes after the amendment is executed is negotiating from a much weaker position, and the difference is usually a matter of a few weeks of attention.

Special considerations by creditor type

Different holders face different constraints, and a group is only as coordinated as its most constrained member.

Collateralized loan obligation vehicles. CLOs hold a large share of broadly syndicated loans and operate under indentures with strict eligibility criteria: limits on holding non-performing or restructured obligations, on holding equity, on holding debt below certain ratings, and on exceeding concentration limits. A CLO may be unable to accept an exchange into an instrument that fails its eligibility tests, regardless of whether the economics are attractive. This is a genuine structural constraint, not a negotiating position, and companies structuring exchanges must account for it or lose a substantial part of the holder base. Where possible, offer a CLO-eligible alternative.

Open-ended credit funds. Face liquidity constraints and mark-to-market pressure. Going private restricts trading, which conflicts with redemption management. These holders often prefer public-side participation with less influence.

Distressed and event-driven funds. Bought at a discount, want a restructuring, and are the most willing to go private and to litigate. They are usually the organizing force in a lender group and the most sophisticated readers of the documents.

Original underwriters and relationship banks. Hold at par, may have other business with the borrower or the sponsor, and are frequently reluctant to litigate. Their participation in a group is valuable for the percentage and unreliable for the resolve.

Insurance companies and pension investors. Long-dated holders with rating and capital considerations. Sensitive to instrument characteristics and to the accounting treatment of an exchange.

Trade creditors and other unsecured claims. Not party to the credit agreement, but affected by the outcome and relevant in any subsequent bankruptcy. Their treatment in a transaction — usually untouched — affects the company's operations and its ability to avoid a filing.

The practical implication for a group. Before setting a threshold or a strategy, understand what each member can actually do. A cooperation agreement whose members include CLOs that cannot accept the contemplated instrument is agreeing to something it cannot deliver, and the company will discover this. Build the group's proposal around what its members can hold.

Documenting the settlement

When these situations resolve — as most do — the settlement documentation is substantial and has its own traps.

The components:

• An amendment and restatement of the credit agreement, incorporating the new tranches, the revised covenant package, and the extended maturity;
• New intercreditor arrangements governing the relationship among super-priority, first-out, second-out, and any remaining tranches, addressing payment waterfall, enforcement rights, standstills, purchase options, and treatment in a bankruptcy;
• Security documents for any new or amended liens, with perfection steps;
• A settlement and release agreement, releasing claims relating to the transaction;
• Unwind documents, where assets are being returned to the credit group;
• A backstop or commitment agreement for any new money, with fees, conditions, and a market-flex or ticking mechanism;
• Amendments to any indentures, with the required consents.

The provisions worth negotiating hardest in the settlement:

Covenant tightening. This is the excluded lenders' durable win. IP and material-asset transfer blockers; lien subordination on the sacred rights list; a defined "open market purchase"; reduced and non-reallocable investment capacity; unrestricted subsidiary designation subject to consent above a threshold; anti-double-dip provisions; and quarterly compliance certificates with computations attached rather than bare ratios.

The release's scope. Companies want broad releases covering the sponsor, the directors, and the participating lenders. Excluded lenders should scope releases to the specific transaction and should carve out fraud, and should resist releasing claims against parties who are not contributing to the settlement.

Most-favored-nation protection. A provision entitling settling lenders to the benefit of better terms offered to any other creditor group within a period.

Information rights. Monthly reporting during a covenant relief period; access to the company's advisers; and a right to receive any capacity computation the company relies on for a future transaction.

The provision most often overlooked: a commitment not to pursue a further liability management transaction during a standstill period without offering participation to all lenders pro rata. Companies resist it; it is worth insisting on, because a settlement that leaves the door open invites a second transaction in eighteen months.

What to tell a client in the first conversation

A company considering a transaction. The document may permit more than you think and less than your adviser says. The computation is the whole thing, and it must be right, because it will be tested. Excluded lenders will organize, and if they reach a blocking position before you have signatures, the transaction is over. Consider offering participation broadly; the price of exclusivity is litigation, reputation in a market where you will borrow again, and the loss of cooperation you will need at the next maturity. Put it to the board properly, with the alternatives and the creditor effects on the record — particularly if the sponsor benefits.

A lender who has just seen a signal. Move now. The single most valuable thing you can do in the next two weeks is build the covenant map and find out how exposed you are, then call the three or four other holders you know. Organization beats litigation, and it beats it early. Understand what going private costs you in liquidity and decide deliberately. And when you engage, bring a proposal — a blocking group with no solution eventually faces a company that files.

A lender who has already been excluded. Recompute the capacity yourself; do not accept the company's certificate. Test the conditions, not just the baskets. Read the exception the transaction relied on, word by word. Check perfection. Assess solvency and value. Then negotiate and litigate simultaneously, because the litigation is what makes the negotiation work.

An agent. Your protective provisions are broad. Require the direction, the certification, and — in a contested situation — an indemnity or a court order. Resignation is available. Do not exercise judgment about fairness; that is not your role and asserting it creates exposure you do not have.

Everyone. These are contract cases decided on specific words in documents that were negotiated years earlier by people who did not anticipate this use. The party that reads more carefully, computes more rigorously, and organizes more quickly gets the better outcome — and neither the equities nor the market's sense of fairness will substitute for any of those three.

A note on advising both sides over time

Practitioners in this area advise companies one year and lenders the next, which is unusual and useful. Two observations follow from it.

The first is that the excluded lenders' outrage is frequently justified and legally unavailing. A lender who bought a first lien loan reasonably expected to share ratably with other first lien lenders, and discovering that a majority amendment has made that expectation worthless feels like a breach even where it is not one. The correct advice is unsentimental: the expectation was not documented, the document controls, and the remedy is either a capacity claim or organization. Telling a client that the transaction was unfair does not help them; telling them where the computation is vulnerable does.

The second is that companies systematically underestimate the cost of exclusion. The modeled cost of a liability management transaction is the fee, the rate, and the legal expense. The unmodeled costs are larger: eighteen months of litigation during which refinancing is harder; a lender base that will not extend the next maturity without extracting a price; a sponsor whose other portfolio companies now borrow at a premium; and, where the company later files, an estate fiduciary investigating the transaction with the benefit of hindsight and subpoena power.

The synthesis is a piece of advice that serves both sides: the transaction that offers participation to everyone, pro rata, on the same terms, achieves most of what the company needs and eliminates most of what goes wrong. It costs the participating group its exclusivity premium, which is real. It is nonetheless the right recommendation in more situations than it is made, and counsel who make it — to companies who do not want to hear it, and to lender groups who would rather have the exclusivity — are giving better advice than the market's revealed preferences suggest.

Related documents

• Liability management transactions: drop-downs, uptiers, exchange offers, and the covenants that allow them
• Liability management transaction checklist
• Distressed debt toolkit: exchange offer documents, consent solicitations, and covenant analyses
• Closing and administering a syndicated credit facility: a practical guide
• Chapter 11 first-day filing checklist