Max Frumes, global head of distressed and restructuring, Jane Komsky, a distressed legal analyst, and Sami Vukelj, a private credit reporter, dive into the evolving landscape of liability management in distressed firms. They reveal how recent transactions, like those involving Pluralsight and AMC Entertainment, are allowing broader lender participation in recovery efforts. The trio discusses the shift towards more collaborative restructuring methods and the ongoing challenges borrowers face amid rising interest rates, shedding light on innovative financial strategies in turbulent times.
Liability management has evolved towards collaborative strategies, promoting mutual benefits among creditors instead of aggressive competitive tactics.
The Pluralsight and AMC transactions exemplify innovative approaches to restructuring that prioritize maintaining healthy lender relationships and long-term viability.
Deep dives
The Evolution of Liability Management Exercises
Liability Management Exercises (LMEs) have shifted from aggressive maneuvers that incentivized lenders to compete against one another to more collaborative approaches aimed at mutual benefits. Historically, distressed companies would create conflicts among their creditors through tactics like 'drop down' or 'up tier' transactions, which often resulted in litigation and significant costs, exemplified by the complex Robert Shaw bankruptcy case. The recent trend showcases structures where a significant majority of lenders negotiate terms that avoid adversarial outcomes, allowing stakeholders to collectively agree without resorting to costly legal conflicts. This evolving landscape reflects a growing recognition of the importance of lender relationships and a preference for mechanisms that support the long-term viability of companies.
Innovative Transactions in Private Credit
The Pluralsight transaction exemplified a unique approach to liquidity issues by moving key intellectual property into a subsidiary while keeping creditor relations intact through a cooperation agreement. Initially perceived as a hostile LME, this maneuver ultimately aligned with creditor interests, demonstrating how strategic decisions can alleviate potential conflicts. The revenue generated from this transaction was primarily used for interest payments rather than enhancing liquidity, which raised questions about the underlying purpose of such maneuvers. Overall, the transaction counters the narrative of creditor violence within private credit, emphasizing that collaborative strategies are often more effective.
Positive Trends in Distressed Companies
AMC Entertainment's recent restructuring effort involves dropping certain assets into an unrestricted subsidiary while ensuring fair treatment between varying lender groups, showcasing a cooperative effort from a historically contentious environment. By negotiating terms that accommodate both second lien and term lenders, AMC pushed out maturity deadlines to 2029, allowing for improved stability and financial health moving forward. This approach not only avoids potential bankruptcy but also enhances the company’s standing among its creditors, highlighting the trend towards innovative and holistic solutions in debt restructuring. As the market continues to evolve, this kind of strategic collaboration may motivate other companies to adopt similar methods to navigate financial distress effectively.
Not all liability management deals are "violent"; in fact the majority of deals in 2024 have allowed for participation by non ad hoc group lenders who in the past had been entirely cut out of the economics of non pro rata priming transactions.
For this week's episode of Cloud 9fin, global head of distressed and restructuring Max Frumes, distressed legal analyst Jane Komsky, and private credit reporter Sami Vukelj walk through the world of liability management.
The discussion covers the benefits and limitations of this kinder, gentler LME trend, with a focus on the Pluralsight and AMC Entertainment transactions.
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