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In this episode of Jane’s LME Addiction, our head of LME coverage Jane Komsky brings in Debevoise's newest partners, Rachel Ehrlich Albanese, Sam Newman and Daniel Shamah to discuss the groups enhanced restructuring capabilities. They provide an overview of the LME and in-court landscape, and discuss what the year may bring by way of out-of-court vs in court transactions, sponsor and creditor incentives, and whether liability management is a true fix.
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Jane Komsky:
Hello and welcome to Jane's LME Addiction, a Cloud 9fin podcast where we talk about all things liability management. I'm your host, Jane Komsky, and with me today is Rachel Ehrlich Albanese, Sam Newman, and Daniel Shamah, all of whom recently joined Debevoise to expand the firm's restructuring and liability management practices. Thank you all for joining.
Rachel Ehrlich Albanese:
Thanks, Jane.
Sam Newman:
Thank you. It's great to be here.
Daniel Shamah:
Thank you for having us.
Jane Komsky:
Before we dive into a bigger conversation about the market and liability management, it's worth noting that there have been a number of high profile moves within the last month alone, but even more so in the last year. So I'd love to hear from each of you. How did you decide to come to Debevoise and relatedly, what will your new role look like? Rachel, I'll start with you.
Rachel Ehrlich Albanese:
Thanks, Jane. Thanks again for having us today. For me, it was a really exciting opportunity to come to a top-ranked firm that has an incredible private equity practice that is making a serious and strategic investment in restructuring and special situations. This is kind of one of those unicorn opportunities that doesn't come along often.
And for me also to come over as a co-chair of the group alongside Sid Levinson was a draw and to follow in the footsteps of Natasha Labovitz, who's an amazing lawyer and extremely well-respected person in our industry. And then to add to that, to have Sam and Daniel join with me, it feels like just a once-in-a-lifetime opportunity.
Jane Komsky:
Definitely. Sam, I'll ask you next.
Sam Newman:
Thanks, Jane. So I practiced for 20-some years on the West Coast as a bankruptcy lawyer, part of a couple of different national practices. And for personal reasons, my wife and I have been spending a lot more time in New York. And so through that, I reconnected with Natasha, who, as Rachel indicated, is a lion of our bar and offered me the opportunity to join what's really an exciting growth story here in New York.
So for personal reasons, it fits my life trajectory well and as a professional opportunity. It's just the best place I could think of to practice with a group of people that I think are committed to client-first service and a firm that is 100% behind growing this practice as part of their long-term strategy.
Jane Komsky:
And I'm sure you appreciated being welcomed from the West Coast with a nice blizzard.
Sam Newman:
I like to bring the weather with me. If you look outside now, we've got nothing but sunshine.
Jane Komsky:
I can see that. Actually, I was very shocked based on everything else that I've seen with the snow and everything. It looks like a perfect day. And with that, I'll turn to you, Daniel.
Daniel Shamah:
Sure. And Jane, thanks obviously for having us. I echo a lot of what Rachel and Sam said in terms of the firm's investment in the practice.
When I was talking about the opportunity with my wife, her immediate reaction—she's not a lawyer and doesn't know much about the industry other than what she hears from me—she sort of said, like, this seems like the no-brainer to end all no-brainers. And that certainly was how I felt about it. And really, it covers everything that Rachel and Sam said.
But in addition, as you noted, there's been a lot of movement in our industry over the last month. And for me, one of the things that was critically important is culture. I had the good fortune of knowing a bunch of the people here already, including Erica Weisgerber, who is somebody who is a good friend and somebody I worked with a fair bit before I joined. And so when this initially came to my attention, that was an immediate draw. It's like, oh, this is a good place to work with good people.
And then as Rachel said, when I learned it was Rachel and Sam, and there's a whole story about how we were sort of independently in this process and a little bit of a cloak and dagger on how we got introduced to each other. We knew each other, but introduced to each other as being a part of this process. But when I learned that it was them who were the other people that they were talking to, that just sealed it in terms of just not just high caliber lawyers. Obviously, that was sort of a given that they'd be talking to great lawyers, but just really great people who I've worked with and have known in the industry for a long, long time.
