Current Trends in Restructuring : A fireside chat from the 2026 Distressed Investing Summit

Speaker A: Foreign.

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Speaker A: Well, thanks for the introduction, uh, and I wanted to thank the, uh, panelists for coming down here. Scott and I had to had the luxury of coming from the New York area down here, but we made it, so it's all good. Um, so look, we want to just focus on trends in restructuring, what we're currently seeing. We're going to try to make it as interactive as we can. We'd love to get your participation, uh, as we get toward the end of the panel. I don't think you guys want to listen to us for the next 30 minutes. Um, so Mike, why don't we start with you. Let's jump in. Uh, what type of restructurings are occurring both in and out of chapter 11?

Speaker C: Thanks, Andy, and good morning everyone. Um, I would just start by saying that, you know, unlike in many prior years where there were particular industries that were subject to distress, I think today there's no industry that's safe and frankly, no company that's safe. You know, while all of these restructurings have their own DNA, there are common characteristics in the restructurings that are taking place. You're going to hear, you know, about liability management exercises. Um, certainly the effort to keep a company out of a proceeding is driven to a large extent by great creativity of advisors, um, who try to figure out complex capital structures, um, and resolve those problems outside of a proceeding. Sometimes it works, sometimes it doesn't. It's a little bit of a high wire act. Um, the other trend you're seeing as a result of these LME transactions is lender on lender violence the capital. You know, there's been so much liquidity in the marketplace for so long that companies have been able to stay out by just completely attracting new forms of debt. And when things go modestly sideways, um, lenders don't always see eye to eye as to how that debt gets recapped or uh, reconfigured.

Speaker D: Ah.

Speaker C: And often as you can imagine, the people at the top of the debt stack have a certain vision and those that are about to be disenfranchised have another vision. And so what's been occurring in many of the filed cases of late is you'll see, um, a very litigious environment among the lenders in that capital structure trying to figure out who's going to retain their interest, you know, through some sort of debt for equity or other, other type of configuration and who's going to be completely, you know, disenfranchised and receive little or no recovery. So, uh, you know, there's all sorts of lead ups to distress. You know, we're still actually coming out of the post Covid pain and a lot of that pain has been masked by additional credit. Um, you know, now we have uncertainty with tariffs. And so it's, it's a complex environment, but it's not industry specific.

Speaker A: You know, it's interesting um, because some we're seeing more out of courts or at least conversations with out of courts than we've seen in A while where 2024, going into 21st, half of 25, everything was chapter 11, chapter 11. And now all of a sudden it's like people are paying attention to the, you know, the professional fees a lot more, whether they can afford it. So there's so much conversation on out of court. And now all of a sudden we're starting to see, and I'm not sure if you guys are seeing it, we have some of the lenders that actually putting certain conditions on the company for them to provide new money. And one of them, at least one of the things where we get involved in is the fact that they put conditions saying, okay, the company has to achieve a certain amount of uh, occupancy cost savings, how many stores we have to close, how many warehouses we have to sell or close or do a sale, leaseback. And all these conditions are tied to new money coming in. And it's, you know, from an out of court standpoint, from a real estate side, it's only a small window of it. Everything that, you know, Mike Scott are dealing with is really the entire capital structure. So Scott, maybe you want to weigh in on what you're seeing there.

Speaker E: Yeah, no, 100%. I mean we're seeing um, we still see a lot of things, you know, out of court. We still see a lot of chapter 11s as well. Um, And I think, look, you're right, you know, it's not just the lenders. It's the companies, it's their sponsors. There is a desire, right, to stay out of chapter 11 to the extent possible. I think that's what's kind of given rise to a lot of these LMEs. Um, and I think, you know, Mike, you know, you're absolutely right about, you know, uh, it's. The costs have gone up, right, for chapter 11s. And so, you know, to the extent they can be avoided, people are definitely trying to do that.

Speaker A: So, Mike and Scott, what's driving these Chapter 11s that were out of courts right now? I mean, is it just. It's just that whole combination of the macro issues, the lending issues, just sort of, um, a checklist of a whole bunch of things? Or is there one or two or three things that you're seeing more prevalent than others?

