Better Health: Liability Management’s Post-Serta Prototype

Welcome to the 151st Pari Passu newsletter.

In today’s edition, we’re looking at Better Health Group, a Medicare-focused primary care platform backed by Kinderhook Industries. Better Health was one of the fastest-growing physician practice rollups in the Southeastern US Medicare-Advantage market. Today’s piece will cover how a modest change in Medicare policy had an outsized impact on Better Health’s liquidity and forced the company to pursue a first-of-its-kind liability management exercise. 

Better Health serves as one of the most exciting LME cases of 2025, as the company was weeks away from closing its uptier transaction when the Fifth Circuit ruled that its methodology was no longer viable. Desperate for liquidity, instead of filing for Chapter 11, Better Health and its advisors scrambled from the original uptier to a brand-new extend-and-exchange transaction framework in just a few weeks.

Today, we’ll walk through the company’s history and liquidity challenges, along with the originally proposed LME and rapid pivot to a new transaction model. Lastly, we’ll end with the surprising outcome for a small lender group that challenged the deal, and analyze how it shaped recoveries across the capital structure. 

Recent LME editions: Bausch, Quest, American Tire Distributors, Saks Global

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Better Health

Physician Partners, more commonly known as Better Health Group, is a primary care provider founded in 2006 and headquartered in Tampa, Florida. Better Health operates as a managed service organization (MSO) and is built around the fast-growing Medicare Advantage market [1]. Medicare Advantage is a private version of Medicare, a government health insurance program for individuals aged 65 and over. Under Medicare Advantage, the government (more specifically, the Centers for Medicare & Medicaid Services (CMS)) pays insurers a fixed monthly amount for each senior, adjusted based on the patient's health status. For example, a healthy 65-year-old might earn the insurer $900 per month, while an 85-year-old with a pre-existing condition earns the insurer $2,000+ per month.  These rates are determined by the CMS using a risk scoring system and are subject to change, which will become important later on. Medicare Advantage insurers typically charge patients the standard Medicare monthly premium of ~$175; however, low-income patients who qualify as dual eligible for Medicaid may pay no premium at all. 

As an MSO, Better Health acquires physician practices, often independent clinics, and provides them with various services, including back-office support, revenue cycle management, marketing, etc [1]. The providers (physicians) keep delivering patient care at their clinics, but now as a part of Better Health’s platform, which handles the administrative and insurance-facing complexities. Better Health also provides the option for providers to retain ownership of their clinic, becoming a “strategic partner” [1]. This dual model allowed the company to expand by targeting both retiring doctors seeking an exit and to younger providers looking for support to scale their clinics. 

From 2006 to 2019, the company operated as a founder/physician-owned business, primarily targeting Medicare Advantage-eligible clinics in the Southeast US. In 2019, private equity firm Kinderhook Industries acquired a majority stake in Physician Partners and rebranded it as Better Health Group [2]. At the time, the Medicare Advantage market was extremely fragmented, and Kinderhook would take advantage of this to rapidly expand via a rollup strategy. While financial details of the 2019 acquisition were not disclosed, Kinderhook would later make a $500mm equity investment in December 2021 to support continued clinic acquisitions. At the time of the 2021 capital infusion, Better Health had grown to serve over 137,000 members through a network of more than 545 providers (actual physicians and clinicians, not clinics themselves) [2]. Assuming 3-5 providers per clinic, the number of clinics under the Better Health umbrella likely ranged from around 100 to 200. 

In November 2023, Better Health raised an additional $175mm in growth capital from its sponsor. While Better Health was and remains a private company, the press release provided some important details. First, the company had expanded to over 1,200 affiliated providers and over 250,000 patients, more than doubling both figures from the time of the 2021 $500mm follow-on investment [3]. Better Health also generated $1.2bn in annual revenue at the time. Additionally, later 9fin coverage reports a H1 2023 EBITDA margin of 8%. This equates to EBITDA of ~$96mm, providing an important perspective into the company’s financial health as of 2023 [6]. 

