Restructuring & Special Situations

Restructuring is what happens when capital structures break - liquidity crisis, EBITDA decline, covenant breach, or external shock. From that point it's a contest between creditor classes trying to minimise loss. The advisor's job is to navigate law, model recovery, and negotiate the waterfall. Seniority is absolute. Super-priority (DIP, admin) gets paid first. Then senior secured (60–80% typical recovery), senior unsecured (40–60%), subordinated (20–40%), mezzanine (0–20%), and equity - usually nothing. The fulcrum security is where value runs out in the capital structure, and whoever holds it controls the negotiation. Find it by estimating going-concern EV and layering claims down until value is exhausted. The 13-week cash flow model is the key diligence tool. It reveals the liquidity runway - weeks until cash goes negative - and that runway is the clock driving every deadline. Manipulated forecasts are common; trust bank statements over projections. The toolkit spans out-of-court workouts (amend & extend, waivers, exchange offers, standstills) and in-court processes: US Chapter 11 with its automatic stay and DIP financing; UK schemes of arrangement requiring 75% by value and majority by number per class; German StaRUG; UK pre-pack administrations. Loan-to-own means buying fulcrum debt at 30–50 cents, converting to equity, and emerging with control. Red flags to watch: fraudulent transfer and preference risk (90 days US, 2 years UK), hidden liabilities (pension deficits, environmental cleanup, multi-employer withdrawal), and management manipulating cash flow. Distressed valuations produce ranges, not points - wider range means steeper haircuts.

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