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2025 Wharton Distressed Investing and Restructuring Conference Recap
LMEs: the past, present, and future (LME 3.0), structured finance, cross-borders restructurings, and bankruptcy for early-stages companies
Welcome to the 118th edition of the Pari Passu newsletter.
In December 2024, we covered the Distressed Investing Conference to discuss trends in liability management exercises (LMEs), bankruptcy litigation, and private credit restructuring.
Today, we are back with another special post at 2025 WRDIC with more nuanced insights into LMEs per the conference theme, “Beyond Bankruptcy: Innovative Approaches to Liability Management.” But as a plus, we’re also here with entertaining stories from industry legends and relatively niche topics from structured financing to distress in early-stage companies. Given recent developments in restructuring, such as the Serta court ruling and the rising popularity of cooperation agreements, let’s kick off 2025 by learning how industry professionals are navigating the 3.0 era.
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Table of Contents
Before We Begin—A Brief Overview on Liability Management
Liability management (LM), also referred to as liability management exercises and liability management transactions (LME or LMT) was a constant thread throughout many of the panel discussions below. It is worth defining before we move on to conference content.
Despite being frequently used in an out-of-court context, LME is a broad term that includes out-of-court and in-court solutions for distressed companies to address near-term debt maturities or reduce their debt load. On one side of the spectrum, companies can pursue less aggressive, consensual out-of-court restructurings such as debt repurchases, equitization, amending terms and extending maturity dates, exchange offers, and asset sales. Unable to boost profitability even with cost-cutting, companies like WeWork first explored out-of-court solutions to reduce $1.5bn of debt, raise $1bn of new capital, and push back maturity walls. Yet even with these efforts, WeWork’s inability to negotiate their $13.3bn lease liabilities forced them to file Chapter 11. While out-of-court solutions are prioritized for most borrowers to avoid hefty costs, in-court solutions still bring considerable value for certain capital structures and business models – a big topic for one of the panels.
However, in the low interest-rate environment, credit documents have become loose enough for borrowers and sponsors to push for aggressive LMEs to deleverage and raise extra capital. Usually, these come at the cost of pitting creditors against each other to fight for limited recoveries. Ever since J.Crew launched its famous asset drop-down in 2017, the market has seen different variations: uptier exchanges as seen in Serta Simmons, drop-downs as seen in Neiman Marcus, double-dips as seen in At Home, and pari-plus financings as seen in Trinseo. Not surprisingly, as borrowers continue to suffer from low liquidity, companies like Spirit Airlines have even explored triple-dips, which still have open-ended questions on how they will be executed and treated in-court. As credit docs are still loose while borrowers and sponsors are still willing to find creative approaches to address highly leveraged capital structures, the conversation around LMEs continues.
Talking about LMEs, you should check out the latest paper by Octus (Reorg) titled Understanding and Navigating Liability Management Exercises.
LMEs: Past, Present, & Future
Brian Shartz: Kirkland & Ellis (Partner, Restructuring)
Patrick McGrath: Anchorage Capital Group (Partner, Global Head of Restructuring)
Avi Robbins: PJT Partners (Partner, Restructuring)
Zachary D. Rosenbaum: Kobre & Kim (Partner)
Roopesh Shah: Evercore (Senior MD, Restructuring and Debt Advisory Group)
Alex Tracy: Perella Weinberg Partners (Partner, Restructuring and Special Situations Group)
In this panel, bankers, investors, and lawyers converge to share views—sometimes diverging—on the newest developments in liability management.
The panel began by defining the objectives of LM, noting that out of the three primary goals, (1) discount, (2) maturity extension, and (3) new capital, companies usually must pick, at most, two out of three, given the trade-offs. From 2023-2024, there have been shifts in both objective and/or process on both debtor and creditor-side.
Debtor: In 2023, LM was primarily used to inject liquidity or maximize discount for struggling companies. However, in 2024, LM was sometimes a purely opportunistic discounted exchange without impending liquidity crisis, or even used to raise capital for M&A.
Creditor: While there was minimal pre-process in LM 1.0, in 2.0, there exists a pre-process where creditors aim to join what one lawyer termed the “cool kids table,” where creditors may enter a cooperation agreement—a binding agreement between creditors to work together on potential restructuring plans, vote in favor of any future group-approved restructuring proposal, and reject proposals not supported by the group. This lowers the risk of the debtor negotiating with an in-group of creditors at the expense of the out-group. Tellingly, the legal representation of creditors is now more concerned about trying to enter the in-group than suing.
