LME Doomscrolling — Just because you can, doesn’t mean you should

In this episode of LME Doomscrolling, 9fin’s senior LME lawyer Laurie Tomassian welcomes Bill Derrough, Managing Director and Chairman of the Capital Structure Solutions group at Jefferies.

Bill has over three decades of restructuring experience, with a roster of over 600 restructurings completed. What sets his deals apart is a track record of high creditor participation. Over his career, his deals have garnered on average 94% of creditors’ support.

He brings a new lens to the LME debate, offering a way to use sticks and carrots to get a consensual outcome, not to fuel continued creditor-on-creditor violence. In this episode he walks us through how he avoids the LME pitfalls of what he calls “bad investment banking” that lead to short-term liquidity solutions while creating diminished long-term recoveries. Bill and Laurie speak about how the prevalence of repeat restructurings has impacted creditor behavior and walk through some success stories that have created what Bill likes to call “durable” solutions.

Have any feedback for us? Send us a note at [e-mail]. Thanks for listening!

Creators and Guests

Producer

Chase Collum

Head of Podcasts for 9fin Limited

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**Laurie Tomassian**

I don't think I'm surprising anyone when I say LMEs attract controversy. But there's room for debate. Do they give more than they take? Or do their harms outweigh their good? We are going to figure this out together. I'm your host, Laurie Tomassian. Welcome. Let's doomscroll LMEs.

During this episode, I'm speaking with Bill Derrough, the Managing Director and Chairman of the Capital Structure Solutions Group at **Jefferies.** Bill has 35 years of experience in the restructuring space, having advised on more than 600 restructurings. He brings with him a track record of out-of-court transactions with high creditor participation, 94% on average over his career. The broadly consensual outcomes he achieves stand in contrast to the narrative that LMEs don't deliver what they promise to. During this episode, Bill sheds light on what works, what doesn't work, and what shouldn't even be tried when strategizing around a restructuring. We talk about a right way to do a successful LME with a nuanced focus toward the long-term needs of a company. Bill walks us through how it's done. Here's our conversation.

Hi, Bill. Great to have you on. Thank you for joining me.

**Bill Derrough**

Thank you for having me. Nice to be on with some of my favorite people out in LA.

**Laurie Tomassian**

So I want to start with a look at the arc of your career. Almost three decades later, and you're having a full circle moment back where things started at **Jefferies.** So I want to know how things are going and I'm curious what you're leaning toward and maybe looking to stay away from during this chapter of your career.

**Bill Derrough**

So it is an interesting full circle coming back to **Jefferies.** **Jefferies** is a completely, in many ways, completely different firm than I left in 2008. I think in 2008, maybe **Jefferies** was top 40 in M&A. Today, **Jefferies** is a number five global M&A firm. Does more large cap M&A transactions than my old firm. Has top industry bankers in just about every industry area. And it's not just a banker. It's a whole team, tremendous presence in markets around the world. And just far more tools in the toolbox that we have here that we can offer to our clients.

And so I think it's very exciting, I've just been on with a couple creditor buy-side clients today. And all the things I talked about are very relevant to them. Whether they're a CLO manager or private credit manager having access to world class industry bankers and industry banking teams can be very, very beneficial to them as they're thinking about what to do with stressed credits, particularly if they think they might end up having to own them at some point down the road or owning some equity.

Thinking about augmentations of management teams, corporate governance, strategy, when's going to be the right time to sell, having folks that we could bring to the table who have been doing credit and debt exchanges for 35 years. We've got people who've been doing building products for 35 years and people who've been doing healthcare services for 35 years and chemicals for 35 years and metals and mining and have global context. So it's very exciting.

We also we're the number one trader of Latin American emerging market debt. So it's been spending a fair amount of time around Brazil and other places in Latin America. We, there's just, I described as they walk around the floors and find tools flying around that are relevant to our clients and we're using them.