And look, to me, it was very important because I think one of the lessons that I've learned being on both sides of lateral moves that it's, you know, one person doesn't really change the trajectory of a group. It really helps to have depth. And I'm sure we'll get into that in more detail. But the thought that the firm was putting into this and how they not just making an investment, but how they wanted to make the investment, to me, was an indication that this was something that was going to be a high probability of success. And I was really, really excited to be a part of it.
Jane Komsky:
And I think one of the coolest things about the way that Debevoise seems to be investing in this group is really that you mentioned Erica Weisgerber, who was named as the co-chair of the liability management group. And having sort of that integration of litigation and restructuring, it seems like a lot of other firms in the way that they're building up their groups have the focus on both restructuring and finance. But when you think about some of the highest profile cases, they all have that litigation angle.
And I guess that's where you come in as well, Daniel. But yeah, if you guys want to talk about anything on that front of the marriage of litigation and liability management, I'd love to hear your thoughts.
Daniel Shamah:
Yeah, I'll start. But obviously, Rachel and Sam should jump in as well. I think you're exactly right. And certainly, on the finance and restructuring side, we're starting to see, you know, a blending, if you will, of those practices. But I think there's a broader trend going on, which is that the walls between these practice groups, I think, are falling down.
I think clients are not interested in a one foot in front of the other, OK, I'm an M&A lawyer. That didn't work. Let me call a finance lawyer. OK, that didn't work. Let me call a restructuring lawyer. I think they're much more—clients are expecting a full range of advice from one end of the spectrum to the other.
And so the firms that are thinking that way and are integrating their practice groups that way certainly have a leg up, I think. And I think one of the things that was very attractive to me about Debevoise is that the firm is just set up to operate that way. I mean, every firm sort of talks about integration and collaboration. And that's all well and good. But the financial incentives at the firm, everything about the firm is specifically set up to sort of foster that kind of integration.
And that's true of litigation. I mean, historically, this sort of corporate department litigation department and sort of two different sides of the house. I think you're exactly right. My practice is always straddled restructuring and litigation and has always had elements of both. I like to think I was just ahead of my time. But the integration of not just litigation, but all the adjacent practice groups to restructuring was something that was incredibly attractive to me. And I do think is the direction our practice generally is going in.
Rachel Ehrlich Albanese:
I will pick up on that because I think that is a really significant aspect of practice at Debevoise from what I've seen so far in that there's actual and true integration across practice groups, restructuring, finance, private equity, litigation, to ensure that the firm's clients receive the kind of coordinated and commercially-focused advice throughout the full business life cycle that they expect and desire and why they hire Debevoise.
And I think it's also, as Daniel said, extremely important for the lawyers who are advising clients to think through issues in advance to be prepared to pivot. I mean, much in the way that regular restructuring lawyers have to know about distressed M&A because 363 sales are ubiquitous.
I think that elements of liability management transactions are becoming ubiquitous in our day-to-day practice, both in terms of what lenders are expecting to receive and what borrowers and sponsors have to be prepared to give or expect in practice. So the integration of these practice groups is perfectly suited to that kind of approach.
Sam Newman:
Yeah, I 100% agree with what both Rachel and Dan have said. I think one of the things that drew me to Debevoise, and I think makes me so enthusiastic about this opportunity, is that Debevoise, as Daniel mentioned through the compensation system, the structure, the DNA of the firm, provides a very client-centric approach to all aspects of its practice.
In our increasingly stratified market in restructuring, there are a number of firms that appear to kind of try to bend the situation to their preferred role or the place that they end up playing. You're seeing that in disputes that kind of are rising up into the trades.
I think what we're going to do is be able to take the client's needs, the situation, and provide the full suite of what we used to call boardroom to courtroom services to really address the client's needs with top-tier capabilities, whether it's a liability management, structural optimization, out-of-court, chapter 11. We have the resources to address the right tools to the right problem and to pick a role within that, that maximizes the client's likelihood for a successful outcome.