In a LME, there can be either a lot of discount captured from few holders, or little discount from many holders. There has been a shift to the latter, as it may capture better discounts whilst minimizing litigation (e.g., Envision).
While creditors are often unhappy with LM, voluntary participation may be driven by a legitimate threat of a deal-away (where the debtor decides to transact with a third-party such as a private credit lender to the detriment of existing creditors). As one buy-side partner rhetorically asks, “Why are mean bankers and lawyers doing this to us? Because they can.” With loose credit documents and a crowded private credit market, there is a legitimate and punitive threat which has driven creditors—even long-only CLOs—to learn how to manage liability management.
Given the complexities of LME, some question whether LM is even worth it. Are the LMEs of today the bankruptcies of tomorrow? Bankers, lawyers, and buy-side offer starkly contrasting views:
Bankers: Perhaps it comes as no surprise that for bankers, any LME that closes should be considered successful. If there’s no ensuing litigation, then the LME is highly successful. As one banker stated, “The goal of a LME is to buy time and extend runway… the buying of runway is a success in and of itself; if the company could not turn itself around with that runway, it is a business issue, not a LME failure.”
Investors: In response to the bankers’ generous view of success, a buy-side partner visibly scrunched his eyebrows and retorted that elevating in the cap structure is not a great way to make money. Creditors want a recoverable business, and the quid pro quo is that if you do a LME once, docs are tightened after so it does not happen again. “For a credit investor, a LME is not always successful” (side-eye).
Lawyers: Of course, the lawyers took a moderating stance, stating that a successful LME means to avoid bankruptcy, or at least to ensure the LME does not take over in bankruptcy (e.g., Wheel Pros, which entirely skirted litigation in bankruptcy court over the prior double-dip).
The panel ended noting upcoming trends in the space:
Litigation overhang continues to be a real issue, and in the next generation of LME, documentation will matter even more. As a certain lawyer who blew up the Incora case in February stated, “Documents matter. You should always ask, ‘What would someone like me [referring to himself as a lawyer] do to your deal?’”
The panel expects to continue seeing coercive LME with high participation rates as opposed to the bare minimum 51% participation. However, sometimes the discount spread for the company is not worth it, which may lead to a deal-away. However, note that near-dated maturities deter a deal-away, as creditors will respond to the threat with, “See you soon in bankruptcy.”
Credit documents remain loose, and LME will remain a fixture in the restructuring space as its technology continues to evolve. While 2022-2023 was more focused on discount capture, the panel expects to see a greater focus on maturity extension approaching 2027-2028 as 2021-2022 LBOs mature.
Given the prominence of language issues (e.g. open market repurchase language in Serta), it will be 3-4 years before the next wave of language issues
While cooperation agreements have been on the rise as a tool for creditors to defend against creditor-on-creditor violence, cooperation agreements have yet to be litigated. Some may argue that cooperation agreements violate antitrust laws. The enforceability and viability of cooperation agreements will be an interesting topic in coming years.
While LM in private credit will likely never compare to levels in syndicated markets—due tighter documentation and the importance of preserving creditor relationships given the many repeat players on club deals—some expect to see an uptick in private credit LME (see Pluralsight). As the private credit industry grows, documentation will loosen, and public and private markets may continue to converge.
Keynote: The Evolution of LMEs with Josh Abramson
Josh Abramson: Partner, PJT Restructuring and Special Situations Group
Jeffrey D. Saferstein: Co-Chair of the Restructuring Department at Weil, Gotshal & Manges LLP
If there is anyone who can talk about LMEs for hours, it has to be the restructuring industry’s go-to LM banker, Josh Abramson. Abramson kicked off the panel recalling his junior days in 2015 working on the restructuring of Caesar’s Entertainment that set precedence for modern-day LM technologies: asset dropdowns, release of guarantees, and the first cooperation agreement (covered in our co-op write-up). Why have LMEs become so popular ever since? It’s a great product widely sold to sponsors and companies when they cannot access the capital markets. After the pandemic, LMEs have become gradually destigmatized, appealing to sponsors with highly levered portfolio companies from the rate hikes in 2022. With more supply of capital chasing a limited number of deals, companies could keep their credit docs loose.
