Panel:“ Best Laid Plans: When Good Restructurings Go Bad”
Summary by Nicole Raca Bromberg- NextGen Class XV
The year 2024 was marked by a boom in liability management exercises( LMEs), but many of them ultimately unraveled into second, or even third, in-court proceedings. Out of a dataset of approximately one thousand borrowers spanning from 1976 to 2026, Moody’ s found that about 35 % of companies that experienced a distressed exchange subsequently faced a repeat distressed credit event within the next 10 years. Of those, about 70 % defaulted within two years. A similar pattern was identified with prepackaged bankruptcy proceedings, which were often followed by other in-court proceedings. Does that mean that LMEs and prepackaged restructurings are falling short of their intended objectives, despite
42 their growing popularity in the United States, Canada, and Europe?
This panel undertook the challenge of addressing this pressing topic. The panel was moderated by Judith Elkin( United States), with panelists Luke Barefoot( United States), Steve Krause( United States), Robert Thornton( Canada), and Robert van Galen( the Netherlands).
The discussion opened with the observation that a“ successful restructuring” is inherently perspective-dependent: a company may define success as preserving the business and jobs, a debtholder as maximizing its return, and a sponsor as preserving its equity or maximizing exit value. In this context, LMEs are one of the legal and financial tools designed to give companies additional runway by extending
maturities, raising new money, or reallocating collateral outside of bankruptcy. Similarly, a prepackaged bankruptcy( or“ prepack”) is a restructuring plan approved by creditors before filing for bankruptcy. It acts as a rapid, consensual process to reduce debt— often confirmed in weeks rather than months.
Therefore, LMEs and some prepacks are designed to tackle balance-sheet restructurings, which focus on the company ' s capital structure( debt and equity) to reduce near-term financial obligations and improve liquidity. More recently, the panelists agreed that modern LMEs have evolved into sponsor-controlled exercises that pit creditor classes against one another, producing winners and losers within the same capital structure and ultimately layering new debt onto the balance sheet rather than reducing it.
By contrast, LMEs and prepacks do not focus on fixing a company’ s business operations, i. e., improving profitability, efficiency, and longterm competitiveness, which involves management, employees, customers, suppliers, and operational partners. That kind of restructuring takes time and typically requires an in-court proceeding with the right tools to implement such structural changes. As illustrated by the many case studies analyzed by the panel, financial engineering through LMEs and prepacks may temporarily improve liquidity, but companies with unsustainable business models ultimately require broader operational restructuring proceedings.
Because of the“ creditor-on-creditor” violence they often generate, litigation also features prominently in the LME landscape. Recent U. S. decisions, including Serta and Mitel,
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