Six years after the pandemic pushed heavily leveraged companies into distress, some of the lenders that took control are beginning to cash out.
Tailored Brands, owner of clothing chain Men’s Wearhouse, filed on July 10 to return to the public markets. Credit investor Silver Point Capital, which has owned the business since its 2020 restructuring, will remain the principal shareholder.
Strategic Value Partners and Sixth Street Partners sold $743 million of LATAM Airlines stock in a secondary equity offering in February, winding down a stake they inherited through the bankruptcy of Latin America’s largest airline holding company in 2022.
Aeroméxico, whose largest creditor was Apollo Global Management, has traded in New York since November. The listing raised $223 million and came three years after Mexico’s flagship carrier embarked on a $5 billion post-bankruptcy fleet modernization plan.
With defaults and bankruptcies edging up once more, these are useful case studies of what happens when lenders take the keys to a company. But many private credit managers appear already to have learned their lessons, according to bankruptcy experts.
Some lenders now negotiate ownership structures at origination that would make a future debt-for-equity conversion more efficient, said Joshua Sturm, a partner in the restructuring group of law firm Proskauer. Clients are going beyond closing liability-management loopholes, he said, and are “insisting on ownership structures that would facilitate the most efficient equitization process if that ever becomes necessary.”
One example from his practice involves stacked holding companies above the borrower, so lenders can foreclose on equity at the top layer and still sell it cleanly at the next: “structural protections that would show up on an org chart,” he said, that borrowers often barely notice “because it doesn’t cost much to do.”
This is not because lenders want the keys, Sturm said. Equitization is “sort of a last resort in most situations,” but they want it to go as smoothly as possible if it comes down to it.
The preparation extends beyond capital structure, said Daniel Shamah, a partner in Debevoise & Plimpton’s restructuring group. More lenders are using liability management exercises, or LMEs, not just to swap out debt and extend maturities, but to gain more control over corporate governance. This could include reserving the right to delegate key business decisions to lender-appointed directors.
“More investors now using LMEs defensively to pre-wire different contingency plans that bypass bankruptcy if the ‘Plan A restructuring’ doesn’t succeed,” Shamah said.