**How debt exchanges began**

**Laurie Tomassian**

Yeah. And we wish you all the best in this, in this new chapter back at **Jefferies,** but as you said, it's been 35 years really that you've been in this space. And I think it's probably safe to say that you have seen the entire historical evolution of the LMEs as we know them today. And you've explored many out of court alternatives to Chapter 11 as well. Can you walk us through maybe a bit of history of the evolution of LMEs, perhaps a thesis of how they started, I presume very well-intentioned and maybe some trends that have shaped them over recent years.

**Bill Derrough**

Sure. So if you go way back, there was a desk on the trading floor at Salomon Brothers called Liability Management, which originally was really about helping mostly investment-grade rated companies optimize their bonds. Typically, it was all bonds and they might've had a single rated bond trading at '99 and seven eights and had a two year maturity. And there was a way to arbitrage where that was trading and, and new issue rates to, for the company to pick up a quarter point here and there.

And when the high yield bond market was created by Michael Milken and **Drexel** in the early eighties, there came times when a company did to rework those bonds. Refinancing regular way wasn't available. People didn't want to go into bankruptcy, but maybe there was a maturity problem or a cash pay interest problem. And the folks at **Drexel** figured out that you could use exchange offer laws and rules under the tender offer rules to exchange bonds. However, the challenge was, how do you get all the bondholders to participate? If they, let's say it's a maturity coming up in a year, there's an incentive to be a holdout or a free rider.

And in the mid 80s, **Drexel** along with **Skadden** **Arps** identified this ability to do what's called an exit consent. So if you crossed over the 50% threshold of voting bonds, those exchanging bonds could vote to change the covenants of the old bond being left behind as a way to incentivize people who didn't want to go into the deal to come into the deal. So if you took it to its extreme, if you could remove all covenants, including covenants to pay interest and guarantees and things like that, you could make those bonds left behind very unattractive. But the offers were, I'm not aware of any offer that was made that wasn't offered to everybody.

But back then that was, that was pretty thought of being very aggressive, this exit consent concept. And there's litigation around it, which ultimately was over objections, which was litigation overturned *Katz* *v.* *Oak* *Industries.* And exit consents became that initial cool, clever tool to try to drive debt exchanges. But there weren't that many firms that were really good at it. And as the restructuring business expanded in the early '90s and boutique firms were created that did restructuring for the most part, and then **Drexel** went away, there really weren't that many firms doing bond exchanges in the 90s as opposed to just doing bankruptcies. And you had these bankruptcy focused boutiques like, you know, **Blackstone** at the time, almost everything they did was a bankruptcy. **Rothschild,** same thing. **Miller** **Buckfire,** which may have been **Wasserstein** **Perella** at the time, same kind of dynamic.

And really there were only two firms that were doing debt exchanges in lieu of bankruptcies in the immediate post-Drexel period. And that was **Jefferies** and then **Donaldson,** **Lufkin** **&** **Jenrette.** And it's not a surprise because the largest group of people who left **Drexel** when **Drexel** blew up became Jefferies**.** And the next probably biggest group over time went to **DLJ.** And those became large leveraged finance businesses, but were very active in doing debt exchanges in lieu of a hard restructuring.

And the technology has continued to evolve in terms of new ideas. I joined **Jefferies** the first time in 1998. I had started my career at Salomon Brothers. I had not worked on any exchanges. I'd worked on debt financings and M&A. And I really learned how to do bond exchanges here at **Jefferies.** And we did some pretty interesting transactions from that 98 to 08 period that I was here. And frankly, when we were competing against the other restructuring groups, we would go pitch a sponsor in a bake-off.

We were the only ones pitching debt exchanges. Everybody else was pitching bankruptcies and we're going to hold your hand through a bankruptcy process. And the truth is we weren't super popular with the bankruptcy lawyers pitching debt exchanges because they really wanted it to be a bankruptcy. And so, really this current era of what people like to call liability management, I would say it's the market catching up to stuff that we've been doing for, at least me personally, going back to 1998, 1999. And by the way, the **Jefferies** folks who have been here since 1991, they were doing it back then. So, Rich Handler, CEO of **Jefferies,** was a bond trader. He was one of the ones executing a lot of those debt exchanges back in the nineties.