Success in LMEs can be tricky to define. There are classic examples of successful LMEs such as McGraw-Hill’s turnaround story where an amend and extend generated $2.0bn in profits for the sponsor Apollo. But sometimes, LMEs can still be considered successful if they give a distressed company more optionality and prevent bankruptcy. One example is Travelport, a travel technology company. Even though travel did not rebound after 2021, the LME allowed a company that shut down to operate for three extra years. Even if a company files for bankruptcy after an LME, the LME can create a new piece of debt or equity that becomes the fulcrum (the most senior impaired class). Holders of these fulcrum securities typically gain control of the post-reorg company, enjoying significant upsides if a turnaround occurs.. Not to mention cases like Envision where a very complex LME allowed for a clean bankruptcy process.
Similar to how LMEs have evolved, co-ops have become more strategic. Straying away from the earliest form in Caesars, “co-op 2.0” first appeared in Travelport to make creditors cooperate against everything – from rejecting debtor-friendly restructuring plans to collectively blocking offers that harm the broader creditor group. Now, the details of the co-op matter much more. As seen in Dish Network and Bausch Health, more co-ops are formed across the entire capital structure. This would protect creditors from being left out but make deals with the company more challenging to reach. Some creditors may also find themselves overshadowed by other creditors holding more tranches. As the demand for co-ops continues to rise, the smarter creditor groups are carefully evaluating what a co-op would really help them achieve. Will there be antitrust litigation or NDAs to block co-ops? With recent news that some sponsors have considered anti-cooperation language in credit docs, the market’s eyes will be closely following this technology.
Lastly, despite the recent Serta ruling against non-pro rata uptiers, LMEs are here to stay. In recent deals like Oregon Tool, where the company raised new money, deleveraged, and eliminated restrictive covenants with majority support, there are new exceptions to pro-rata deals without sparking litigation. But generally, companies are comfortable pursuing deals with 100% participation from creditors – the key would be balancing full participation and differential treatment of creditor groups to capture enough discount. Going forward, Abramson sees potential LMEs involving asset sales and guarantee provisions, more deals with third-party capital, and the growth of LMEs in the European market.
Finally, to all the lenders out there, Abramson’s advice to protect themselves against LMEs is simple: know the right people, join the co-ops, and hire the right law firms.
Keynote: Ken Moelis
Ken Moelis: Moelis & Company (Founder and CEO)
Edward O. Sassower: Kirkland & Ellis (Partner in Restructuring Group)
In this panel featuring the legendary Ken Moelis, Ken shares his journey from delivery boy to the founder of Moelis & Company, a boutique investment bank which has advised over $4tn in transactions.
Ken was born and raised north of NYC. By age 12, he was delivering newspapers, learning all-important lessons such as who tips and who does not. His tip to the audience: the biggest tips were never from the biggest houses.
Back home, Ken’s father often talked business at the table, and he eventually IPO-ed Equity Leasing Corporation for $2mm. Ken reminisced how his family recently unearthed the original IPO documents.
Ken describes himself as “a partial student.” His whole family went to Penn— “my parents, my uncles, my siblings, my dog…”
After completing his undergrad at Wharton, Ken began his MBA. When asked why he chose to go directly into an MBA, he - perhaps half-jokingly - responded that he was a 21-22 year old, there were a lot of freshman girls to chase, and he wanted to stay around.
Seeing all the “old MBAs” aiming for investment banking, Ken decided to give it a shot. However, it wasn’t long before his wall was soon covered by rejection letters. Some firms, such as Morgan Stanley, even sent two rejection letters—as if one wasn’t enough to get the point across.
In a stroke of luck, Ken was hired by Drexel Burnham Lambert in 1981. This was before the bank gained fame as the orchestrator of the junk bond boom under the leadership of Michael Milken. Ken joined Drexel at a time when no one else wanted to join, and in doing so placed himself at what would soon become one of the most active areas of Wall Street.
Perhaps there was something in the water there, but besides Ken, many who shared the bullpen at that time eventually became founders, including Tony Ressler, who cofounded Ares in 1997, and Marc Rowan, who cofounded Apollo in 1990. It was the coming-to-age of a cohort who would eventually spearhead Wall Street and modern financial history.
