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Will Delaware keep its top spot?

Rachel Albanese & Daniel Shamah nearly in unison: Delaware. Back to basics.

Kevin Eckhardt.  Houston, nowhere else is safe and they clearly want to keep the party going.

Josh Feltman:  I don't see any reason for things to change all that much. New Jersey may correlate with retail, but beyond that.....

Mark Lightner. Southern District of Texas.

Jennifer Selendy:  Here’s hoping it’s SDNY.

Paul Silverstein:  It is clear that Houston and Delaware will continue be the two principal venues for large complex chapter 11’s in 2025. The fallout over “Jonesgate” seems to be ending and Houston is ultra “predictable” with its complex case assignment rules that either Judge Perez or Lopez will preside (much like a filing in the SDNY’s White Plains division used to be assured of getting former Judge Drain).  

Cliff White: How is it possible that the Southern District of Texas will retain or exceed its position as the number 2 bankruptcy filing haven in the United States (behind only Delaware) while the Jones-gate scandal goes unredressed? 

LMEs dominated in 2024. Will the trend continue?

Covenant Review tracked over 30 transactions year to date that involved LME elements in 2024. In contrast, less than 20 comparable LMEs were tracked in 2023.  More and more of these subordinate existing lenders according to S&P. How many do you expect in 2025? 

Rachel Albanese: 50? The better question is how many will have a lasting, net positive impact?

Kevin Eckhardt.  I expect over 100, because every refinancing/recap transaction now features some element of LME-ness. Unless Serta gets reversed, then there will be zero because truly abusive transactions will feature some new label. Bring back Jones' "PET."

Josh Feltman:   A lot:  euphoric markets will lead sponsors to take advantage and stock acorns for winter; i.e., cash in on loose covenants in pre- (or only modestly) distressed situations by putting cash on the balance sheet, even at the expense of covenant flexibility that could drive discount down the line.

Jennifer Selendy: 30+

Daniel Shamah. 43.2

Paul Silverstein:  It’s obviously difficult to put a precise number on LMEs for 2025, but we will likely see as many, if not more, in 2025 than in prior years.  

Co-Ops: Good or Bad?

Rachel Albanese. Good if used to maximize value instead of throw bombs. 

Kevin Eckhardt.  Good, if they get enforced in bankruptcy. The less litigation among creditors the better. We'll see how Houston views them when a debtor objects (spoiler: Houston will not enforce).

?Josh Feltman.  Good, if open to all; bad if used by a 51% group to consolidate power at the expense of the minority; and indifferent in many situations, as existing covenant flexibility makes voting-control blocks irrelevant and companies can do deals with financing sources other than existing lenders.

Mark Lightner.   Both.  They can stymie unfriendly LMEs (good), but also create unfair divisions between favored creditor groups at the expense of those creditors who are not parties to the agreement (potentially bad).

Jennifer Selendy: It depends.  If used to enforce pro rata rights that exist and address breaching transactions, good.  If used tactically to create leverage where it otherwise doesn’t exist or effectively renegotiate terms, bad.

Daniel Shamah. Neither. They may encourage more consensus. But they also just as often lock people out of deals, making it even harder to achieve consensus

Paul Silverstein.  Both+. If you’re an excluded lender, they’re bad.  If you’re a lender in the coop group, they’re good.  If you’re the group’s counsel, they’re very good.

Will Serta be reversed by the 5th Circuit?

Rachel Albanese. Yes

Kevin Eckhardt.  No. I think circuit court got its frustrations with Houston out of its system with the Jones complaint and Ultra.

Josh Feltman. Soorrrrrt of… I predict a referral to a New York court.

Jennifer Selendy. Yes. If there is any justice, the 5th Circuit will reverse.

Daniel Shamah. Yes. I think the Fifth Circuit will reverse and remand for further factual development.

Paul Silverstein.  Yes.  While the Fifth Circuit has not been quick to decide the appeal, I certainly hope/think that we will see a reversal of Judge Jones “open market ruling” in Serta. 

Is Restructuring Dead?

Rachel Albanese. No. In time, LMEs hopefully will become one of the tools in our restructuring toolbox, not a sideshow.

Kevin Eckhardt. No. Restructuring is "liability management." Always has been (astronauts in space with gun meme). LMEs are just bankruptcy-style one-sided restructurings crammed down on minority creditors and dissidents before a petition is filed. In other words: Restructuring is not only not dead, it is a fungus slowly spreading and taking over all other forms of life.

Josh Feltman.  Not all out of court activity is “LM” rather than “restructuring”.  I believe the sophistication of the parties and the enormity of the pools of capital in consolidated hands means less in-court activity overall; and I believe some LM will succeed in preventing restructurings that even 10 years ago might have been necessary, for want of other means of obtaining liquidity; but LM won’t fix a broken business model or even, in most cases, a fundamentally over-levered balance sheet.

Sydney Levinson. As liability management has increasingly become synonymous with creditor-on-creditor violence, the need has arisen for a new euphemism to describe our industry.  If I were to take a crack at it, I’d suggest something like “financial redecorating” or “balance sheet renewal.” That said, this is probably a job best left to the same investment bankers who devise clever code names for projects (my personal favorite was Project Rubicon, the code name used for the Caesars restructuring).   Or perhaps a contest sponsored by the Creditor Rights Coalition with a suitable prize for the winner.

Mark Lightner.  Restructuring is not dead, and the existence of weak covenant protections has facilitated the recent surge in LMEs and out-of-court restructurings.  Although many believe that the chapter 11 process has become too expensive and unwieldy, there will always be a need for more formal restructurings.

Jennifer Selendy. Parties will continue to be creative in finding ways to avoid or delay filing.

Daniel Shamah.  We go by “solvency strategists.”  We’re still workshopping it!

Paul Silverstein.  Restructurings are not dead, and never will be dead; but the trend will continue to be “amend and pretend”. 

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