Liability management exercises – also known as LMEs, liability management transactions (LMTs) and distressed debt exchanges – are back in the headlines. LMEs are complex strategies that companies use to restructure their debt obligations – often by exchanging, repurchasing, or renegotiating terms – to reduce financial strain, manage cash flow more effectively, and improve their overall financial health as an alternative to bankruptcy. While recent LMEs have spurred concerns across creditors, it is important to note that this strategy can also be used constructively. In such cases, LMEs commonly exhibit voluntary participation, transparent communications, and prioritize value preservation for the borrower while ensuring the same terms for all creditors. That being said, common controversial LME solutions that can also be used in some combinations (not mutually exclusive) include dropdowns, uptiers, and double-dips.
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What are Liability Management Exercises?
