Navigating the Complexities of LMEs: How Revolving Lenders Can Safeguard Their Position

As liability management exercises (LMEs) become an increasingly common tool for companies navigating distress—often reshaping outcomes that once played out in bankruptcy court—revolving lenders must act early and cohesively to protect their interests in potential restructurings.

In a recent conversation with Octus for the Americas Special Sits & Distressed Weekly, Orrick partners Raniero D’Aversa and Adam Ross shared key considerations for revolving lenders navigating liability management exercises (LMEs) and how they can position themselves for a potential restructuring.

Key Takeaways

• Early engagement with borrowers and sponsors is critical. Revolving lenders are best positioned when they organize early and act cohesively. Establishing cooperation agreements among revolving lenders makes it more difficult for these stakeholders to be sidelined during negotiations or restructuring processes.
• Understand where interests diverge. While revolving lenders’ interests often align with those of ad hoc creditor groups, differences can arise, especially regarding governance and voting rights. In these cases, expanding revolver-only class voting becomes a priority.
• Be there early, be important, and be heard. Advance preparation ensures revolving lenders maintain a seat at the table. It’s important to protect revolving lenders’ ability to participate meaningfully in any subsequent bankruptcy, including access to DIP financing and protections around roll-ups and administrative claims.

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