Speaker E: Yeah, well, look, I think, you know, there's certainly the consumer, right. Who's been stretched, right. If you look at inflation, yes, inflation has come down, but if you think about it from, you know, kind of the cumulative impact, right. Of the inflation post, um, Covid, you've got a consumer here that's, you know, kind of shifting the way, you know, certain buying habits and that kind of ripples kind of throughout.

Speaker A: Right.

Speaker E: The economy. So, you know, we see that, um, I think the tariff impact, you know, the tariff impact, right. That's still uncertain. People don't really know kind of what's going to happen there. Um, and again, we're coming off a period of, you know, historically low interest rates. Right. And so now that debt needs to be refinanced. And I think that's kind of what's giving rise to, I think, Mike, as you said, you know, pockets of distress not in one particular industry, but kind of throughout the system.

Speaker A: You know, you look at Covid, we talk about, you know, what Covid did to a lot of these companies, but the. There's a lot of companies that did really well during COVID And Matt, I'm not sure what you're. What you've seen on your side being the independent director in some of these companies, but we're seeing companies that just really expanded quite a bit because of COVID and they thought this was the new frontier for them. And all of a sudden they grow. They put a lot of capital into it from a real estate perspective, more real estate than they probably needed. And now all of a sudden they're retracting again. And I'm not sure what you're seeing?

Speaker D: Yeah, I'm seeing that plus what I've been on the board of several companies where they were purchased by a sponsor on the COVID bump of sales and I can't figure out why. But, uh, the private credit lenders gave them all six, seven times leverage on an EBITDA that might have jumped 30, 40% in 21, 22 into 23. And now the music stopped and it's got to be dealing with more and so forth in terms of an adequate restructuring. But that's what I've seen a lot of where people purchased at the height and it doesn't, you know, the math doesn't work anymore.

Speaker A: So, um, Scott, seems like there's a lot of money being thrown into the market right now. Um, debt load is high. What are you anticipating as it relates to the market? I know there's been conversation with other panels, but I'd love to hear your perspective on Z. Is it going to get worse? Is it going to get better? It just seems like there's an awful lot of debt out there.

Speaker E: So look, I think heading into the year, right, I think we felt that it was going to be another robust year for restructuring. Um, and based on all the things we've been talking about already, the tariff uncertainty, right, the um, low rates that now people need to refinance debt at a much higher cost of capital. Uh, so coming into the year, we felt like it was going to be a pretty robust year. And then what have we seen, of course, since then? Right, We've seen some kind of a couple other macro events occurred that, you know, at a minimum, put some uncertainty into the system. The first being, uh, the rollout of A.I. uh, and of course it's been going on for a while, but you really started to see the impact, I think kind of earlier in this year. And so we'll kind of need to see where the dust settles there. And then of course the other thing is the war in Iran and you know, with energy prices kind of shooting up, like that's going to have a ripple effect, certainly if they stay high for a sustained period. Of course, they came down, I think yesterday quite a bit based on our president saying some stuff and then kind of going the other way when the rest of the world kind of scratches their head at his comments, which is, you know, kind of typically the case. Um, so I think, you know, when you look at those two macro events, right, and put that on top of kind of our views heading into the year, we think that it's going to be another active year, for sure.

Speaker A: Mike, what are the challenges that you're dealing with relative to whether it's these. In these Chapter 11s with the trustees, um, arbitrators? It seems like we're starting to see more of that lately. Just curious to see if there's a trend that we're seeing something that we haven't seen a couple years ago.

