Liability Management Transaction Checklist

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

Section 1 — The covenant map

Build this before choosing a structure.

Every investment basket: amount, growth mechanics, conditions
Every restricted payment basket, and whether capacity reallocates to investments
The builder / available amount basket, computed from closing with each component traced to its definition
Ratio-based baskets and whether the ratio is currently satisfied
Debt and lien baskets, including incremental facility capacity and ratio debt
Unrestricted subsidiary designation mechanics and conditions
Sacred rights list, transcribed verbatim — and what it omits
Pro rata sharing provisions and every exception: open market purchase, Dutch auction, assignment mechanics
Guarantee release mechanics and the "all or substantially all" formulation
Blockers: IP transfer restrictions, anti-layering, designated asset lists, J. Crew provisions
Amendment thresholds, and whether the threshold itself can be amended at that threshold
Intercompany lending permissions relevant to double-dip structures

Section 2 — The capacity computation

Every basket computed from first principles, not from a summary
Definitional chain traced to the bottom for each
EBITDA add-backs tested against the definition: permitted, capped, time-limited?
Computation reconciled against delivered compliance certificates — a discrepancy is the most productive line of inquiry available to an excluded lender
Prior usage traced from certificates, footnotes, and disclosed transactions
Reclassification confirmed as permitted, conditions met, item fits the new basket
Conditions checked: no default; pro forma compliance; certificate delivered; ratio tested on the correct date and basis
Computation reviewed by someone who did not prepare it
Computation documented in a schedule a third party could follow

Section 3 — Company: diligence and record

Officer's certificate confirming capacity, attaching the computation, confirming no default
Solvency opinion where assets are transferred: solvency before and after, adequacy of capital, ability to pay debts as they mature
Independent valuation of any transferred assets
Legal opinions on designation, transfer, amendment effectiveness, and perfection
Board record: alternatives evaluated (bankruptcy, asset sale, broader financing, rights offering to all creditors), creditor effects considered, advice received
Conflict management where the sponsor benefits: committee of unaffiliated directors, independent advisers, documented reasoning
Market check on the new money, or a documented explanation of why impracticable

Section 4 — Company: assembling the group

Holders identified through the agent's register and market intelligence
Existing cooperation agreement checked for before structuring
Confidentiality agreements with defined cleansing provisions
Economics negotiated with an ad hoc group and its advisers
Signature commitments obtained before announcement, with transfer restrictions
Threshold confirmed with margin — commitments conditioned on others is not a threshold
CLO eligibility of the contemplated instrument confirmed, or an eligible alternative offered

Section 5 — Company: execution sequence

In order. Sequence errors are not curable.

Amendments executed by the required percentage
Unrestricted subsidiary designated; certificate delivered
Asset transfers documented and recorded — IP assignments must be recorded
New debt incurred; liens granted
Perfection completed: UCC filings, IP recordations, control agreements, mortgages, foreign filings
Exchange effected
Notices to the agent and, where required, all lenders
Public disclosure where the borrower is a reporting issuer
Complete transaction file assembled and preserved

Section 6 — Lender: early warning signals

Borrower or sponsor engages a liability management adviser
Amendment requests that appear technical but expand capacity
New subsidiaries formed, particularly non-operating holding entities
Asset transfers disclosed in reporting or compliance certificates
Unusual accumulation in the debt by event-driven funds
Approaches to other holders (these leak)
Deteriorating performance plus a maturity inside two years
Information previously provided routinely now refused

Section 7 — Lender: organizing

Do this before a proposal arrives.

