Davis Polk partner and Restructuring practice co-head Damian Schaible and partner Brian Resnick were quoted in Petition on the biggest bankruptcy themes of 2022 and the outlook for 2023.

Regarding major trends from the year, Damian pointed to liability management and lenders vs. lenders. “It was inevitable with increasingly loose documents, tremendous amounts of money flowing into credit managers and a higher interest rate environment, but sponsors are now increasingly looking to lever documents and creditors to provide liquidity, discount capture and maturity extensions, and creditors are increasingly willing to play ball. In 2022, we saw an explosion in threatened and executed non-pro rata deals, and the few recent challenges surviving motions to dismiss have done little to tamper the environment.”

Brian also mentioned “increasingly creative liability management exercises, broadening of companies taking advantage of these opportunities, resulting effect of creditor groups organizing early and often (and sometimes signing cooperation agreements), debt trading prices reflecting assumptions about anticipated liability management and some interesting judicial decisions on uptierings” as themes from 2022.

Asked specifically about their predictions for the biggest restructuring theme of 2023, Brian noted that private credit/direct lending funds will play “a more direct role in the traditional restructuring space, either using their dry powder to refinance distressed businesses, or going through more significant workouts of their own existing loans.”

Damian added that he expects to see more “bootstrap A&Es” as supply chain and demand issues continue. “2024 and 2025 maturities will become a real focus for sponsors and public companies. Staring at maturities that are not refinanceable in the regular way used to prompt companies to consider deleveraging restructurings, but now they much more frequently look to utilize weak documents to offer carrots and sticks to incentivize existing creditors to extend maturities,” Damian explained.

BK Pros Weigh In,” Petition (December 21, 2022)