Speaker C: So I think that everyone works really hard to keep companies out of chapter 11. And we were having this conversation, uh, last evening, and that's great if you can pull off that magic trick. But often what happens is you go through, whether it's lme, uh, or some other technique to try to stay out of chapter 11. And it's very prolonged, very expensive, and there's additional stress on a company that's already distressed. And then, you know, the prize in the Cracker Jack box is you end up in chapter 11. So clients will say, I don't want to hear the word chapter 11 come out of your mouth. Don't bring any advisors in that use the word chapter 11. We are never, ever, ever going to file chapter 11. And I'll say to them, that's fantastic. We're completely on board. We can't wait to pull this off for you. But understand, if it doesn't work, if you think chapter 11 is expensive, wait until you see your bills pre chapter 11 and then in chapter 11. So it's always. It's always dicey. The cases that we're involved with that are filing chapter 11 are judged by how fast you can emerge. I mean, I think we just did a Pre pack in 20 days, and the client was saying, can we do it in two days? I said, well, you know, I guess, you know, maybe you'll get some judge someplace that's going to, you know, actually confirm a Chapter 11 plan without anybody filing Chapter 11. I mean, because you can't get much faster, you know, than doing pre packs the way they're being done now. And that's all designed to limit the expense and the professional fee burn while in chapter 11. Um, but it's still a very, very expensive exercise, especially if you overlay lender versus lender litigation, which we are been confronting in every case until. Andy, to your point, a judge will say, you guys decide on who your mediator is, and we want this resolved. And the good news is, in the most contentious cases that I've been involved with, where I would say there is no way these sets of lawyers and adverse parties will ever settle, they still 95% of the time settle, which is good news. But getting there, I think the case that hopefully will settle today or tomorrow, um, I think our adverse counsel in a case that's three months old, I think their bills are about $35 million.

Speaker D: Yeah. I mean what I find is that everybody has to take it to 11:59pm no one wants to think they left anything on the table. So you almost have the mindset they're never going to settle for an out of court until they think they've basically gotten every nickel. So sometimes you have to actually spend the prep and show them the documents. So it kind of defeats the purpose. The other thing I see with the out of court that Mike was alluding to is again as a director, um, and I'm negotiating the restructuring in terms of, with the lenders as to what the new capital structure looks like. Some of the private credit lenders just are not willing to take any kind of conversion of debt and they still want their interest and they still want it. So they've never really solved the problem and the company is still over levered and then it ends up as Mike says back in, you know, for the first time in chapter 11,

Speaker A: Scott, how's your restructuring been going on the out of courts and trying to put all these different players together because you have all different parts of the capital stack. You have different people buying at one level, different people buying at another level. I mean I, and then, I mean it's like herding cats and I just not sure how you guys are doing it and doing it as well as you're doing it.

Speaker E: Yeah, no 100% and you know, look, it's going, it's a very active part of the business. Uh, it's going very well. Again, the reality is, you know, it's, it's all, it's the companies, the sponsors and the lenders, people want to avoid chapter 11. Right. So at least from that perspective there's a shared objective. Um, and yeah, you're right, people have different bases. There's you know, some people want, you know, know, less debt, some people want, you know, um, extend the Runway. Right. Um, but again, I think the, the reality is, you know, when you do these out of court transactions, you know, you've got to be bridging towards something. Right. And you know, hopefully you're bridging towards, you know, some dip in the cycle or whatever it may be. But the businesses need to perform and I think when they don't perform, that's when we end up in the situations where. Right. You do the LME and then you looking at a, uh, chapter 11 kind of down the road. But now the business has still been, uh, very active for us for sure.

Speaker A: You know, it's interesting if it's a very simple capital structure where you just have an ABL and you have a bunch of locations, the out of courts, at least the conversations we're having is like they're all of a sudden we're back to having conversation about composition agreements, which is like that bankruptcy outside of a chapter 11 there, you know, you're not spending the money on going to court, but you're still, you know, you're making sure that you got the right disclosure there for the creditors. You still got to have some financial advisors, you're still going through it cheaper. But it can only just seems to only work if it's a very, very simple capital structure. Mike, I don't know if you're seeing that at all. I've just literally started hearing it again.