Jane Komsky:
I think that point about how, regardless of what we're looking at, brings me to just sort of what we're looking at in the market in general. I mean, this seems to be one of the busiest beginnings of the year that I recall, at least in my, I mean, you guys have been practicing longer than I have, but at least in my practice. And it seems like there's been a huge uptick in actual filings, whereas it seemed like last year, I think there was much more out of court.
Do you think that the year is going to continue that way? What's your prediction for what's to expect?
Rachel Ehrlich Albanese:
Yes. It's a short answer.
Jane Komksy:
Yes. More filings?
Daniel Shamah:
That make’s for a great podcast, Rachel.
Rachel Ehrlich Albanese:
Yes. Yes. I think that there will be more filings. You know, there was a serious emphasis on out-of-court and more transactional amend and extend pipe yields in last year, but then starting toward the end of the year and into this year, we've seen a lot more filings and some of those have been free falls. And I think that there will be more disorganized filings than there have been in the recent past.
Jane Komsky:
And do you think that that's because of the liability management, I guess, transactions that happened beforehand that they were sort of just band-aids? And if so, do you think that the liability management that we're likely to see is going to be more comprehensive than in the past?
Sam Newman:
I, totally, I mean, liability management just in the name, right? It doesn't, it's not a solution. It's managing an ongoing problem. And I think that's what all those transactions are designed to do in a world which we've been in the last 10 years, where a lot of the economic, political, intellectual, emotional incentives have been to extend for time and kick the can down the road.
Eventually you get to a need to do something that's a transaction, whether it's an actual restructuring, a refinancing, a sale. You have to, at some point, bring these situations to a close. And we're seeing that more and more. Lenders are less inclined to kick the can to just give more time for free.
Companies are not, they've been struggling through the last five or 10 years as interest rates are going up and the economy is, outside of a few specific sectors, having challenges. They're not going to just grow up, process and prove themselves out of it. So I think there's an increasing need and incentive amongst the financial players to bring some of these situations to a conclusion.
Rachel Ehrlich Albanese:
I think the counterpoint to that, Sam, is that we have seen more lenders being willing to pick their debt in order to kind of preserve the status quo and preserve their books so that they don't have to to show that a borrower may be in default. So, some significant lenders are reaching the end of their tether, but also there are a number of players, many of which are in private credit who are willing to kind of just pick the debt and wait.
What's the, what's the, what's the clever name for that?
Daniel Shamah:
Amend and pretend.
Jane Komsky:
I like that. Amend and pretend.
Daniel Shamah:
Yeah. I mean, look, I think the beginning, particularly the beginning of this year, I mean, first of all, I totally agree with Rachel that I think we're going to see more filings and, you know, in the near term, but I also don't, you don't want to draw too many conclusions from six weeks, you know, out of the year. A lot of these things are very specific situations that have very unique issues, but I do think we're sort of entering a period where a bunch of different macro trends are kind of converging at the same time. Right.
In addition to sort of, like, the ongoing overhang of tariffs and interest rate uncertainty, I think you're entering a period where AI is disrupting a lot of businesses. You're seeing pockets of distress because just people are worried about what AI is going to do to software companies and other types of companies.
You're entering a period where private equity has taken up such a large market share, exits are harder for private equity companies, right? It's hard to find people to buy these things. And so, you know, what does that mean for sponsors who want to show return and, and the longer duration and investment is the worst the return looks like on your books.
And so it creates pressures to, whereas, you know, three years ago or five years ago, you know, an LME was often about a sponsor playing out an equity option because they don't want to let go of a company. Now the incentives may be a little bit different because they don't want to hold it anymore. And it's not, there isn't an obvious exit.
And so, I think we're in a period now where there's a lot of uncertainty around how these iffy situations are going to resolve themselves. And to Sam's point, oftentimes like the finality of a restructuring, like it's an actual transaction. We've, we've fixed the business. We've actually fixed the balance sheet, not just shuffled the deck chairs around and there are winners and losers, offers an attractive option, right?