**The cost of Chapter 11**

**Laurie Tomassian**

Yeah. And I think of personal interest is the decision to go either Chapter 11 route or an out of court restructuring or the LMEs as we know them today. I guess what I'd like to know is how do these conversations go? And is the fact that an LME might not necessarily be successful, which we'll get into more detail later on in this episode, is it ever part of the conversation today?

**Bill Derrough**

Okay. I think there's a phrase I used to use when I was at **Jefferies** the first time, which is I've never met a management team or board of directors or sponsor shareholder who says I can't wait to be in Chapter 11. And there's a general fear of losing control, losing equity, losing value. And that was before the costs of Chapter 11 got to be so high, the fees. And so I think our clients were always open to hearing the idea.

But back then, a lot of times the lawyers would tell them, it would push them more into the more traditional hard restructuring dynamic with corporate governance, things and stuff like that. And it feels like the market has really come the way of wanting to at least explore ways to avoid Chapter 11. And particularly today, when you've got Chapter 11s, the fees that are just out of control, $50m, $100m, $200m dollars in professional fees in a regular way Chapter 11.

**Why creditor splits fail**

**Laurie Tomassian**

Yeah. And I'd like to get at the heart of the mechanics of these out of court transactions. And when you and I decided to record this podcast, I think it was born out of this idea that, well, your transactions don't necessarily fail and they have a very high participation rate. And I want to get into why that is taking a step back more and more. We're seeing research come out that points to the idea that these out of court LMEs don't work as well as they promise to. And that's particularly true of the non-pro rata, coercive, more aggressive type LMEs, as we discussed in the first episode of this series. But there's also an increasingly critical lens on an even broader range of out of court LME transactions.

I guess before we dive in, what are your initial reactions to this research about LME rates just not being very successful over time?

**Bill Derrough**

Sure. So I don't think there's one transaction that happened, at least not that I'm aware of, when I was at **Jefferies** the first time, **Moelis** for 17 years or here, where our end game objective was to have it be a non-pro rata outcome. So let's say 60% of the loans got to do the up tier and 40% got left behind as an end game outcome. And we certainly pitched a lot to them.

In fact, we were proposing using the open market purchase and provision leading to non pro rata prioritization back in 2013 when we were advising a sponsor in **Millennium** **Health.** But we were proposing that as a stick to get people into the deal. So basically saying to people is, hey, look, it was like 80% of the loans were prepared to do the deal and 20% didn't want to. They wanted to sue the sponsor, the shareholders. And what we proposed was the 80% will basically reprioritize the liens and leave the 20% at the back of the bus if they don't come in.

But again, that was meant to be a stick to get to high participation, not to have them get left behind. It's a personal view, but I think I've been saying this for a long time. And I think the results have proved out that approaching these where it's 55/45 or 60/40 or 70/30, and that's the end game that 30% or 40% will get left behind.

I just think it’s bad investment banking. There's no world when we would go out and pitch a company and say, oh, you have a $1b loan coming due in 2028. Why don't we refinance 60% of it and leave 40% behind to deal with later? You just wouldn't do that.

And I've heard different reasons from people as to why their advisors push for this. In some cases I heard people saying, well, that left behind piece is going to trade at big discounts. You can buy it back in the open market and take care of that problem that way. I think that was a fallacy. You never got enough trading, enough of it trading at a low enough price to make that really possible and are in very, very few circumstances. And even if you did in so many of those cases, it created a litigation where you were spending millions, if not tens of millions of dollars on that litigation. So using up that liquidity that you were adding in.

The other thing, I think a lot of these deals really were just liquidity enhancement transactions. The company was running tight on liquidity and people said, oh, this is a neat way to add liquidity to the balance sheet. And maybe it's below market. I heard one of my competitors say that. But if the quid pro quo for raising that new capital is going from a 1L structure to now effectively 3Ls, the new money is the 1L, the first out, the up-tiered amount is now the second out and they get the third out. And you've then closed up all of your baskets because that tends to be the outcome. You've wound that situation so tightly that everything has to work perfectly. Otherwise, you're going to have another default. You have no flexibility as the company. You've now got these three priorities, really an inability to raise any incremental capital. That's not going to be a bankruptcy. And you've got this litigation outstanding. So I think the criticism is fair.

