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.