At Drexel, Ken learned many things. One of the lessons he shared, which he learned from Milken, was the importance of finding ways to say yes. Milken was always able to find a way to get a deal done, and that lesson would eventually prove crucial for Moelis’ early years.
By 32, Ken was the “most senior guy” at Drexel and a newly minted partner. However, with the collapse of the junk bond market and the arrest of Michael Milken, Drexel Burnham Lambert was forced into bankruptcy. Ken recalls heading to the office on Valentine’s Day 1990, and having to tell everyone “it’s over.”
Ken recalls a few especially resourceful analysts who, without wasting a minute, began to label the desks and furniture to firesale to firms down the street.
In a blink, Ken’s life blew up. Not only did he go from partner to unemployed, but the government was attempting to jail him and other leaders at Drexel, and recapture their bonus. Ken had bought a new house in LA three months earlier; when real estate agents came knocking, he sold that house. When agents visited again, offering to sell his second house, he responded: “Hit that bid too.” With an uncertain future and the government knocking on their door, the Moelis family went all cash, which Ken termed “survival mode.”
However, Wall Street is always looking for talent. Ken says that’s what he loves about Wall Street— “You’re singing in the spotlight, and all will notice if you’re talented.” It wasn’t long before Donaldson Lufkin & Jenrette (DLJ), a leading high yield bond house, came looking. Despite entering as a MD, Ken noted that Wall Street does not care as much about titles; all that matters is interface with the client.
Ken worked at DLJ for 10 years, building out their high yield bond business amidst the volatility of the Iraq War and a bad deal environment. There, Ken worked on many high profile deals and amassed many legendary anecdotes, one of which he shared:
In the 1990s, I was called by Donald Trump to restructure the Taj Mahal business. In negotiating the fee, there was some back and forth, and we were a million dollars apart.
Trump said, “I’ll flip you for it.”
My first response? “Let me see that coin.”
After some inspection, I agreed. However, it was a poor coin flip and the coin tottered at the edge of the table. Knowing that I was sure to lose if that coin was to hit the ground, I made a snap decision and dove for it.
It was too late. Trump had already snatched up the coin and declared himself the winner.
At a recent dinner with Trump, Trump teased, “You still want to know the result of that coin flip, don’t you?”
By now, the audience was laughing, but there was more:
On John Kluge’s 80th, I approached Kluge and the coin flip came up in conversation. In response, Kluge pulled out a two-headed quarter from his pocket, saying, “I never leave the house without it!”
By the end of a decade, DLJ was sold to Credit Suisse. While Ken had appreciated DLJ’s culture, where everyone helped each other, he disliked the Credit Suisse culture, where it was “every man for themselves.”
The conversation here took a detour here, with Sassower noting that Ken was based out of LA for most of his career. Ken highlights the advantages of being in LA, stating that there is quite a “NYC bubble,” where “everyone thinks the same.” The slight distance of LA, along with its lack of “finance ego,” could be advantageous, though one could sometimes be left out of conversation undercurrents. For example, at one point, everyone in NYC thought Ken was going bankrupt. Ken jokes that it was certainly news to him when he heard it!
By 2000, Ken called UBS - which had recently acquired PaineWebber - stating that he could bring them the US investment banking business. Given Ken’s track record, it was needless to say, UBS was interested. When he moved from Credit Suisse, he brought a team of over 60.
Here, Ken offers a piece of advice to young professionals in the room:
“Look at the max point of leverage where you can add. You don’t want to be a backboy at a place that has everything. Rather, you should participate in a place where you can create value.”
As the saying goes, “find a lever long enough and you can lift the world.” Ken took that risk to be the lever.
By 2007, the nascent boutique investment banking arena was beginning to take shape. Lazard had long been in the space, and Houlihan was founded in 1972, but there was still a vacuum in boutique advisory. At the time, banks were still giving “free candy.” While banks had acquired many investment banks in order to get closer to dealflow, Ken, along with many others, wondered, “How can you price advice correctly if you are mispricing loans?”
At the urging of his team, Ken left his position as president of UBS in 2006 to found Moelis & Company by 2007. It was the perfect timing, as the chickens came home to roost just a year later during the Great Financial Crisis. Had Ken delayed founding Moelis by one more year - had he clipped one more bonus - he would not have been able to raise money. By the time the financial crisis hit, Moelis had a clean track record, given they focused on advisory work and had no hand in the lending which spurred the subprime crisis, at a time when people were second-guessing large banks.