Liquidity Headwinds

While Better Health’s growth looked impressive by late 2023, the company’s profitability hinged on a critical variable: the Medicare Advantage program. Specifically, Better Health’s topline was almost entirely dependent on payments from Medicare Advantage insurers. While Better Health’s capitated payments (the per-member-per-month payments received from Medicare Advantage insurers) as a specific percentage of revenue are not publicly available, a similar company, Cano Health, reported capitated payments at 95%+ of revenue, highlighting the importance of these payments [11]. As a reminder, these reimbursement payments are determined by the CMS risk adjustment system, which assigns a risk adjustment factor (RAF) score to each patient based on age and diagnoses via a system known as hierarchical condition category (HCC) coding. The higher the score, the higher the per-member-per-month payment that’s downstreamed to Better Health. This system is designed to compensate providers for treating sicker populations. 

In 2023, CMS finalized the transition to its updated risk scoring model, HCC Version 28, which would be phased in over the next three years from 2024 to 2026 [4]. The model added new HCC categories while eliminating thousands of others. This change resulted in a broad downward adjustment in risk scores, particularly for common chronic conditions such as diabetes, vascular disease, and depression. For Medicare Advantage providers like Better Health, this downward change in scoring meant they’d receive less reimbursement per patient per month, despite the cost of care remaining the same. Specifically, the change to Version 28 was expected to decrease risk-adjusted reimbursement rates by 3%, directly affecting Better Health’s topline [7]. 

While a 3% drop in revenue may seem modest, it’s important to consider that this occurred amid no changes to Better Health’s overall cost structure. Since primary care providers already operate at very slim margins, the impact of this change was disproportionately significant. By late 2024, it was reported that the company’s EBITDA margin had dropped from 8% to 2%, highlighting how the reimbursement changes flow directly to the bottom line [6]. However, as the analysis below shows, for Better Health’s EBITDA margin to drop by the reported levels above, the company must have also experienced a moderate increase in operating costs. While the driver of these increased costs isn’t publicly known, it is likely due to increased staffing costs amidst a widespread labor shortage affecting the broader healthcare industry [12]. 

While specific details of Better Health’s cash position aren’t public, it was reported that the company was burning ~$90mm annually [7]. This is reflective of  three factors: the drop in EBITDA due to reimbursement changes, a disproportionately high interest burden, and continued clinic capex. 

In terms of interest, Better Health’s funded debt consisted of a $750mm Term Loan B at SOFR + 5.50% due October 2028 [7]. Assuming SOFR of 4.5% as of Q4 2024, Better Health’s effective interest rate was 10%, equating to an interest burden of $75mm, more than triple EBITDA. Interest alone results in cash burn of $52mm. It is reasonably inferable that the remaining $38mm of cash burn ($90mm reported - $52mm), representing 3% of revenue, came from the company’s continued investment into new clinics. For context, the company opened or acquired 70 clinics in 2023 [7]. This equates to ~$540,000k capex per clinic, which makes sense given roughly 3-5 providers per clinic and the nature of Medicare Advantage clinical care, which doesn’t require surgery suites or expensive equipment. 

Again, while Better Health’s true liquidity runway was unknown, we know that the company secured an additional $175mm of equity financing in November 2023. Assuming Better Health entered 2024 with $125-175mm of available cash, at the annualized cash burn rate of $90mm, the company would likely run out of cash in mid-2025. 

As lenders took notice of Better Health’s increasing cash burn, the company’s debt began trading at distressed levels. In August of 2024, as Better Health’s term loan traded in the 60s, the company hired Evercore and Kirkland & Ellis as investment banker and legal counsel, respectively, to begin addressing concerns [7]. At the same time, a majority group of lenders retained Houlian Lokey and Davis Polk. The rest of 2024 marked a steady decline, as liquidity continued to erode with no real operational turnaround being executed. By December 2024, as Better Health continued to burn cash, its debt traded near 40 cents, setting the stage for the January 2025 LME [7]. 

Uptier Review

Before we dive into Better Health’s unprecedented transaction, it’s important to briefly review some of the important mechanics at play. We’ll quickly cover the structure of uptier transactions and the recent 5th Circuit ruling on the 2020 Serta Simmons transaction. If you are already familiar with these concepts (some of which were featured in our Quest Software writeup), feel free to skip past this section, as we’ll keep it largely high-level. 