And I would say the outcome's totally predictable from my perspective. And it's why over my career the groups I've run our average participation rate in our out-of-court deals, so our debt exchanges, is about 94%. That's every tranche every rate of participation at **Jefferies** the first time it was 99.3% because we had a lot of 100% deals. We have some deals that are like 98.5%, 99%. And it doesn't mean you're giving away the store, right? But you're using these carrots and sticks we've talked about for 25 plus years to get people to come into that, into the transaction.

**Laurie Tomassian**

Yeah.

**Bill Derrough**

And I, frankly, I know that there's investors out there who like to say, okay, because we're on the inside group we're getting a better return, better outcome than the left-behind group. If that's coming in because the company is filing for bankruptcy 12 to 18 months down the road and the left behind group is getting a zero. I'm not sure that's, you're still taking that company through a bankruptcy. It's still a default. You're probably, what you're getting back after that restructuring, that second transaction is probably not worth what it could have been worth because of all the things I said before.

**Laurie Tomassian**

Okay, I have a lot of questions here, but given the statistics and the chance of repeat distress, you've just talked about creditor motivations and behavior. Knowing what we know now, when creditors are rushing to participate in a deal today, how much of that enthusiasm do you think is truly a genuine attempt to maximize value and give the company space to right size and readjust versus just positioning themselves for a better seat at the table in what looks like an inevitable restructuring down the road?

**Bill Derrough**

I think it's more of the latter. The fear. No one wants to be left out, right? So I think there's this, even for some institutions who said, I was never going to participate in non-pro rata deals. They're participating in non-pro rata deals because they don't want to be in the left behind group. The pure creditor who isn't going to participate in these kinds of things. But I think for most part, they are positioning themselves to protect themselves relative to what they perceive to be a very likely and inevitable hard restructuring down the road. And I think in many ways, the system, meaning the advisors have played into that as well.

And for those ones that have had repeat transactions, restructurings, I feel very confident to say that what those creditors who thought that they did better are getting back in that second or third round, it's not a great recovery relative to if everyone got together at the very beginning and said, okay, what's the right corporate finance answer for this company? Okay, there's some debt reduction, we need to do that. There's some enhancement to the creditors from maybe a rate perspective. Maybe there's some tightening up of covenants, but not everything.

It needs to be, I think, a little bit more nuanced conversation around the right structure for the company going forward. That might require more coming from the owner, whether that's giving up a little bit of equity or things like that, but in exchange for a durable, which is a phrase we like to use, a durable debt exchange, reliability management outcome, I think that's worth it.

**CommScope and the durable deal**

**Laurie Tomassian**

Yeah. And I want to talk a bit more about when things do go right. And you have mentioned your high participation rates that date back to marketing materials you have from the early 2000s. What I'd like to know is how have you generally avoided the pitfalls and what does it really take to get a mostly consensual deal from all of these different stakeholders?

**Bill Derrough**

Well, I think as a starting point, we try to work with our clients to define what our objectives are. And I don't think the objective should be to do an LM deal. The objective really is, what are your goals? So when we were working with **CommScope,** which had about almost $10b of debt, I don't remember exactly, but we worked with the board and the management team. We came up with five objectives. It was something like, okay, we know we have to deal with our maturities. There was 6% of debt coming due. We would like to deleverage, ideally capture discount, but deleverage. We didn't want our new debt that we structured to be overly restrictive. We probably said flexibility. We also didn't want it to be overly expensive. And we probably said shareholder enhancing.

And so the strategies that you're implementing should be informed by those objectives at all times. And so almost like, I'm not sure who said it, I think Mike Tyson said it, everyone's got a plan until you get punched in the face. And Churchill or somebody said no battle plan survives the first encounter with the enemy. What we've always said going back again, back to the early **Jefferies** days is you might have a primary plan, but you need to have developed backup plans that you can pivot to along the way and need to maintain situational flexibility.

So going back to **CommScope,** we had a group of creditors we were negotiating with and we were making progress, but there were a number of things that we weren't happy with. And we quietly ran two other parallel processes so that we had options available to us. And we ultimately transacted with one of those other options.

