Restructuring (Investment Banking)

There are three broad categories. Out-of-court restructuring (workouts): the debtor and creditors negotiate privately to amend loan terms — maturity extensions, interest rate reductions, or debt-for-equity swaps — without filing for bankruptcy. Pre-packaged bankruptcy: the debtor and key creditors agree on a reorganization plan before filing Chapter 11, dramatically shortening time in court. Traditional Chapter 11: the debtor files for bankruptcy and negotiates the plan of reorganization under court supervision. Each path trades off speed, cost, and creditor cooperation.

On the debtor side, bankers build 13-week cash flow models to determine liquidity runway, negotiate with lender groups, evaluate DIP financing options, and develop reorganization or sale plans. On the creditor side, bankers analyze recovery waterfalls, assess the debtor's plan, and advise on whether to support or fight it. In distressed M&A, bankers run Section 363 sale processes, marketing assets of bankrupt companies to potential buyers under expedited court timelines.

The fulcrum security is the class of debt that will be partially impaired in a restructuring — everything senior gets full recovery, everything junior gets wiped out. Identifying the fulcrum security is the core analytical task because it determines who controls the negotiation (the impaired class has the most leverage). Recovery analysis builds an enterprise value estimate for the distressed company, then allocates it down the priority waterfall to calculate cents-on-the-dollar recovery for each creditor class.