Uptier Structure:

An uptier transaction involves amending an existing credit agreement (with majority-lender consent) to allow the borrower to issue new priming debt that sits above the old debt, often referred to as a “super senior” tranche. Participating lenders fund that new money, and are also invited to exchange their existing debt (at a discount or dollar-for-dollar) for a second-out tranche of priming debt. In an uptier, non-participating lenders are left subordinated to these new tranches, thus receiving a worse recovery in a bankruptcy scenario. The figure below visually depicts this type of transaction: 

Serta Simmons Review:

Uptiers have been heavily litigated in recent years, the most notable of which is Serta Simmons’ June 2020 uptier. We’ve discussed this transaction in depth, but to quickly recap, Serta raised $200mm of new money via a non-pro rata uptier. Participating lenders (Eaton Vance, Invesco, etc.) exchanged $1.2bn into an $875mm second-out tranche, while providing $200mm of new money for a first-out tranche. While a third tranche was created, it was never used. Non-participating lenders were left with just over $1bn of now-subordinated debt.

To effectuate this transaction, Serta relied on an exception to the pro-rata sharing provision of its credit agreement, specifically allowing for non-pro-rata purchase of debt via an open market purchase (OMP). As a reminder, pro-rata sharing means that all recoveries/payments should be made equal to all lenders in a class of debt. However, without getting too far into the details, know that Serta used the ambiguity of this open market purchase definition to push through its transaction. 

Fast forward five years, to December 31, 2024, when the Fifth Circuit of Appeals overturned a previous ruling upholding this transaction, which shifted the landscape of uptiers and LMEs more broadly. Borrowers, who now must move beyond the OMP exemption, have been forced to find new, creative ways to effectuate uptiers, which leads us to today’s transaction.  

The Original LME

By December 2024, shortly before the Serta ruling, Better Health and its advisors had decided that a non-pro rata uptier was the best course of action for the company. Similar to Serta, Better Health’s credit agreement featured an open market purchase exception to its pro-rata sharing provision. In December 2024, as the company and the AHG (64% of TLB debt) prepared to execute the non-pro rata deal, a minority creditor group (18% of TLB debt held by two lenders), referred to as the “Priority Group,” retained White & Case as legal counsel and challenged the deal to receive better terms [7]. The remaining holdout lenders also comprised 18% of debt.

By year-end, Better Health, the AHG, and the Priority Group had settled on a non-pro rata uptier, summarized by the image below, that featured the following terms [7]:

1. $113mm in new money provided pro rata by all participating lenders

2. AHG exchanges at par into $162mm of first-out debt and $308mm of second-out debt

3. Priority Group exchanges at 80 cents into $65mm of second-out debt and $39mm of third-out debt

4. All remaining holdouts (~18% of debt) are offered an exchange at 70 cents into $67.5mm of second-out and $67.5mm of third-out debt.

The proposed LME included a couple of interesting features. The first was the way it split the lender base into three distinct classes, AHG, Priority, and Non-Priority, all of which were to receive different economics in the transaction. This differs from the traditional structure of earlier LMEs, such as Serta, which featured “participating” and “non-participating” lenders, in which the latter group was primed. Instead, this three-class structure highlights the continued shift towards “LME 3.0”, in which borrowers and majority creditor groups seek to minimize subsequent litigation via pre-transaction negotiations. As a reminder, the Priority Group only held 18% of the debt, but as a group, their ability to credibly litigate the deal gave them outsized negotiating leverage. To secure their support, the AHG agreed to offer them an 80-cent exchange rate and access to the new-money tranche, which was materially better than the 70-cent exchange made available for non-participating holdouts [7]. 

The second unconventional feature of the proposed LME was in the treatment of new money. Traditionally, an uptier raises fresh capital into a new superpriority tranche in order to provide the most protection. The proposed LME, on the other hand, combined the $112.5mm of new money with roughly a third of the AHG’s exchange debt ($162mm). The blending of new money and exchanged debt effectively diluted the “pure” superpriority protections that new capital usually comes with. Moreover, the new money was offered pro rata to the AHG and Priority group, meaning roughly 78% (~$88mm) was provided by the AHG, while 22% (~$25mm) was provided by the Priority Group (assuming full participation from each group) [7]. Allowing Priority Group participation further reinforces the theme of LME 3.0 negotiations, as a minority group would have a piece of the most senior post-uptier tranche of debt. 

In summary, this transaction was set to provide $113mm of fresh capital and capture a total discount of $67mm, bringing Better Health’s total debt burden to $781mm.

