Liability Management In Finance: Key Considerations For Dutch Borrowers

Developed in the US since 2016 and now a relatively common phenomenon in the US, liability management exercises (LMEs) are making their way into European debt structures. LMEs allow borrowers to access liquidity and reduce their debt burden through contractual permissions rather than in-court or extrajudicial restructuring processes. While these exercises can help companies attract new financing, they also may have implications for creditors and lead to "creditor-on-creditor violence", where different creditor groups act strategically to protect their interests, often at the expense of others.

Despite their controversial nature, US courts, particularly in New York, have generally sanctioned LMEs, considering it primarily a contractual matter. As a result, LMEs are becoming institutionalised and an expected feature in US debt structures. Adding nuance to this expectation, however, a recent US court ruling overturned a USD 200 million uptier transaction.