For a lot of companies where it's like, all right, it's expensive. Like we get it, but at least I know I'm not going to be doing this again in 18 months because all I've done is, you know, picked some winners and losers or moved some deck chairs around on a Titanic that's sinking.
And so I think, I mean, it's early days still with a lot of these issues, particularly AI, but I think a lot, you know, all these things are always cyclical. And I think a lot of these trends are going to point more in the direction of more filings, like real filings.
Jane Komsky:
And we've talked about now that, you know, for sponsors, the calculus is changing, but are you also seeing any change in creditor dynamics that are driving more filings versus out of court transactions?
Sam Newman:
I definitely am. I mean, my practice is a lot more on the company side. So, I spend a lot of time, you know, holding hands with boards and management teams and founders who are, again, like I said a minute ago, working through the end of a period where they just continue to get more leash, get more rope.
And in a number of deals that we originated over the last six months, the amount of rope that the lenders are allowing companies to continue to have is just shortened. They're tightening the leashes. They're requiring interim management. They are willing in many cases to flip boards and exercise proxies to just take over themselves, notwithstanding the long history of questions that might raise about lender liability, but they're taking action and they're trying to force results.
And I think that's true in banks. It's true of private credit. It's true of alternative investment vehicles. They're I think, a lot more anxious about letting people just continue business as usual.
Daniel Shamah:
Sam, do you think, sorry, I'm gonna ask a question, even though it's Jane's podcast, but it just prompted a thought like, you know, a lot of times, you know, a year ago, we were all talking about private credit as like this warm and fuzzy, cozy part of the market where there's relationships and that's not, it's going to make filings less likely because, you know, it's just two lenders and they have a relationship with the board. Do you think that was all a little bit overblown last year? And at the end of the day, economic incentives are going to drive a lot of this behavior, even if it's a friendly private credit deal.
Sam Newman:
Jane, do you allow it?
Jane Komsky:
I allow it. Please go ahead.
Sam Newman:
You know, without going into the specifics of a, you know, an active matter, I was involved in a matter on the company side recently where there couldn't have been closer relationships between the management team and the lender, not just within the deal, but, you know, externally. And notwithstanding those relationships, the lenders exercised every tool in the toolbox to drive the result.
And I think these are big institutions. Now, a lot of these private credit companies, they have workout groups, they have independent boards, they have, you know, so many of them are public companies and have to report investors.
Rachel Ehrlich Albanese:
They have to answer to their investors.
Daniel Shamah:
Yeah, that's a big part of it.
Sam Newman:
Yeah. So I don't think being in private credit makes you immune from what I think is an ongoing trend of tighter, tighter leashes on behalf of lenders in this environment.
Jane Komsky:
And I think that's always sort of what happens that anytime something new comes to market, everyone kind of says, okay, well, this is it. And, you know, we saw that recently with private credit. Before that, we saw that with liability management, that you always think that the new wave ushers in the end of an old wave until, but bankruptcy, it seems like will always be on the table for everyone.
Sam Newman:
Well, not to add on to my commentary, but the wave of private credit trying to be a kinder, gentler capital source is already showing signs of stress in the market. If you look at what’s happened last week, there's all kinds of pressure. That's just, you can't overcome with that internal relationship driven ethos.
Jane Komsky:
Are there any signs of a new trend and maybe it's just, free falls are back as the new trend, but that you expect to hit the market over 2026?
Rachel Ehrlich Albanese:
We could probably debate whether LMEs will become kinder and gentler and inclusive and giving everyone a chance to be a participating lender. But the days when, and maybe I'm, maybe I'm not up to date on everything that's happening, but the days when a group would be fully left out in the cold seem to have passed.
Jane Komsky:
I think your point, Rachel brings up an interesting angle, which is the litigation aspect. You know, we still have yet to see any real case reach a conclusion that says one way or another, whether, I mean, besides for, I guess, in Serta, on the open market purchase clause, we really haven't seen any definitive outcomes about specific language that, that might drive a firm to say, okay, we're absolutely not doing this type of LME, or we are doing this type of LME.
