Chris Gartman Discusses Evolving Creditor-on-Creditor Disputes
Borrowers and private equity sponsors continue to develop new tools to avoid bankruptcy.
Highlights
Creditor-on-creditor disputes and liability management exercises continue to evolve as borrowers and sponsors look to avoid bankruptcy.
More challenges to liability management exercises are proceeding past the motion-to-dismiss stage.
Liability management exercises are leading to more investigations, both internal by companies appointing independent committees to conduct investigations and by examiners appointed by courts to probe disputed transactions.
Gartman notes a growing shift toward pro-rata liability management exercises.
Chris Gartman discussed the constant evolution of creditor-on-creditor disputes and liability management exercises (LMEs) with Alternative Credit Investor.
Gartman noted that borrowers and private equity sponsors continue to develop new tools to avoid bankruptcy, driving constant change in the market, but that those using LMEs often end up in bankruptcy anyway. Given the complexity and constantly changing dynamics in LMEs, it is critical to have counsel that is well versed in these transactions. “You need to make sure that you’re tracking everything. The deal documents, the litigation element, the courts and the judges that are issuing those decisions,” Gartman said.
Whether before or after bankruptcy, LMEs are leading to significant litigation. According to Gartman, one trend is that lenders are buying in after a LME has closed, and then pursuing litigation.
He further observed that more cases are proceeding past the motion-to-dismiss stage. Investigations by independent committees of a borrower’s board of directors and/or a creditors’ committee are also becoming more common, and bankruptcy courts are increasingly appointing examiners to probe these transactions.
Gartman also noted an increasing shift to pro-rata transactions.
“That means that most or all the lenders are participating in the LME,” he said. “A lot of the litigation that has been pursued to date has been about non-pro-rata deals because we’re talking about deals that were done several years ago that are now being challenged. But I think that there’s less of an appetite for mass litigation so there is more of a shift.”
Featured Lawyers
Stay Up to Date
Sign up to receive practical updates, fresh perspectives and helpful guidance delivered straight to your inbox.
Stay connected for our latest news and insights.