The other thing I think is really important to keep in mind along the way is the facts change. The facts can change in a way that are helpful to you and hurtful to you. So going with **CommScope,** one of the things we had told management early on was we thought it was really important if we could generate a couple billion of asset sale proceeds, it would be a really good tool to have. We had plans if we couldn't do that. But very early on, we said that and we had thought that one of the assets was going to be saleable, but the market declined. And that one wasn't really going the right way. But ultimately, the team identified a different asset and we were able to sign that up for, I think it was about $2b. And we were able to use that potential liquidity to help drive a good outcome.

And when I say some of the facts change that help you and hurt you, being able to lock that down helped us from the perspective of having that cash to dangle in front of creditors as part of a deal. It hurt us in that the discount that was in the debt pretty well evaporated because of lining up that asset sale. But we adjusted. So we constantly maintained a situational flexibility to modify our paths, but always keeping our eyes on the objectives.

**Co-ops complicate the playbook**

**Laurie Tomassian**

Yeah. And there are, of course, a number of outside influences at any time that might shape the dynamics of a deal. And one I want to talk to you about in particular are co-ops. So interestingly, it's an area where now we're seeing potentially more increased risk with ongoing antitrust suits. But at the same time, they just seem to be growing in number and complexity. And I know you've had experiences with some deals where the changing facts were the positioning of creditors in their co-ops. So what is your take on the evolution of co-ops? And maybe do you have any examples of deals you've worked on where you had to shift the strategy around this creditor behavior?

**Bill Derrough**

Yeah. So we actually had the first, I think the first ever co-op is when we were doing **iHeart** in 2015, 2016. We did that first drop down into an unsub. That was the first one anyone ever really done in a broad market dynamic. And you would have thought that we had been going around stealing everyone's babies or something. We dropped down, I think it was $600m of stock of the **Clear** **Channel** **Outdoor** business into an unrestricted subsidiary. And the cross-tranche group, it was, I want to say $11b of senior debt, loans and bonds, signed up to a co-op. And so that was my first experience with it. And it wasn't, I think it was like around 50%, 55%, something like that. So just enough to block us from getting amendments in the term loans.

And I don't know what that document actually said at that point, but if I was an investor, I probably wouldn't love co-ops in the sense that it controls my ability to do what I want to do when I want to do it. I understand it's mostly a defensive mechanism, but I do think it can get in the way of coming up with the best, most constructive outcome.

There are potentially ways to get around them from an engagement perspective. One of the things that has always been a problem between I should always for probably 20 plus years between companies and creditor groups is the whole getting people restricted to talk about a deal. And the weaponization of the nondisclosure agreements. So the company negotiates that, okay, the creditors are gonna get restricted for whatever, three weeks, four weeks. And if they don't extend, then the company is required to, quote, blow out the information, whatever has been exchanged. And if the company doesn't do it, the creditor is gonna do it. And it becomes this weapon used against companies to try to get them to react the way creditors want them to react. And I just don't think it's a level playing field. Companies typically don't want to blow that stuff out, even if it's very limited information.

And so I think what needs to happen is people need to try to figure out how to work around some of those provisions. The way that we were so successful over the years of doing debt exchanges was typically we would identify one or two or three holders in a situation, ones that we knew well that we had a relationship with and figure out a way to go talk to them, just sketch out the outline of a deal before a creditor group got formed. And you would try to identify thought leaders who understood the challenge and could be constructive.

One example is a deal we did for a **THL** portfolio company back in '14 or '15 called **Inventiv** **Health.** And it was at a real inflection point from a performance perspective. It was, I think, one of the largest checks that **THL** had from that fund. And it needed relief and they didn't have the ability to really put much more equity in. And what we were able to do was convince the biggest bondholders to swap their unsecured bonds into second lien PIK bonds. I think they PIKed for two years. And that was enough to give the company the runway necessary to turn the business around. I think it was $400m or $500m of bonds. There was also, I think, a $600m or $800m or a $1b term loan. And by convincing the bonds to do that, we could then use that as the carrot to convince the loans to do that. And we were able to move the entire capital structure down the playing field.