When asked what went right and what went wrong, Ken notes that there were deals they lost. However, he also notes that people often overestimate how brilliantly others are doing. As for what went right, Ken highlights Moelis’ culture, keeping the firm unlevered, and building a reputation of dependability, transparency, and honesty.
Now, Moelis has 1,400 employees, with ~75% in M&A and 25% in RX. The firm has advised on large IPOs including Saudi Aramco, and continues to grow.
Ken concluded the conversation with a prediction and a final piece of advice.
First, he noted that the timeline for deposits was accelerating. In 2008, it was five-day deposits against five-year loans. In the 2023 SVB collapse, these were five-second deposits. Consequently, the taxpayer is implicitly guaranteeing the mismatch of liabilities to assets. Given that regulators don’t want taxpayers to serve as guarantors, Ken predicts that banks will be more limited on what they can do in the future, and that we will shift from a bank-centric world to an alternative-centric world.
Finally, Ken reiterates that while analysts may spend their first three to four years in the spreadsheets, banking is ultimately a people business. It can take four-to-five years to get to know someone well enough where they will tell you their actual worries and weaknesses—communication which is absolutely crucial to be an effective advisor. When selecting advisors, clients know that everyone is smart; the differentiator is whether or not they believe you actually care.
LME 3.0: The Next Generation of Liability Management
Brent Banks: Evercore (Senior MD, Restructuring and Debt Advisory Group)
Shanshan Cao: Centerbridge (Senior MD, Healthcare & Industrials)
Michael B. Kaplan: Chief Bankruptcy Judge of District of New Jersey
Justin Lee: Weil, Gotshal & Manges LLP (Co Head, Banking & Finance and Global Head of Liability Management and Strategic Capital Solutions)
Sung Pak: Paul Weiss (Partner, Finance)
Gabriel A. Morgan: Weil, Gotshal & Manges LLP (Partner, Restructuring)
The afternoon started with a diverse panel representing the perspectives of lawyers, investment bankers, lenders, and Judge Kaplan, who served as Chief Bankruptcy Judge of New Jersey since 2020. Let’s dive into a moment capturing the state of today’s restructuring landscape at the crossroads of out-of-court LMEs and bankruptcy.
In LME 2.0, borrowers wanted to capture as much discount through preferential treatment of creditor groups that agreed to their solutions, sparking litigation from non-participating groups that often received nothing. Over time, borrowers began to treat creditor groups more equally to encourage high participation and reduce litigation risk. The rise of larger co-ops has also been creating interesting restructuring solutions, with creditors gaining more negotiating leverage against borrowers. However, as interest rates remain elevated, lenders prioritize earning higher returns on assets while competing against other lenders to win deals. Since there is more capital available for a given number of deals, borrowers are able to keep their credit docs loose to execute creative LMEs. High rates have made preferred equity deals attractive for borrowers to save cash from deferring interest payments (PIK debt), but the market will see another wave of amend and extends in 2025 from many financially weaker borrowers.
Since credit docs tend to be tighter in the direct lending market, sponsors’ negotiating strategies look different when there is a direct lender compared to a CLO in their capital structures. In direct lending, lenders come together to form “club deals” that offer sponsors tailored financing solutions, which gives them more protection against credit docs. But when these club deals get larger, lenders might also lose protection. A good reminder is that even though the market has invented blockers to prevent J.Crew or Serta-style LMEs, credit docs ultimately cannot prevent transactions with majority consent unless they amend the “sacred rights” provision.
How do we interpret the credit docs then? Well, Judge Kaplan says his intent would be the last thing anyone would want to interpret. In reality, out of the 350 bankruptcy judges in the US, only a handful can grasp the nuanced language of credit docs. Many turn to third party resources that lead to conflicting interpretations. The frustration doesn’t end there. First, most of the post-LME companies that file for bankruptcy are basically “overleveraged carcasses” with very little value and time left. Second, out-of-court LMEs are too focused on fixing the balance sheet rather than operational issues. Currently, the term loans in the market are commodities that offer very similar terms. As echoed by the other panelists, the goal of LME 3.0 is tailoring restructuring solutions to a company’s business model and capital structure.
