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Liability Management Exercises Continue After Courts Have Had a Say

May 23, 2025 | 4 minutes reading time | By John Hintze

The contentious loan restructuring cases peaked last year. Aggressive tactics may persist amid market uncertainty.

The leveraged-loan restructurings known as liability management exercises (LMEs) climbed to record levels as troubled borrowers sought to avoid bankruptcy. But the contentious out-of-court transactions have been somewhat tempered by legal rulings as senior lenders continue to defend their interests.

The restructurings, enabled by weak lender protections in loan documentation, generally seek to extend loan maturities, lower interest rates, or otherwise provide relief to debtors. When debt trades below par but the borrower urgently needs cash, aggressive LMEs can be an enticing option. They can result in a transaction’s value shifting in favor of a bare majority of lenders and against the minority.

According to Pitchbook | LCD’s trailing 12-month calculation, distressed LMEs resulting in non-pro rata outcomes for groups of lenders reached a record high of 38 last December. That compared with 21 in December 2023 and nine a year before that.

LMEs this year fell off slightly through March before increasing in April.

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