How to Build Strategy in Restructuring Negotiations

Prioritizing creditor groups

A company's creditors are rarely homogeneous; senior secured lenders, unsecured bondholders, and trade creditors each carry different risk appetites and different bargaining power.

Negotiation strategy is built by clearly laying out what each group stands to gain or lose against its own alternative, whether that's liquidation, litigation, or a sale.

The role of the standstill agreement

Early in negotiations, a standstill agreement that temporarily halts creditors from starting enforcement action is usually a critical step; it lets the parties negotiate on a planned basis rather than under duress.

The standstill's duration and scope need to be carefully bounded; an ambiguous or overly long standstill can test creditors' patience.

Managing information asymmetry

The distressed company's management usually holds far more information than its creditors; but sharing that advantage in a controlled way, rather than withholding it, builds trust over time and speeds up the negotiation.

A common information set prepared by an independent financial advisor makes it easier for creditors to trust the scenario management is presenting.

Making the alternative scenario concrete

The most effective tool in negotiation is a concrete, numerical answer to the question "what happens if there's no deal"; that answer usually draws on a liquidation analysis or the outcomes of an insolvency process.

Once that alternative is laid out clearly, it becomes easier for the parties to evaluate the proposed solution against their own interests.

The holdout risk from small creditor groups

In some jurisdictions, even a small group of creditors can block a deal; this risk needs to be mapped early, with that group's expectations managed separately.

Where collective bargaining mechanisms exist, such as majority-vote binding agreements, they significantly reduce this holdout risk.

Frequently asked questions