The Insight by Oaktree Capital
Navigating LMEs with Armen Panossian, Ronnie Kaplan, and Ross Rosenfelt
Feb 13, 2025
Join Armen Panossian, Co-CEO and Head of Performing Credit at Oaktree, along with Ronnie Kaplan, a Portfolio Manager for U.S. Senior Loans, and Ross Rosenfelt, a Managing Director and Restructuring Lawyer. They discuss the rising prominence of Liability Management Exercises (LMEs) and their benefits over traditional bankruptcy. The trio delves into the complexities of debt restructuring, uptier transactions, and the delicate balance between lender strategies and borrower assistance, all while navigating a volatile credit landscape.
36:49
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Quick takeaways
- Liability management exercises (LMEs) have gained traction as a preferred means for borrowers to restructure debts outside of bankruptcy, offering flexibility and preserving equity for stakeholders.
- The efficacy of LMEs largely hinges on a lender's position size and relationships, empowering larger investors to secure advantageous outcomes not easily attainable by smaller creditors.
Deep dives
Rise of Liability Management Exercises
Liability management exercises (LMEs) have become the preferred method for borrowers to restructure debts outside of bankruptcy, now outnumbering traditional bankruptcies. These exercises are appealing due to the potential to avoid the lengthy and costly Chapter 11 process, which often results in a complete loss of equity for sponsors. In situations where borrowers engage in LMEs, it preserves optionality for stakeholders, allowing companies to work through financial distress while avoiding immediate loss crystallization. This flexibility can help maintain customer relationships and provide much-needed time for recovery, albeit with inherent risks since about 50% of LMEs ultimately lead to bankruptcy filings.
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