Holders identified — agent's register for loans; solicitation agent for bonds
Counsel and financial adviser retained as a group
Cooperation agreement executed
Blocking position reached — more than the residual after the amendment threshold
Company and agent notified in writing that a blocking group exists
Each member's constraints understood: CLO eligibility, liquidity needs, litigation appetite, relationship considerations
A proposal developed, not only an objection

Section 8 — Cooperation agreement terms

Core covenant: no member transacts except with [66⅔]% of the group
Transfer restrictions, with transferees required to join
Information sharing among members, subject to confidentiality
Term, with extension by group vote
Adviser appointment and fee sharing
Remedies for breach, including specific performance
Exit mechanism with notice and standstill
Securities law group status, trading restrictions, and information barriers addressed

Section 9 — Information and trading

Decide deliberately: private (influence, no liquidity) or public-side (liquidity, less influence)
Cleansing provisions negotiated with a defined date
Big boy letters where appropriate
Information barriers within the fund between deal team and trading desk
Restricted list maintained and enforced

Section 10 — Building the claim

Recompute capacity independently; do not accept the company's certificate
Test conditions, not just baskets
Read the exception relied upon, word by word — "open market purchase," "Dutch auction," "all or substantially all"
Check perfection: unrecorded IP assignments and unperfected liens are vulnerable
Assess reasonably equivalent value and solvency for a fraudulent transfer theory
Obtain the board record where available
Choose the forum: contract claim, avoidance action, or bankruptcy objection
Litigate and negotiate simultaneously

Section 11 — Lender underwriting review (before buying)

Aggregate investment capacity computed across all baskets including builders and reclassification
Unrestricted subsidiary designation freedom and any transfer blockers
Investment and restricted payment reallocation mechanics
Lien subordination on the sacred rights list?
Pro rata sharing exceptions and how "open market purchase" is defined
Guarantee release mechanics
Senior and pari debt capacity without consent
Anti-layering, and whether it reaches current structures
Collateral definitions — is material IP included and required to remain?
Required Lender percentage, and whether it is self-amending
The question: if this borrower hires a liability management adviser tomorrow, what can they do to me?

Section 12 — Settlement terms to demand

Participation on the same terms, backdated
Fee for delay and risk
Covenant tightening: IP and material-asset transfer blockers; lien subordination added to sacred rights; defined open market purchase; reduced, non-reallocable investment capacity; designation subject to consent; anti-double-dip
Compliance certificates with computations attached, not bare ratios
Reversal of the transfer, or a lien on the transferred assets
Most-favored-nation protection for a period
Monthly reporting during any covenant relief period
A standstill on further liability management transactions without pro rata participation
Releases scoped to the specific transaction, with fraud carved out

Section 13 — Structure-specific review

Drop-down.

Aggregate investment capacity sufficient for the transferred assets at their actual value
Designation conditions satisfied and certified
Any IP transfer blocker checked
Transfer documented and recorded — trademark and patent assignments with the relevant office
License-back terms documented at defensible rates
New lender's liens perfected against the transferee
Reasonably equivalent value analysis performed and documented
Solvency opinion obtained

Uptier.

Lien subordination confirmed not to be a sacred right
New senior debt permitted by an existing basket or by majority amendment
Pro rata sharing exception identified and its terms satisfied literally
"Open market purchase" definition read word by word — is a privately negotiated exchange with a pre-selected group within it?
Amendment threshold met by executed signatures, not conditional commitments
Agent's requirements satisfied: direction, certification, indemnity if requested
Excluded lenders' notice rights honored

Exchange offer.

Registered or exempt determined; timetable built accordingly
Tender offer timing and dissemination requirements confirmed
Consent thresholds identified per amendment, not in aggregate
Sacred indenture terms and Trust Indenture Act § 316(b) protections respected — principal, interest, maturity, and the right to sue for payment
Consent coupled to tender
Consequences to non-participants fully disclosed, including subordination and covenant stripping
Minimum condition set realistically, with waiver mechanics and timing consequences
Trustee engaged; supplemental indenture and indemnity arranged
Information and exchange agents engaged; depository mechanics confirmed

Double dip / pari plus.

Intercompany lending permitted
Security over the intercompany note or receivable permitted and perfected
Aggregate claim structure modelled against a distressed recovery
Anti-double-dip provisions checked

Section 14 — Post-closing

All perfection steps confirmed complete, with searches run to verify
Complete file preserved: computation, certificates, opinions, valuations, board record, signature pages
Excluded lender correspondence logged and responded to
Public disclosure made and consistent with the documents
Compliance certificates for subsequent periods consistent with the capacity computation used
Litigation hold in place if claims are threatened
Refinancing plan for the remaining maturities, assuming an organized excluded group