Speaker C: Yeah, I mean we have seen it, but, um, like I said earlier, it's sort of a high wire act whether you, I mean, Andy, you and your team have pulled off amazing work out of court. Um, but you're right, the capital structure, you know, matters. The days of a simple abl, you know, and Wells, you know, making all the decisions and being able to work around and out of court, I have not seen that ease of a capital structure. And the more personalities, the more debt, the more complications and the less likely to, to actually accomplish an out of court.

Speaker A: So Matt, at the board level, this is obviously an important topic. You got lots of constituents, you have the private equity guys, you have all these different players that you're trying to manage. How do you do it? Uh, cause this is a different type of trend that you might have even, I think it's harder now than it was maybe even two years ago.

Speaker D: Right. And an earlier panel, a gentleman said it, well, you know, the sponsor is willing to take the lottery ticket and the lenders don't want to take the lottery ticket. So there's that dynamic. Uh, I mean, when I come in as a director, I always want to have my own counsel, uh, which helps. And what I tell the lenders, let's say if they put me in there is, I'm happy to communicate with you, but when you have executive session, I'm not going to tell you anything. So again, I take the fiduciary role very seriously. And it's really just being transparent. When you can be transparent and when you tell them you can't tell them something. That's what it is. I find that one of the biggest challenges is managing management who hasn't been through a restructuring. So you almost become like their shrink. And so, and I tell the lenders and the sponsor, I can be the go between because I've been through it, they haven't been through it and let me deal with them because they're going to be, I don't want to say bipolar, but they're going to be high and low as they go through it and it's really just, you know, holding their hand and spending time with them.

Speaker A: So I want to go back to liability management. It seems like it's a topic that we hear more and more about. I'm just learning about it this year in a case that we're involved in. Didn't understand all the mechanics around it. So love for you to walk us through this and also some of the techniques. Scott and I want to see how this ties into the chapter 11 side of it with Mike and then bring it to the board, uh, with Matt.

Speaker E: Yeah. So I think look at its core, you know, liability management is using the flexibility in a company's debt documents, right. To execute a ah, transaction out of court that you know, potentially raises capital or extends maturities, um, and potentially achieves deleveraging. Right. And so you know, in, in the liability management toolkit has evolved significantly over the years. When I joined Blackstone back in 2011, so before the spin out right into PJT, when we would think about liability management, it was usually some sort of, you know, kind of more plain vanilla, maybe a distress tender. Right. Or an up tier transaction where you're exchanging unsecured bonds into say a first or, or second lien, um, debt. That's kind of like what we did back in the day. Now it's evolved significantly. Right now you start seeing more of the kind of non pro rata up to your exchanges. Right. So it's kind of cert as your classic example there where you're kind of reshuffling the deck within a certain instrument and basically giving contractual seniority to some of the existence existing lenders. Right. And then uh, so that's kind of like one area and then we do transactions that are called drop down transactions. And what does that mean? That's essentially moving assets outside of the current restricted group into, you know, in an unrestricted subsidiary.

Speaker A: Right.

Speaker E: And then exchanging debt or raising capital against those now unencumbered assets. So it's a really nice way to bring capital into a Company if, you know, if debt's kind of trading at whatever, some discount to par, and it's otherwise tricky to raise money. So those are what we call drop down transactions. Think kind of J. Crew being the one that a lot of people have heard of. And then there's been other flavors of these transactions that have occurred over the last few years. One we refer to as, um, we call it Perry plus. Right. So it's similar to the dropdown where there'll be assets moved into an unsub, and then there'll be debt raised at that unsub that has a guarantee back at the restricted group. So it's got a peri claim at the restricted group, plus it's got a priority claim on these new assets that were moved into the unsub, hence the Perry plus nomenclature. And there are others as well, right? There's things called double dip, or you've got, you raised debt that has two claims, right? A guarantee and an intercompany claim back at the restricted group. So, you know, the technology continues to evolve. Uh, it also evolves a lot when, you know, some of the lenders and the credit agreements, they'll put all these kind of what we call blockers in the credit agreements that are designed to prevent companies from, you know, doing some of these transactions. So we have to kind of, you know, work with Mike and friends and say, okay, well, we can't do these in this credit agreement agreement, you know, but, you know, it's got this provision and that provision, and we start kind of coming up with other workarounds. So it evolves kind of in real time. Um, but that's kind of fundamentally what LMEs are.