However, the 5th Circuit ruling on December 31, 2025, would soon pull the rug out from under Better Health’s initial LME proposal. As a reminder, the Serta ruling invalidated the use of an “open market purchase” exception to effectuate an uptier. As a reminder, under Serta’s credit agreement, pro-rata sharing was a sacred right, meaning a non-pro-rata exchange would require approval from every lender. An exception to this was the allowance of a non-pro rata exchange through an open market purchase. Simply put, if Better Health were do buy back loans in an open market, it would not have to split the economics equally with every lender. For example, if one lender were to sell its debt at 70 cents, the company could just buy from them without offering the same to everyone else, provided the exchange was deemed an “open market purchase”. However, the term “open market purchase (OMP)”  was never defined in the agreement. Serta and its participating lenders capitalized on that ambiguity in the 2020 uptier, arguing that their private, negotiated exchange constituted an OMP because it involved negotiations between lenders and the company and thereby could be considered “free competition”. This allowed them to bypass the pro-rata sharing provision and execute their well-known non-pro rata uptier that we detailed above.

Fast-forwarding five years, the 5th Circuit’s December 31, 2024 decision would invalidate this methodology. More specifically, the court read that while Serta’s exchange could be considered an “open” purchase, it did not take place in a designated competitive market. The court ruled that a true open market purchase must have taken place on a secondary loan market [13]. Because Serta had privately engaged with lenders outside of the secondary loan market, its 2020 exchange was deemed to violate the pro-rata sharing requirement under its original credit agreement.  

The implications of the Serta ruling were clear for Better Health and its advisors. The proposed LME relied on the same OMP exception to justify a non-pro rata exchange. If Better Health were to continue with the transaction, the company would almost certainly lose when litigating with non-participating lenders. Therefore, Better Health would be forced to find a new workaround to the pro-rata sharing provision if it wished to continue with the transaction. As the company was still likely burning cash of roughly $90mm without an operational turnaround in sight, it would have to act quickly, which leads us to the “extend-and-exchange” structure, proposed just a few weeks later in January 2025, that bypassed the need for a pro-rata sharing exception all together. 

The Extend and Exchange Pivot

At this point, Better Health and the AHG had already negotiated terms for an OMP-based uptier, but the 5th Circuit’s ruling effectively removed that option from the table. Better Health could no longer rely on the legal gray area around “open market purchases”. Any attempt to run the December deal as planned would have most likely have been struck down in court. However, the company couldn’t economically start from scratch, and the AHG would not want to re-negotiate new terms with non-AHG participating lenders. Instead, the goal now was to restructure the deal in a way that would survive any post-Serta litigation. Better Health’s extend-and-exchange structure was the first iteration of this concept. Instead of trying to push an exchange through the old OMP loophole, Better Health created a new “class” of loans and ran the exchange entirely within that silo, keeping it “pro-rata”. Its purpose, which paved the way for multiple early 2025 uptiers, was to bypass the 5th Circuit ruling. Here’s how it worked step by step: 

First, participating creditors agreed to push their maturities from 2028 to 2029. This step was simple, as it relied on traditional amend-and-extend provisions found in most credit agreements [9]. However, under Better Health’s credit docs, any loan with a new maturity is automatically considered a separate “class” [9]. Effectively, the extension split the lender base in two, creating a distinct 2029 class comprised only of participating lenders (~$715mm of debt) and a 2028 class that consisted of just two holdout lenders totaling $20mm worth of debt 

Once the amend and extend was completed and the new class was created, the second step involved the 2029 class executing an exit consent, removing the protective covenant package, collectively known as a “Serta Blocker” that would prevent the incurrance of priming debt, which in this case was the $113mm belonging to the first-out tranche. Importantly, while the 2028 and 2029 maturity groups were considered seperate “classes” under the pro-rata sharing provision, the Serta Blocker still applied to all lenders, and would have to be removed to effectuate the uptier. Otherwise, the exchange would clearly violate the protective covenant package. In other words, splitting into two classes only got around the pro-rata sharing provision, not the Serta Blocker. Importantly, this amendment only required a simple majority of creditors. As we’ve repeatedly discussed, lenders will continue to be prone to LMEs unless blockers become a sacred right. Until then, the required lenders, most often a simple majority, will continue to simply eliminate them [5].

To briefly summarize, the two steps above served different purposes. Step one allowed Better Health to bypass the pro-rata sharing provision while step two removed the agreement-wide protective covenants that would have blocked the transaction. While steps one and two are not necessarily sequential, both must be executed prior to step three, in order to execute an extend and exchange. 

