As liability management exercises (LME) have evolved, their purpose, which is to promote certainty of outcome in the hands of lenders and the borrower company, is generally effected by implementation without courts, and avoiding litigation, at least initially.
District Court Rules Backstop Fees Caused Chapter 11 Plan to Fail for Exclusivity
The “risk management” aspect of LME focuses on the compensation to be paid to the participating lenders to provide new investment and the additional time or optionality gained for the equity sponsor. Frequently the LME is followed by a bankruptcy case in which the participating lenders again attempt to exercise control over the process and their compensation through a restructuring support agreement and a prepackaged Chapter 11 plan. At least one district court has concluded that compensation payable to a subset of lender/investors in a creditor class violates this requirement, derailing a confirmed prepackaged Chapter 11 plan and remanding to the bankruptcy court to remedy.

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