Speaker A: So, like, the preference issue question seems to come up. You think about good co, bad co, um, as part of these LMEs, what do you, how do you deal with that?

Speaker C: So, I mean, Scott just did an amazing job describing such a complex, yeah, uh, set of transactions. And ultimately, you know, it depends upon what wreckage, if any, is left behind.

Speaker D: Right.

Speaker C: If everybody's, you know, playing nice and everybody is reading the credit documents the same and saying that these transactions can occur and they don't feel like they've been harmed by it, then you have a classic out of court opportunity. I would say more often than not, there are people in that debt stack that may not agree with the construct of these transactions and may feel aggrieved. And typically they'll express themselves in a pre bankruptcy litigation matter. And then depending upon where that case is situated, what, uh, the company thinks is the Likelihood of success, they will either just gut that out in some state or federal court, um, or they'll file chapter 11 in some sort of pre packed arrangement and try to, you know, outvote and for lack of a better term, because it's not technically, you know, cram down the dissidents. So it's often a precursor to some event, whether it's a litigation event or a bankruptcy. But if everybody plays nice in the sandbox and, and wants to save money and aggravation and the risk that comes with a proceeding, then the out of court can very well stick.

Speaker A: So when an LME gets started, if you had to take a guess on percentages, 50, 50, they're working 70, um, 5, 25. What's your experience?

Speaker C: I would probably defer to Scott. He's.

Speaker E: Yeah, it's a tricky question, right? Because, you know, if you think about like what is a successful lme, right. You know, if, if a company needs capital and it needs capital quickly, right. And we're able to do something that, you know, kind of funds the uh, uh, the business for a period of time and buys a few years, right. For the company to hopefully grow into the capital structure or bridge through some period.

Speaker D: Right.

Speaker E: I view that as a successful transaction, even if the company at the end of the day doesn't do that.

Speaker D: Right.

Speaker E: Because we've given that optionality. Right. It's given a company a chance. It's also given stakeholders an ability, right. To trade in and out of the paper if they want, uh, rather than having companies just crash immediately into, into bankruptcy. So I think it's. Yeah, it depends on how you define success. Right.

Speaker A: Um, non liquidations.

Speaker E: Yeah. Well, look, I mean, most of these reorganize, right. Um, you know, so I mean, yes, maybe you're pushing off a chapter 11. Right. But again, I think there's, there's value there. Right. Even if that is the ultimate outcome. Um, so I don't have like a great percentage for you, but I think it's, you know, when you think about the companies and their stakeholders, when they're facing distress, right. And they have an ability to solve something fairly efficiently out of court. Right. Again, I think that I view that as, as a successful transaction if it kind of buys, you know, sometime buys optionality.

Speaker A: Okay, um, Matt, let's go back to, let's go back to the boardroom for a second. Um, kind of walk us through some of the challenges you've had, some of the successes you had that you'd say, give me a case study saying, gee, If I could replicate this, something that you've done in the last year that worked, this would be one that you'd want to do.

Speaker D: Well, I guess I have to give a shout out to Raymond James. I don't know if Mike's in the room, one of my glasses on so I can't see. I know he's being on. So I was on the board of this company called Acoustis Technologies. And, uh, they got hit with a patent infringement lawsuit. So that forced them into bankruptcy because they couldn't, uh, um, afford the payment because it was more of a startup, uh, making wafers for routers. And, uh, we basically couldn't find anyone to buy it. We got a liquidation bid and I sat down with the CEO, had to go because he was involved in the patent infringement. The guy who was promoted, again, this is part of. I, uh, guess what I do was giving me the woe is me speech. And I basically said to him, I said, look, there's a liquidation bid. It's X, you know what you have to beat. Go out and find someone to buy it and it's yours. You know, it'll be in bankruptcy court, everyone can bid against you and so forth. And he actually went out and found SpaceX. And we went from like X million to like triple when we finally got to the auction. Uh, and the company's now doing great. All these guys got SpaceX shares and so forth, and so they're doing really well. And the recovery for the unsecured creditors was much more than they thought. So, uh, you need to never give up. But part of it is, and this wasn't great, and someone said this earlier, you got to have a plan when you go into bankruptcy to know how you're going to get out. Unfortunately for us, we only had liquidation, but we had time and we had a good investment banker and so it worked out.