So I think part of it is also just having trusted relationships with people on the buy side. And being able to articulate why the idea from a corporate finance perspective is a good idea. And you're not just, it's not just a one-sided conversation. You know, you give me something, I want to take advantage of you.

**How Carvana reached consensus**

**Laurie Tomassian**

And what about in **Carvana?** Because that was a 2023 deal where there was a pretty strong co-op with around 80% of creditors and the final deal managed to have 96% participation. What happened there?

**Bill Derrough**

Yeah. So I want to remember the sequencing here. We got hired in November, I think, and the creditor group formed pretty quickly and they signed a co-op. I don't remember exactly when, and they represented they had 75%, 80% of that co-op. We knew that we had unrestricted subsidiary capacity of, I think, $2b. We looked at a bunch of different assets. And if there was 80% in the co-op, that means there was 20% that were not in the co-op.

But what we didn't want to do is get into a negotiation with 20 people in a co-op. They tend to be lowest common denominator conversations. And we did get a proposal from the co-op group over the transom that was really, really ugly. So the objectives for **Carvana** were, number one, turn those cash pay bonds into PIK bonds for at least two years, ideally three years. That was about $500m a year in cash interest across $5b of bonds. I think there were five tranches of bonds. There was also a near-term maturity of $500m that we needed to deal with. So essentially, at least a billion and a half of near-term debt service pushed out.

The debt was trading a pretty significant discount. So ideally, capture discount in the debt and preserve equity value. That's a company that had its equity market cap as high as $70b, $80b just only a couple of years before the peak of COVID.

By the time we got hired, it was probably down to a billion dollars or something like that. And the proposal we got from the co-op group was they would give us the two years of PIK, but no discount. They wanted the shareholders to write a billion dollar equity check. I think they wanted equity. And having represented creditor groups many, many times, dozens of times in my career, it really felt like it was a kitchen sink proposal. Everybody piping off and adding their two cents to a proposal and no one stepping back and going, well, this is so ugly, they're going to throw up all over it and throw up on it.

We did. It was so unappealing, it didn't merit any engagement. The co-op group had advisors who really wanted us to work through them. We knew who the biggest holders were and we had some relationships with those folks. But the question became, how do you get them to talk to you without negotiating an NDA. And what we came up with, we basically said, look, we know there's 20% of the bonds that aren't spoken for. Why don't we launch an exchange offer for up to that amount? I think we did $1b or something like that. And once that's a public exchange, we then have our opening proposal out there and we can then go talk to people and get their feedback. And that's basically what we did.

We were totally prepared to close on that exchange if we got the full participation. But the other added benefit was it became an avenue for some of the larger holders to talk to us about how they were thinking about it. And that became the snowball conversation we had.

I remember going to see one of the big holders the next day after we launched that exchange and having a very substantive conversation around their original proposal, what we put out there and things that they might be willing to do. And we really kept it at that. We kept it at two or I can't remember exactly, two or three the large holders individually not going through the co-op group. And there were a couple times where we backed away from the table. We did drop an asset into an unsub. And so we were pursuing a third-party private credit solution there, which was not what the co-op group wanted to see happen. So to go to the point of not just having one single pathway of execution.

And ultimately we got very close to a deal with those two or three and then ultimately signed an NDA and got down to brass tacks for the final negotiation but the other thing is we again we kept our objectives. We weren't so desperate to do a deal that we were only going to take 30% of the objectives

**Just because you can**

**Laurie Tomassian**

You've said before of your early days at **Jefferies** and I'm going to quote here. We weren't generally satisfied with the, this is the way we do everything approach. And you have marketing materials from way back then that get at, not everything has to be a bankruptcy. Thinking about this through today's lens and looking ahead at another wave of distress restructurings, how would you update that advice?

**Bill Derrough**

Just because you can, doesn't mean you should.

I think I could use that for a whole bunch of I was actually talking to one of the hot shot liability management lawyers, I won't say who, and we were chatting about stuff. And I said, look, you're doing exactly what you're supposed to be doing, which is servicing, oh, I've read this document this way, I think we could do that.

