FICC Focus Davis Polk’s Tsiouris on Next LME Act: State of Distressed Debt
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Apr 16, 2025 Natasha Tsiouris, a partner at Davis Polk & Wardwell LLP, discusses the dynamic world of distressed debt, focusing on creditor-side strategies. She highlights the shift in liability management transactions and the growing need for lender consensus to minimize litigation risks. Tsiouris emphasizes the importance of prompt negotiations among creditors to avoid chaos. Plus, she shares insights on private credit restructurings and anticipates evolving trends, including the rise of flexible 'deal away' strategies that could reshape the landscape.
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Evolution from 1.0 to 2.0 Deals
- Liability management transactions evolved from 1.0 to 2.0 deals emphasizing lender consensus.
- 2.0 deals include minority lenders economically to avoid litigation, reducing risk and fostering consensus.
Deal Away Threat Influences LMEs
- The threat of 'deal away' in liability management pressures existing lenders to agree to tighter terms.
- Few actual third-party deals occur, but their threat influences negotiations strongly.
Creditor Discord Elevates Deal Away Threat
- Deal away threats are heightened when creditor groups are disorganized and unable to reach agreements quickly.
- Sponsors use this dynamic to justify alternative deal structures for faster and more certain execution.