Speaker A: I'm going to ask the same question. Scott and Mike, what are the. If you looked at a couple of deals that you've done over the last year saying, gee, this would be. Over the last year and a half, this is the post to child saying, I'd like to see if we can get this replicated again when you have liability management issues.

Speaker E: Yeah, Michael, I'll defer this one to you. I mean, look, we've done a million of these things, um, and we're involved in not all of them, but we're involved in a bunch of them. And again, I view success as anything where we're able to bring in capital pretty quickly. And kind of solve a company's near term problems and continue give them a chance. So I think, I mean, I view like the vast majority of the ones that we've done as successful even when they, you know, again, ultimately end up filing. And, and by the way, the Chapter 11s do get much more interesting, you know, uh, for lack of a better word, you know, if these companies do file down the road. Because now you've gone from, you know, the old school chapter 11s where, okay, you kind of do some, you know, uh, uh, a valuation and debt capacity analysis and then kind of figure out who gets what. Now it kind of introduces all these different allocation issues if you've got certain assets that are outside of the group and different lenders have different claims on different pools of assets and whatnot. But, um, it's kind of got me thinking about that as well.

Speaker C: So I think since COVID we probably have filed close to 300 Chapter 11 cases. Um, and I would say the vast majority of a very high percentage have been successful through the chapter 11. It depends how you define success. I'm, um, excluding liquidations, I'm excluding, you know, the bed baths and sort of knock down, drag out liquidation scenarios. Um, but you know, you got to be careful not to spike the football too soon because, you know, Rite Aid came out and then went back in. And so, you know, a lot of These confirmed Chapter 11 plans are hard fought, uh, negotiated. Lenders are entitled and want to make sure that they're, you know, they have a good shot of getting a decent recovery back. And sometime sometimes the companies just can't succeed. Post 11. Forget the amount of expense to go through it, um, just the go forward business because as you said, you know, macroeconomic issues, you know, the world isn't static. You think you have a great chapter 11 plan and you can come out and be facing a tariff issue where then you have to go to your, uh, you know, Walmarts of the world to say we now have to pay our vendors in China 25, 30% more. And Walmart says, too freaking bad, we're not changing our programs, we're not paying you more. And so now you're on this merry go round of having to deliver to keep hope alive to Walmart and losing money with everything that goes out the door to them. And so you never know what you're going to confront. And so I would define success as, you know, confirmed Chapter 11 cases that can withstand the test of time.

Speaker A: Right. So what do you see different? If you had, if you had to look into the future for the next 12 months. What do you see that might be different or might be the same that you see now versus maybe a year ago? Because you're filing every case that hits America these days.

Speaker C: Yeah, well, I think that, um, we're going to see more of the same. Um, I think there's going to be further pressure on everybody on this panel to expedite whatever exit or results can be expedited because of the weight of the cost. I mean, you know, middle market companies, and I don't know how you define middle market anymore. You know, a billion dollars of debt, you know, a couple hundred million dollars of debt, it's very hard to withstand the rigors of a Chapter 11 process. And I think, I think Matt's role is going to get more complicated and complicating because, you know, the boards are being presented with very aggressive strategies, and Matt's, you know, being brought in to give an independent director's view and sometimes a very conflicted environment. You know, management lenders, sponsors, you know, and calling balls and strikes in that environment is not an easy thing to do.

Speaker D: Uh, that's why I hired good advisors like pjt, because what I always say is, I don't want to be there when they make the sausage. Just tell me how it kind of ends and if it's okay.