Another task Judge Kaplan faces – which often leads to “uncomfortable vibes” (yes, word for word) – is resolving conflicting legal interpretations of credit docs. One provision that stands in one deal may be challenged in another. To prevent extreme readings of the docs, the Judge wants to see that there was a reasonable expectation between borrowers and lenders to complete a transaction.
Finally, on the topic of co-ops, this panel offered more realistic considerations. There could be anti-trust issues or criticism that co-ops block communication between borrowers and lenders to reach effective restructuring solutions. More questions for food for thought: would co-ops violate bankruptcy law? Are they worth it if faster consensus among creditors gives more discounts and leverage for sponsors to get what they want?
Structured Finance as an Innovative Approach to Liability Management
Michael O’Hara: Jefferies (Co Head, US Debt Advisory and Restructuring)
Michael Handler: King & Spalding (Partner, Finance and Restructuring)
Sarah Primrose: King & Spalding (Partner, Finance and Restructuring)
Ryan Maupin: Deloitte (MD, Turnaround & Restructuring)
Bradley Friedman: Ares Management (Partner, Private Equity)
Ed Cerullo: Octus (Analyst, Credit Research)
Structured finance may sound unfamiliar to many, but the topic deserves more attention to understand modern-day LMEs. Simply put, structured finance is a way for companies to raise money for more complex financing needs without a traditional bank. Specifically, the panel discussed how a type of structured financing called asset securitization has become popular.
Here’s a breakdown of the steps. First, a parent company transfers their revenue-generating assets into a new subsidiary called a bankruptcy-remote special purpose vehicle (SPV). This means that if the parent company files for Chapter 11, the assets and cash flows will not contribute to creditor recoveries as the assets are not part of the bankruptcy estate. Then, the assets are bundled together and pledged as collateral for new debt issued at the SPV. Like traditional loans, investors earn principal and interest income, but the remaining cash generated from the assets can be used flexibly – as dividends to the parent company, reinvestment into the business, or asset improvement.
Why has structured finance become popular? From the company’s perspective, they can get cheaper financing compared to traditional loans that have become expensive in a high interest rate environment. For the lenders, there is less risk of collateral-stripping compared to traditional secured lenders, since the securitized assets are only pledged to the debt in the SPV. Most importantly, structured finance makes valuation simpler given investors mostly need to focus on the cash flows of the securitized assets rather than the entire corporate structure.
Broadly, assets can be securitized by 1) specific operating assets or 2) the whole business (as we’ve covered here). In the past few years, as there was a lot of capital chasing a limited number of investments, investors looked for revenue streams from specific assets of stressed/distressed companies, such as fiber assets of telecom companies and loyalty programs of hotels. Whole business securitizations, recently mentioned in the bankruptcy plans of Hooters and TGI Fridays, have been popular among franchise businesses with recurring revenue or lP-based assets. The point is, even potato skins can be securitized if investors are confident in the revenue streams.
The concept of securitized assets goes back to the early days of LMEs. One classic example is Revlon’s 2019 drop-down where Revlon stripped away the IP of American Crew (one of their brands) from existing creditors to an unrestricted subsidiary (while not a bankruptcy-remote SPV, out of existing creditors’ reach). Then, the IP was pledged as collateral to raise new debt.
Now, more complex LMEs have been amplifying the risks of structured finance. For example, double-dips and triple-dips have increased the use of intercompany loans between subsidiaries including SPVs. When the securitized assets are pledged to these intercompany loans, the asset value is affected by the parent company’s financial health. A lender would have to better understand 1) the quality of assets backed as collateral and 2) how the assets are transferred to the SPV. A good case study is how Spirit Airlines issued loyalty bonds backed by the loyalty program and brand IP transferred to the SPV. The recovery of the loyalty bonds was based on the collateral value of these securitized assets, which was uncertain, and the parent company’s ability to provide extra credit support. When Spirit filed for bankruptcy, these secured lenders became impaired.
Going forward, how will SPVs be legally treated in bankruptcies? Existing lenders could challenge SPVs under the credit docs, attempt to unwind the asset transfer to the SPV, and question the validity of certain assets like future receivables. If the court finds that the parent company owns the securitized assets, lenders of the structured finance debt would have to share the asset value with other creditors. Considering the costs and extra reporting requirements, companies are encouraged to understand how exactly structured finance can achieve their goals and how long their assets can generate revenue to sustain the financing.