The job of the banker is to sit there and say, okay, you can do that. But let's, if we do that, here's the three or four things we must have in place to be comfortable doing that. Otherwise, we need to find a different pathway. Just because you found a new technology, new technique doesn't mean you should always use it. There may be other ways to get 80% of the way there, which might give you more flexibility down the road.

So going back to **Carvana,** one of our core principles was, we wanted to maintain, I can't remember the number, but a billion, billion and a half, $2b, something like, that of senior debt capacity on top of the new second lien bonds we were creating. And that was a pretty big number. But we stuck with that and we ended up with, I think, a billion and a half dollars.

And so just thinking forward. Well number one it does seem like the debt exchange liability management will come the way that of the gospel we've been preaching all along, which is get to high participation and they're doing it where there's an inside group and then maybe a secondary group and a tertiary group of people are just getting worse recoveries through that. I think if you're doing that and you're solving for the left behind issue and therefore eliminating this large litigation risk, that's certainly a good outcome.

But you have to also keep your eye on the basic corporate finance precepts that you can't so hamper the company by closing everything up that the company sneezes and they're gonna be in default. And I'll give you one example of that. We were working on something, I won't say which deal it was, call it a north of $10b capital structure. And the creditor group we were talking to wanted to limit the foreign debt basket to $10m. This is a company that operates in, I don't know, 10, 15, 20 countries. They're gonna breach that in their sleep accidentally at $10m.

We basically said, that's ridiculous. A company this size needs to be, whatever we said, $100m, $200m. And they wouldn't let go. It was this fear of the unknown. And I'm so worried that you're going to do something around me. Even if we had a $100m foreign debt basket, that's a drop in the bucket on a $10b dollar capital structure. And so I think people need to see the forest and the trees when they're doing these deals.

**Laurie Tomassian**

I think that's great advice. And I'm pleased to report that we have made it to the true and false segment of this episode. So I have three statements for you. You don't know what I'm about to say, and I would like your live reaction.

Statement number one, restructuring is really just M&A, where you are being hired to negotiate control back from your creditors.

**Bill Derrough**

True.

**Laurie Tomassian**

Ken **Moelis** said that.

**Bill Derrough**

Yes, he did.

**Laurie Tomassian**

Statement two, the restructuring practice spent 50 years building a bankruptcy system that works and then spent 20 years building an industry to avoid it.

**Bill Derrough**

Maybe not 20 years, but true.

**Laurie Tomassian**

Chapter 11 was designed to protect workers suppliers and communities LMEs were designed to protect sponsors

**Bill Derrough**

Probably agree with some of it and disagree with others

**Laurie Tomassian**

Would you care to elaborate on that

**Bill Derrough**

Yeah look, I think Chapter 11 was a brilliant design at its time. Capital structures figure out a way to work around Chapter 11 and so if you go way back when God created capital structures or and then God created leveraged finance you had very little secure debt back then. Maybe one or two turns of EBITDA was secured debt. The rest of it were unsecured bonds. And those unsecured bonds were pari passu, essentially, with wage claims, labor claims, suppliers, everybody like that.

And the evolution of using liens to advantage financial creditors vis-a-vis everybody else, it is what it is, but it has really put all those other creditors in a much, much worse position. And I think someone has to ask the question, is that really what Chapter 11 should be doing? I've heard some people suggest that pensions, at least some element to them, should get a secured claim too, and other folks like that.

I don't believe that LME is just to protect sponsors. I think done properly, they can be win-wins. Absolutely. **CommScope** was a win-win. **Carvana** was a win-win. **Inventiv** **Health** back then was a win-win. Some people say liability management is only credit on credit or violence. I totally reject that. Liability management writ large is using various tools and techniques to address balance sheets and instruments when regular refi is not available to you. And it doesn't have to be all for the sponsor at the expense of creditors. We've had plenty of ones that were incredible outcomes that we've put together that are good for both the creditor and the shareholder and the company.

**Laurie Tomassian**

I have here that you have advised on more than 600 restructurings in your career. So I believe that you have seen the best of it. And I thank you for sharing during this episode today.

**Bill Derrough**

Thank you for having me. It's been great talking to you.