Speaker A: Matt, private credit just seems to be front, um, and center in a lot of these cases right now. I mean, it's just over and over again. You coming in as the independent board, how are you, how are you dealing with that? And at what point do you say, enough is enough, I'm walking away. This is not. I can't deal. I can't deal with all the different competing interests.

Speaker D: I try never to walk away unless, uh, they cross certain lines. But, uh, as I said earlier, my biggest frustration with the private credit lenders is if they want to take over the company, that's fine. But when you're an owner, you're an owner and you're no longer a lender, and you need to think about management's incentive, and you need to think less about how do I get all my money back first? And so that's my biggest frustration when I really sit down with them and say, this is the way it has to be, because otherwise, as, as Mike alluded to, you're just going to eventually be in chapter 11. All you're doing is kind of postponing it. I don't know if you're trying to not take a write off because you're fundraising or you're a bdc, so you don't want to have it. You know the mark to market. But you have to face reality. And if you want to be an owner, act like an owner, act like a private equity sponsor. That's what they do. And so you've got to step up to the table.

Speaker A: How are you dealing in situations where you have some of the. Is some of the people on the team that call the private credit team, where some guys want to participate and some don't? Are they just buying each other out or how's that? Because that's got to be more complicated than I've seen in the last year, than probably the last couple years.

Speaker D: It is. And the irony is, because I'm dealing with one now. They see each other in so many deals, and sometimes like, well, this person kind of gave me the. Screwed me in this last deal, so I'm going to do it to them in this deal. And so sometimes you have to get that out of the way and you have to work with the person who's willing to write a check. And I always say, look, if someone's willing to write a check, I'm not going to go in front of the judge and saying, no, we're going to get rid of this company and these jobs because somebody else thinks liquidation doesn't want to put money in and somebody is willing to support it, because I've had that before. And who's ever willing to write a check usually wins.

Speaker A: So what are your, Scott, uh, what are your biggest challenges dealing with a board?

Speaker D: The biggest challenge is dealing with the board. Well, several. One is you have the sponsor who has different motivations, and most I've dealt with have just been high integrity, easy to deal with. But I say to them, the biggest thing you should want if the private credit are going to take this over, you want a release. So we need to hire an independent lawyer. We need to do investigation so no one can challenge anything. We have that in our pocket, you know, and obviously I ask, have you taken a dividend recently? Have you stopped management fees, all that kind of stuff. So that's one challenge in getting the sponsor to say, I guess as, uh, someone alluded to earlier, get rid of the lottery ticket and say the best thing for you is to cooperate, uh, get a full release so you can just go do good deals, not waste your time on bad deals. Um, and as I say repeating myself, with the private credit lenders, it's getting the right capital structure going forward. Uh, in other Words. If you have, in this case, I'm dealing with now 700 million of debt, but there's like 80 million of EBITDA. You can't leave 700 million of debt, cash pay on there. You've got to just understand. And I don't know how you report to your LPs or if you're a BDC, that's not my problem. But you've got to realize what reality is. Uh, and with management, it's kind of understanding that this is going to be a nine inning game with extra innings and so you can't get too high or low as the restructuring happens.

Speaker A: Um, Scott. Ah, what's the, uh, you have to deal with the board constantly. So if you had to say, what's your biggest obstacle that you have to deal with and how you've dealt with it.

