Liability management transactions which may favour a subset of creditors over another are increasingly common in the US leveraged finance markets. 2024 may be seen as the year in which these US imports began to make a real impact in Europe. Which strategies could creditors employ to protect themselves from unfavourable treatment where such transactions are attempted?

In the current market, investors are increasingly considering their options in relation to the stressed and distressed credits in their portfolios. Whilst mindful of stakeholder relationships, secured lenders may, in some circumstances, wish to consider the "nuclear option": enforcing their share pledge over a holding company of the operating group (ideally, such pledge being over a single company which directly or indirectly holds the entire business - a "single point of enforcement").

Senior secured creditors, being the anchor creditor in the capital stack, will always be focused on ensuring their priority claim is as robust as possible, with clearly delineated capacity for 'super priority' debt. However, today's documentary flexibilities, coupled with local legal restrictions, can mean senior secured creditors are not as 'senior secured' as they think. Here are some points to think about.

Super Senior Debt

General partner-led fund restructurings accounted for the majority of private equity secondaries volume in 2020 as managers sought liquidity in a flat exit market

Private equity (PE) fund general partners (GPs) faced a challenging year for returning cash to their investors, leading many to turn to GP-led fund restructurings to create liquidity for investors as fund lives expire.

 In a decision published October 19, 2020, Judge Frank J. Bailey of the U.S. Bankruptcy Court for the District of Massachusetts found that an Indian tribe was not subject to the Bankruptcy Code’s automatic stay.

The U.S. Court of Appeals for the Third Circuit recently confirmed that bankruptcy plans need not always recognize subordination agreements among creditors.

In 2015, Distressing Matters reported on the Third Circuit’s decision in In re Jevic Holding Corp., wherein that panel ruled that, in rare circumstances, bankruptcy courts may approve the distribution of settlement proceeds in a manner that violates the Bankruptcy Code’s statutory priority scheme.