Recent Developments in Chapter 11 and Cross-Border Restructuring
Fredric Sosnick (Moderator): A&O Shearman (Global Co-Head, Restructuring)
Jane VanLare: Cleary Gottlieb (Partner)
Frank Pometti: AlixPartners (Partner and MD)
Rick Morris: HPS Investment Partners (MD)
Katrina Buckley: A&O Shearman (Global Co-Head, Restructuring)
In modern history, the United States, with its detailed Bankruptcy Code and Chapter 11 process, has been a hotspot in global corporate restructuring. For bankrupt companies spanning internationally, as long as the firm had a main business operation or more than a non-transitory business activity in the US, the default (no pun intended) choice was to file under the US Bankruptcy Code.
While the US remains the best for operational restructuring due to automatic stay - which automatically halts most collection actions against the debtor (e.g., lawsuits, foreclosures, repossessions) - and the ability to assume and reject leases, restructuring regimes developing abroad offer international companies intriguing optionality when restructuring. This panel discusses such developments, and the issues surrounding them.
On June 20th, 2019, the European Union imposed an obligation on its member states through the “EU Directive on Restructuring and Insolvency” to offer a more attractive and flexible restructuring scheme in their respective local law. While this serves as a decent impetus for the development of European high-yield and distressed markets, the restructuring law in many countries remains sparse—sometimes only a few paragraphs compared to the hefty Bankruptcy Code of the US. Moreover, it will take time to build legal precedent abroad—which may take even longer given that no debtor wants to be the “first” and draw legal challenges. Without precedents, timelines and outcomes are more uncertain for the debtor and creditor alike, which may prompt companies to favor the US Chapter 11 process if they have the option.
The discussion then shifted to some key differences between restructuring code in the US and abroad:
Some regimes have no automatic stay (e.g., UK), while others do (e.g. Dutch process)
Some EU courts allow cross-class cramdowns. Cross-class cramdown allows a company to apply to the court to approve a restructuring plan, even where there are dissenting classes of creditors or members that voted against the plan. In these circumstances the court can approve such a plan, provided that (1) no members of the dissenting classes would be any worse off than they would be in the event of a relevant alternative and (2) at least one class of creditors with “genuine economic interest” (which is ambiguous) in the plan has voted in favor of the plan. This is a significant distinction from US policy, where cram-down may only happen where at least one impaired class votes in favor. The ramifications are significant, as in countries like Italy, super-senior debt can be crammed down by classes below them as long as they are no worse off than in a liquidation. Thus, if the company’s liquidation value does not cover super-senior debt, the restructuring plan might cram down super-senior creditors to their expected liquidation value. As one buyside representative states, “Being market down to a 12 cent liquidation value isn’t much protection for super-senior debt.”
In some European jurisdictions, the Board of Directors is mandated to file when the company is recognized as insolvent within a designated time span (e.g., 30 days in Italy). If the Board fails to file, they may face personal liability. Consequently, when a company in the EU faces risk of restructuring, management and board may just throw in the towel early to avoid any risk of personal liability. Ironically, the most protective policy in the eyes of the Board may actually be the most value-destructive policy. This unambiguous “bright line” policy does not exist in the US.
The panel concluded with a brief discussion on Chapter 15, with a focus on non-consensual third party releases. Chapter 15 was originally intended to assist in streamlining foreign cases by deferring to the main proceeding (e.g., the primary bankruptcy case filed in one country) to avoid cross-border parallel proceedings (having to reconcile the results of bankruptcy courts in several countries). In effect, restructurings completed abroad under a different code may be brought back into the US through Chapter 15. The primary question is whether it is appropriate to allow companies who restructure abroad in foreign jurisdictions with different rules to then retain that relief back in the US through Chapter 15 recognition.
One of the most actively contested areas revolves around non-consensual third party releases—a provision in a restructuring or bankruptcy plan that protects non-debtor parties from liability for claims related to the bankrupt entity. The Purdue Pharma ruling disallowed non-consensual third party releases. However, under the legal principle of “comity”—where one jurisdiction voluntarily recognizes and enforces the laws, judicial decisions, or court rulings of another jurisdiction out of respect, rather than obligation—there is ambiguity on whether or not the US should recognize non-consensual third party releases abroad. Some may argue that because Purdue’s ruling was on statutory interpretation, not public policy (e.g., based on language rather than fairness or broader policy considerations), the US should recognize. However, questions remain outstanding on how much consent is needed, and to what extent comity should be manufactured. These are live issues currently working their way through courts, but the panel was relatively bullish on non-consensual third party releases abroad being recognized in the US through Chapter 15.
