By Joshua A. Feltman, Emil A. Kleinhaus, Michael S. Benn, Benjamin S. Arfa, Michael H. Cassel, Stephanie A. Marshak, and Matthew C. Rowe (Wachtell, Lipton, Rosen & Katz)
Much ink was spilled in 2025 (and before) arguing that liability management exercises are doomed to fail, with the Financial Times reporting that around 80% of companies default on their restructured debt within three years of an LME. But the success stories are real. Just ask stockholders of Lumen, Carvana, EchoStar, CommScope, U.S. Renal, Boardriders, The RealReal, WideOpenWest, and others. At the same time, the costs involved in LMEs can be significant: direct transaction expenses and (often) increased interest burden, as well as hidden costs when LMEs delay necessary balance-sheet restructurings or lead to deferrals of capital investment. Despite the bad press, LMEs are not going anywhere. To quote Charlie Munger, “show me the incentive and I’ll show you the outcome.” For sponsors and public company boards, the prospect of executing an LME that extends runway and has a meaningful chance of success is tantalizing and, in many cases, a sound alternative to a costly bankruptcy. For creditors, participating in an LME can provide the inside track for improved treatment in a subsequent restructuring and enhance returns regardless of whether an LME proves “successful.” For better or worse, these incentives remain strong, and as a result so too does the place of LMEs at the front of the distressed company playbook. Within this article we discuss trends from last year and predictions for the next in the LME space.
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