I mean, obviously selfishly, since I have this LME podcast, I need LMEs to stick around, but Daniel, do you have any thoughts as to whether something like STG is going to reach a conclusion or really any case that like that we're going to see any sort of conclusion that changes the course of LMEs?
Daniel Shamah:
Well, no, I don't think, short of like the New York Court of Appeals weighing in very holistically on certain LME structures. I don't think we're going to see that kind of definitiveness. Partly because the LME world is a little bit of a game of whack-a-mole, right? Where every time you get a definitive answer, like, I mean, Serta is a perfect example, right? You think you get the definitive answer on open market purchase. Well, there's a bunch of docs that have privately negotiated purchase, and there's just another hole that you could find.
I do think though, there is something a little deeper going on, which is, I think courts, particularly appellate courts are getting smarter to how the market is perceiving these transactions.
And I think, and this sort of picks up on something Rachel said, which is, I think the uncertainty with the litigation outcome is driving some of the behaviors in these LMEs, right? So even it's not really an LME issue per se, but like ConvergeOne is a perfect example where a backstop on a rights offering is, which something like had been done a lot in Delaware and in Houston for years, where it's a non-pro rata rights offering for pre-petition lenders to participate in an exit. And that violates, you know, an equal treatment provision in the code.
And so I think it's an example of where the litigation now, there's almost like a feedback loop, right? Where things get litigated. There's uncertainty because there's divergent decisions, you know, whether it's STG, Mitel, Serta, all these cases, you know, they kind of come out different ways and it leads to more uncertainty in how the deals get done.
And the last thing I'll say is that oftentimes there's a timing mismatch between these LMEs and the litigation. These litigations have a long tail. I mean, I was talking to somebody this morning. I mean, you said Serta. I was talking to somebody this morning who was getting ready to testify in the trial on the excluded lender claims against the other lender claims in the Serta decision. That case was filed six years ago, right?
And so the finality you're looking for in a litigation outcome, it doesn't, it's not going to happen on the time horizon of like a deal that's got to get done in the next six weeks because these things take sometimes years to play out in state court and bankruptcy court.
Jane Komsky:
Yeah, no, I think that's exactly why you see that by the time the Serta decision came out, there was already that language put in about privately negotiated transactions that as soon as the litigation begins, more language in these docs have been put in that allow you to continue the practice, no matter what the decision ends up being.
Daniel Shamah:
Yeah, your beat's not going away. I mean, it's going to change, but you're going to have this maybe come up with a new podcast name, but I have ideas. We can take that offline. But …
Jane Komsky:
Litigators are always trying to take command of the room and allow it.
Daniel Shamah:
No, no, no, but I don't think your beat’s going away. I think it's going to continue in that vein. It's just going to evolve like it has over the last few years.
Rachel Ehrlich Albanese:
You know, the length of the litigation and the duration of these issues with lack of clarity is another reason why maybe the pivot back to bankruptcy makes sense. Because you can get a final resolution and an outcome, believe it or not, for less money going through a Chapter 11 case with a plan than you could litigating issues like this in state court and appeals and then going back to the drawing board and renegotiating credit docs and, you know, sort of just playing it all out out of court.
Jane Komsky:
Yeah. And so while we've offered our listeners almost no certainty about what's to come, I will close with asking each of you. As you start your new chapter at Debevoise, what are you most excited for?
Rachel Ehrlich Albanese:
For me, personally, I'm excited about the growth of our practice. We are energized and looking to help position Debevoise to guide clients through this exciting time and to assist with these really sophisticated and complex issues.
Sam Newman:
For me, I'm focused on strengthening the firm's position as a go-to advisor for all things distressed within its existing client base. I think we have a great opportunity to help our clients adapt to this changing environment and stake out a position that will be safe and secure for them as they navigate some as-of-yet-undefined choppy waters.
Daniel Shamah:
Ditto.
Jane Komsky:
Well, with that, thank you all so much for joining me. This has been a great discussion. And thank you to our listeners. If you have any questions or comments, please email [podcast@9fin.com](mailto:podcast@9fin.com). Thanks again.
Daniel Shamah:
Thank you, Jane. That was fun.