The development of restructuring regimes abroad continues to accelerate, giving rise to processes which afford both drawbacks and opportunities that debtors and creditors are acutely aware of.
Alternatives to Bankruptcy for Early-Stage Companies
Jason Gott: Latham & Watkins (Partner)
Steven L. Victor: Development Specialists, Inc. (Senior MD)
James Tecce: Quinn Emanuel (Partner)
Sanjay Marken: Hilco Global (Director, Special Situations Investment Banking)
Andrew Khoo: Alvarez & Marsal (MD, Turnaround and Restructuring)
Early stage and distress – one is too hot and the other is too cold, but polar opposites attract. From their peak valuation in 2021 to signs of distress in 2025, these once-healthy early-stage companies are increasingly seeking expertise from restructuring professionals (exact percentage is still unclear). While early-stage companies tend to shut down easily, the panel focuses on companies with the potential to continue operating despite financial challenges. However, since traditional bankruptcies are too expensive for companies with limited assets, out-of-court solutions are usually more suitable. A panel of restructuring advisors with more exposure to early-stage companies shares what matters in these situations:
One, dealing with the management team. By nature, guiding a management team through restructuring requires a good understanding of management perspectives and incentives. Navigating the personalities of CEOs, who can be the founders of the early-stage company, becomes especially important. It is the job of the advisor to instruct companies on cost-cutting measures and cash management while balancing the management team’s personal beliefs on the business.
Two, arriving at a consensus on valuation. Given the vastly different risk appetites and investment strategies between growth and distressed investors, valuing a distressed early-stage company to raise new money becomes a difficult task. Even though the valuation of growth companies has been declining, advisors have to set expectations for existing creditors and equity holders to be comfortable with lower valuations. If the company has debt, the capital structure tends to look simpler such as a small group of bank lenders. To avoid being impaired, lenders should be aware of what drives the market’s perception of the business. For example, valuation multiples might be only temporarily high due to past acquisitions.
Three, drawing elements of a bankruptcy when needed. Sometimes, it may be better to toss the keys to lenders rather than a management team struggling to make decisions that maximize value. If there is real value and interested buyers for the early-stage company’s assets, an Article 9 sale could be one option. Under Article 9, when a borrower defaults on a loan, the secured lender can sell the collateral. However, this takes place out-of-court without the court’s approval, unlike 363 asset sales in a Chapter 11 bankruptcy.
While still developing, distressed early-stage companies can draw more attention from investors as a new asset class. In that case, the role of restructuring professionals would be extremely crucial to manage competing incentives and perceptions of a business.
Conclusion
The 2025 Wharton Restructuring and Distressed Investing Conference brought together participants spanning the industry “cap structure,” hosting professionals from the most senior to most junior.
Legends such as Ken Moelis shared poignant personal stories of how their lives were thrown into upheaval during the Junk Bond Crash of 1989-1990, and how such turmoil can lay the groundwork for the rise of industry leading firms. And while it is easy to be swept up in the chase for titles in prestige, Ken reminds us that the ability to create tangible value is what truly matters.
Throughout the day, bankers, lawyers, investors, and judges alike highlighted key industry trends, including the rise and evolution of cooperation agreements towards being more encompassing, the shift towards purely opportunistic LME as opposed to prior distress-driven LME, an uptick in deal-aways, and the sustained looseness of credit documentation as broadly syndicated loan markets remain overheated.
Issues and predictions that continue to be monitored throughout the industry include the evolution of responses to LME, the development of European LME and restructuring, opportunities in LMEs involving asset sales and guarantee provisions, the potential for cooperation agreement litigation, and more.
In this notoriously contentious industry, much remains up for debate. What defines a successful LME? Are LMEs even worth it? To what extent should Chapter 15 be applied?
As experts dished out advice, opinions, and insight, some answers remained ambiguous. What LM 3.0 may bring is still uncertain. However, one fact remains clear: that restructuring is a dynamic field advancing at an ever-rapid pace.
Finally, on the topic of LMEs, a Report from Octus (fka Reorg)
The Growing Importance of LMEs in Restructuring 👇
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