Third, Better Health’s credit docs specified that the pro-rata sharing provision only applied to loans “of a given class” [9]. Once the participating lenders had extended their maturities to 2029, they had effectively formed a new class. Better Health could now strictly offer an exchange to this entire 2029 class (consisting only of participating lenders) while not violating the pro-rata sharing requirement. Even though the holdout lenders with 2028 maturities were not offered an exchange, they were no longer considered the same “class” of debt as participating lenders, and thus received no protections from the pro-rata sharing provision. Therefore, an exchange similar to the originally proposed uptier was made available pro-rata to lenders with 2029 maturities, all of whom had already agreed to participate. 

Notably, the exchange offering featured the same economics as the originally proposed uptier, with a couple of small differences. As detailed by the image below, to briefly summarize again [9]:

1. All but $20mm worth of lenders extend maturities to 2029

2. $113mm in new money was still provided pro rata by both the AHG and Priority lenders. 

3. AHG still exchanges at par into $162mm of first-out debt and $308mm of second-out debt

4. Priority Group now consists of 21% of lenders ($154mm) and exchanges at 80 cents into $77mm of second-out debt and $46mm of third-out debt

5. All remaining lenders are offered an exchange at 70 cents into equal amounts of second-out and third-out debt. Ultimately, 12% of the remaining 15% would exchange $88mm into ~$31mm of second-out and ~$31mm of third-out debt. 

Better Health’s extend-and-exchange closed on January 27, 2025, gathering participation from 97% of total lenders, meaning 97% now had 2029 maturities. The remaining 3% of debt, around $20mm worth, consisted of two holdout lenders [8]. Notably, the holdouts’ debt now became fourth-out and would be paid out last in the event of a liquidation. Nonetheless, the holdouts retained Selendly Gay and sought to challenge the extend-and-exchange method’s treatment of non-participating lenders. The table below summarizes Better Health’s post-LME capital structure:

Note that the total post-transaction debt of $788mm was $7mm higher than the $781mm we projected earlier due to two reasons. First, the final transaction featured a higher number of lenders (21% vs. 18%) in the priority group, at a preferential 80 cent exchange rate. Second, the $20mm of holdouts didn’t exchange at all, so no discount capture may be attributed to them. 

Holdouts & Settlement

At first glance, it appeared that the two holdout lenders, accounting for just under $20mm of loans, were in a very unfavorable position. Their former first-lien debt was now subordinated to the other 97% of the capital structure, with all protective covenants stripped. However, in July 2025, six months after the LME closed, Better Health ended up settling with the holdout lenders and offering them an exchange at quite favorable terms, relative to the other non-AHG lenders. First, the settlement featured a 12.5% cash paydown, equating to roughly $2.5mm of debt. The remaining $~17mm of claims were exchanged at 97.5 cents into ~$4mm of first-out and ~$13mm of second out [8].

This exchange, summarized by the transaction below, represents a massive improvement in seniority for holdout lenders:

Naturally, the question arises: why would Better Health settle in the first place? Ultimately, it comes down to a tradeoff of risk vs. reward. To touch on risk, Better Health was the first transaction of its kind, meaning the extend-and-exchange methodology had never been tested in courts. If the company chose to litigate with the Selendley Gay represented holdout group, it opened the door for the possibility of a ruling against extend-and-exchange transactions, which would jeopardize the entire transaction. At 97% original participation, the transaction was already largely successful, raising over $100mm of new money and capturing nearly $60mm of discount. An unwinding of the transaction would be disastrous for both Better Health and the AHG. Moreover, the cost of the settlement itself was quite small. Given that just $20mm of debt was exchanged, the dilution to the first-out and second-out tranches was marginal. 

Settlement Recovery Analysis

All in all, the settlement itself represented an outstanding win for holdout lenders and a relatively neutral outcome for Better Health and participating lenders. To illustrate this effect, we’ll detail recoveries in the event of a liquidation for lenders both before and after the exchange. 

For enterprise value, we’ll use sale prices of $500mm and $750mm. $500mm represents an extreme downside case, implied by debt trading levels before the original LME (original first-lien TLB trading in the 60s). $750mm will serve as a base case, implied by debt trading levels following the LME (third-out tranche trading in the 30s). We’ll start by examining recoveries before the settlement:

In the event of a distressed sale, the AHG recovers far better than both Priority and Non-Priority lenders, reflecting the large amount of AHG debt that sits in the first-out tranche. In the more optimistic $750mm sale, the recoveries of all participating creditors approach par. In both the downside and base cases, the holdouts recover nothing, highlighting the impact of complete subordination. In this scenario, holdouts only receive a recovery once every other lender is paid off in full. 

