People
Eric Koza
Partner & Managing Director, Global Co-Leader, Turnaround & Restructuring
New York
The past year demonstrated how roiling markets, amplified by geopolitical and regulatory volatility, continue to reshape our economic landscape.
This environment, with a variety of financial forces at play, has made traditional financing avenues more challenging to access, and companies under stress are increasingly turning to alternatives like Liability Management Transactions (LMTs).
This year’s survey further highlights these shifting dynamics. A significant majority expect an increase in out-of-court restructurings and LMTs will, in many cases, present the preferred course of action. It’s not hard to see why. The growing availability of capital from private credit and opportunistic funds, combined with the appeal of streamlined deal execution that avoids traditional syndicate negotiations, and the escalating global costs of formal bankruptcy proceedings, make these alternatives increasingly attractive. LMTs can deliver breathing room by extending debt maturities, revising terms, and buying time. However, this can be a double-edged sword.
While liability management transactions can provide immediate relief, they often create a false sense of stability, leaving deeper credit and operational issues unaddressed. For these transactions to be truly effective, it is essential that organizations establish sound business foundations and credible liquidity and operational plans to support long-term resilience. Such reliance on amend-and-extend solutions may inadvertently sow the seeds of future distress, as expectations of another wave of inflation—or at least an extended period of elevated interest rates—casts long shadow over businesses. For those that attempt short-term liability management measures but fail to fully stabilize core operations, the likelihood of distress down the line increases significantly, and we are already seeing several instances of this play out in the market. This narrowing window for future action should be a key concern. Should the business fail to stabilize or should market conditions deteriorate further, the options become far more limited, and defaults could accelerate at pace.
If the cost of formal restructuring is high, the price of executing an LMT poorly—or relying on it as a singular lifeline without a broader recovery strategy—could prove even steeper. On one hand, the growing availability of private credit in today’s markets provides greater financing options for struggling companies. On the other, this influx of capital—while offering short-term relief—can leave businesses more exposed if they fail to address underlying structural issues. In many cases, companies emerge from these transactions with increased leverage and reduced flexibility in future negotiations with lenders, all while continuing to grapple with the same unresolved operational and performance challenges.
Management teams naturally prioritize business continuity above all else. If an LMT is the necessary route, there are critical steps to take to maximize the likelihood of a successful outcome.
We advise management teams to develop and execute a comprehensive plan that fully integrates the transaction’s implications into the company’s business plan, liquidity forecasts, funding needs, and operational strategy. Furthermore, scenario planning is essential to stress-test whether the business —post-transaction—can withstand future market disruptions, while also assessing whether its broader operating model is aligned with evolving economic conditions.
Ultimately, any liability management efforts should be integrated into a broader turnaround plan, creating a vital record of sound decision-making by management teams and at the board level. While a valuable tool, an LMT must be seen as a bridge to addressing the core challenges, and a potential foundation for sustainable business recovery, if executed correctly.