Speaker E: Yeah, you know, I don't even view it as much as an obstacle. You know, I think, um, with all of these cases, whether you're dealing with the board, whether it's a sponsor, whether it's a direct lender or other lenders or an ABL or, you know, maybe the company's done, you know, uh, an LME transaction in the past and there's assets all over the place, right. Um, it's actually one of the fun parts of the job, right. Is you look at what appears to be a total mess, right? And then you just kind of work through it, right? And you know, at the core a fundamental part of our job is forming consensus, right? And trying to cut deals and kind of get to the right place. And the boards certainly appreciate that when we can kind of say. And you also want to simplify things a little bit, right? And explain for them, okay, this is kind of what we're doing here, there and kind of, this is the kind of the path that we think is going to, is going to work. Um, but that is the fun part of it, right? And you kind of work through things one at a time. You start bringing people together. Um, and certainly, yes, if you do end up with some situations where some people can put money in, some people can't, right? There's going to be, you know, enhanced economics going to the people, you know, who can write the check. So oftentimes that paper does trade, right? If someone's going to get a 20 cent recovery and the other person 80%, okay, they'll just kind of cut a deal and buy the paper from one another. Um, but kind of figuring out all those, you know, different negotiations and yes, we bring in mediators Right. Sometimes when we need to, to kind of solve all those individual problems, that's kind of the fun part of the job for us because it starts off and people say, geez, this, this case is going to go on for, you know, two years, you're never going to figure this thing out. And then we settle thing, you know, one thing after another and you know, get a company out in six, nine months. It's, it's uh, it's kind of a fun process. But yeah, the board dynamic is always interesting. Right. And these boards are, you know, obviously very sophisticated, right. Whether it's a public company or a sponsor backed company. Um, and you know, with them it's really, you know, they ask very good questions, they challenge us, which is good. So if there's a, if there's a challenging part in dealing with the board, it's making sure that you've kind of thought about everything, right. Very systematically and you have good answers. You don't want to get a question from a board member and kind of scratch your head and say, geez, I never really thought about that. Um, because yeah, they're very sophisticated.

Speaker D: Michelle, I'll add one thing as a board member. Mike mentioned this to me last night. I never go on a board unless there's D and O insurance, which actually cuts both ways because if you have a large D and O policy, it's a target for someone to sue. So you got to consider both sides of it. They always look for the deep pockets.

Speaker A: So um, 20 seconds for each person. No more than 20 seconds. Prediction for the next 12 months. What kind of trend is there? I think we covered a lot of it, but I'd love to hear if there's anything we missed.

Speaker D: For me, I think it's more M of the same. I mean with energy, uh, prices, it seems like every six, nine months there's just a new thing happening in the market and companies can't plan. And when they can't plan, it's very difficult sectors.

Speaker A: Scott. Uh, anything that comes to mind. I see healthcare, I see education. Those sectors stand out to me as stress over the next foreseeable future.

Speaker E: 100%. Yeah. Education, ed tech, healthcare, media, consumer, retail. Um, right again, you look at if the energy prices are going to be, you know, they're going to sustain at a very high level. You start thinking about, you know, aerospace and transportation, logistics, chemicals, companies which are kind of beaten up on both sides, right. Revenue, you know, kind of soft end markets, plus the input costs. So there's, I think we're going to be very busy for this next, you know, kind of year. Two years and probably beyond.

Speaker A: Well, I'm going to give the answer to Mike. He's done 300 bankruptcies in the last five years. So my guess is you've touched every sector, and every sector is vulnerable.

Speaker C: There's no company, from my perspective, that's safe. And the only thing that none of us can account for is, you know, what can Congress screw up as they look at various Chapter 11 related legislation? That's the great unknown. It's always been a great unknown. Um, fortunately or unfortunately, they never reach consensus on anything material. And when they do, they, uh, usually screw it up. But that's, that's always hanging over everyone's head and it does drive the strategy that we all provide to our clients.

Speaker A: So I'm going to thank you. I really appreciate all the time here, guys. Um, any questions that we have. We have a few more minutes left, so I was just wondering if there's any questions we can answer for you.

Speaker E: Well, thank you, everybody.

Speaker A: Okay, thanks.

Speaker B: We hope today's episode delivered actionable intelligence. We want to hear from the field, share your questions or insights. Leave a message on your favorite platform or email us@editoraadvisor.com to secure your steady feed of premium MA content. Follow us on Spotify, Apple, Apple Podcasts and YouTube and subscribe to our MA Alerts email newsletter. Find the links in the description below or visit us directly at our website@www.maadvisor.com. i'm, um, Roger Aguinaldo, founder and CEO of the MA Advisor. Thank you for being part of the MA Advisor community. Until next time, stay decisive, stay connected and happy dealing with SA.