Now, observe how recoveries change following the settlement:

In this downside scenario, the recoveries of participating creditors are nearly identical to those of the pre-settlement scenario. However, the holdouts jump from no recovery to 63%. The upside case tells a different story, though, as non-AHG participating creditors’ recoveries drop by upwards of 10% while the holdouts receive a full recovery. This is reflective of the fact that the holdouts exchanged into the first-out and second-out tranches, while the non-AHG lenders (excluding Priority new money) were now partially subordinated to the holdouts as they exchanged strictly into the second-out and third-out tranches. 

The analysis above numerically justifies why Better Health and the AHG were willing to settle with the holdouts. The settlement altered AHG creditor recoveries by less than 2% in the downside scenario, with no change at all in the optimistic case. The holdouts, on the other hand, were able to materially improve recoveries, jumping ahead of other minority creditors. This asymmetry of outcomes highlights the risk-reward calculation that Better Health faced when deciding whether to settle with lenders or litigate. Ultimately, Better Health decided to buy peace with the holdouts rather than bring a brand new transaction under judicial scrutiny. By contrast, both the Priority and Non-Priority groups had already exchanged into the new debt. While they may have objected to the settlement’s preferential treatment of the holdouts, their potential threat of litigation was far weaker, given that they had already consented to the exchange. 

Key Takeaways

To recap what occurred, Better Health, in December 2024, facing a near-term liquidity event, originally designed a classic non-pro rata uptier LME, utilizing an open market purchase exception to the non-pro rata sharing provision. On December 31, 2024 the 5th Circuit ruled that Serta Simmons' use of the OMP exception was invalid as it did not occur on the secondary market. This meant that Better Health, which was also pursuing a private, non-pro rata exchange, could not follow through with the original uptier. 

The company’s solution was to bypass the pro-rata sharing provision by creating a new “class” of debt, and then offering an exchange solely to that class. Better Health created the new class via an amend-and-extend in which participating creditors extended maturities by a year. As these extended loans now constituted their own class, the company was able to offer a “pro-rata” exchange solely to the extended class while leaving out any holdouts who didn’t extend. This move allowed Better Health to quickly run a very similar exchange to the original uptier, raising $113mm of new money and capturing over $60mm of discount. 

Better Health’s LME illustrates both the fragility of a growing healthcare platform and the evolving toolkit of sponsors and creditors. Three takeaways stand out in particular. 

First, Better Health’s distress was not triggered by a shift in consumer demand or a failing business model. Instead, a simple 3% revenue contraction stemming from Medicare risk-scoring changes was effectively the nail in the coffin,collapsing margins. As Better Health, like many other primary care groups, dealt with rising labor costs, the CMS risk scoring changes were enough to swing from EBITDA from $100mm+ to ~$20mm, all while the company footed a higher-for-longer elevated interest burden. For a rapidly growing Medicare Advantage MSO, modest policy changes can have outsized impacts on liquidity, evidenced by nearly $100mm of cash burn. 

Better Health’s rapid pivot to an extend-and-exchange model demonstrates that liability management is adaptive and here to stay. The Fifth Circuit’s ruling on Serta did not stop priming transactions. Instead, it simply forced borrowers and their advisors to find new levers to pull within the credit documents. Within weeks of the ruling, Better Health became the first live test of the extend-and-exchange, with Oregon Tool and Wellness Pet coming shortly after [10]. The lesson is clear in that LMEs will continue to evolve faster than courts can constrain them. 

Lastly, possibly the most surprising outcome was the windfall achieved by the $20mm of holdout debt. While initially left subordinated, their recoveries likely jumped from zero to par through a settlement that cost the borrower and majority creditors next to nothing. This highlights the negotiating power held by small lender groups, when they are able to credibly threaten litigation, especially against an untested transaction structure. For the AHG and Better Health, the settlement acted as a cheap “insurance policy”, but for the holdouts, it was paramount. Importantly, it shouldn’t be viewed as a weakness in the transaction’s design, but a no-brainer decision for the borrower. Since the July settlement brought the extend-and-exchange’s participation up to 100%, we won’t see the true viability of this transaction tested by Better Health. Instead, the real legal test might occur when a holdout group, too large to settle with economically, threatens litigation. 

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