Appendices

Glossary of Restructuring Terms

Adequate Protection A statutory safeguard under Chapter 11 (11 U.S.C. §§ 361–363) that compensates secured creditors for the decline in value of their collateral while the debtor uses, sells, or leases it. Protection may take the form of periodic cash payments, additional liens, or indubitable equivalence, and it is often negotiated in conjunction with DIP financing and “first‑day” motions.

Ad Hoc Group An informal coalition of creditors—typically hedge funds or CLO managers—that coordinates negotiation strategy outside a formal committee. Members sign confidentiality agreements, share diligence, and may present unified term‑sheet proposals to the debtor, gaining leverage without incurring the fiduciary duties of an official committee.

Asset‑Based Loan (ABL) A revolving credit facility secured by a borrowing base of eligible receivables, inventory, and sometimes machinery. Availability fluctuates daily with collateral values, and lenders exercise tight control via borrowing‑base certificates, cash dominion, and field exams—making ABLs both lifelines and trip wires in distress.

Borrowing Base The formula‑driven cap on ABL borrowing, typically a percentage of accounts receivable (e.g., 85 percent of eligible A/R) plus inventory (e.g., 60 percent of eligible raw materials), less reserves. Shrinkage can trigger immediate liquidity crises if covenant minimum‑cash requirements are breached.

Cancellation‑of‑Debt Income (CODI) Taxable income recognized when debt is forgiven or significantly modified for less than face value. U.S. taxpayers may exclude CODI under the bankruptcy or insolvency exceptions (IRC § 108) but must reduce tax attributes such as NOLs dollar‑for‑dollar.

Cash Dominion A lender‑imposed control under which all receipts sweep into a blocked account, automatically paying down revolver balances before the debtor regains access. Dominion tightens during covenant breaches and can limit operational flexibility.

Chief Restructuring Officer (CRO) An executive—internal or external—granted authority to design and execute the turnaround, often holding decision rights over budgets, hiring, and negotiations. The CRO bridges operational detail and creditor confidence, reporting to both the board and the court.

Credit Bid The right of a secured creditor to bid the face amount of its debt in a § 363 sale, foregoing cash consideration. Credit bids can chill auction participation but also maximize recoveries when collateral value is uncertain.

Debt‑in‑Possession (DIP) Facility Financing extended to a debtor after a bankruptcy filing, enjoying superpriority or priming liens ahead of legacy secured debt. DIP loans fund working capital, professional fees, and restructuring costs, and their budgets impose weekly variance testing.

Debt‑for‑Equity Swap A transaction in which creditors exchange debt claims for equity stakes, reducing leverage and realigning incentives. Swaps must navigate tax consequences (CODI, § 382) and ownership‑change triggers.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) A proxy for operating cash flow widely used in covenant tests, leverage ratios, and valuation multiples. In distress, “adjusted EBITDA” becomes contested terrain as parties debate add‑backs for restructuring costs or pandemic impacts.

Exit Facility The post‑emergence financing package—term loans, revolvers, or notes—that replaces DIP debt and funds ongoing operations. Terms hinge on projected leverage, covenant headroom, and market appetite for the reorganized debtor’s credit.

First‑Day Orders Immediate court approvals sought upon filing (wages, cash‑management, critical‑vendor payments) to stabilize operations. Well‑drafted first‑day motions pre‑empt liquidity shocks and reassure counterparties.

Going‑Concern Value The enterprise valuation premised on continued operations, contrasted with liquidation value. It underpins plan feasibility tests, creditor recoveries, and management incentive pools.

Haircut The percentage reduction in a creditor’s claim through a restructuring. A 30 percent haircut means the creditor recovers 70 percent of face value, whether via cash, new debt, or equity.

Intercreditor Agreement A contract among creditor classes outlining lien priorities, standstill provisions, and rights to enforcement. In restructurings, ICA terms determine whether priming liens or roll‑ups are permitted.

Key Employee Incentive Plan (KEIP) Court‑approved bonuses tied to performance metrics (e.g., EBITDA, asset‑sale proceeds) for insiders during Chapter 11. Distinguished from KERPs, which are retention‑only and face tighter statutory constraints.

Key Employee Retention Plan (KERP) Bonus program aimed at non‑insider critical employees to deter attrition. Under § 503(c), KERPs must meet strict criteria, including evidence that recipients have bona fide competing offers.

Liquidity Runway The number of weeks a company can operate before breaching minimum‑cash or borrowing‑base covenants, assuming forecast receipts and disbursements. Extending the runway is the first order of business in any turnaround.

Milestone A contractual deadline—often tied to DIP financing or restructuring‑support agreements—such as filing a plan, securing creditor votes, or closing an asset sale. Missing milestones can trigger default and loss of funding access.

Net‑Operating‑Loss (NOL) Tax loss carryforwards that offset future taxable income. Preservation depends on avoiding ownership‑change limitations (IRC § 382) and careful attribute‑reduction planning when CODI is excluded.

Plan of Reorganization (POR) The Chapter 11 document detailing how claims and interests will be treated, capital structure post‑emergence, and governance arrangements. Confirmation requires creditor acceptance by class and satisfies the “best interests” and “feasibility” tests.

Prepackaged Plan (Pre‑Pack) A POR negotiated and accepted by requisite creditor classes before filing, enabling expedited bankruptcy—often 45–60 days—minimizing cost and reputation damage.

Priming Lien A DIP or exit lender lien that supersedes existing secured claims, permissible only with adequate protection or creditor consent. Priming disputes are among the most contentious in bankruptcy proceedings.

Roll‑Up The conversion of pre‑petition debt into DIP obligations, giving legacy lenders priority status. Courts scrutinize roll‑ups to ensure they are necessary to obtain new money and do not unfairly advantage one creditor group.

Section 363 Sale Court‑supervised auction of assets “free and clear” of liens and claims. Faster and more flexible than plan sales but may limit going‑concern value and NOL preservation.

Section 382 Limitation U.S. tax rule capping annual NOL utilization after an ownership change. Special bankruptcy provisions (§§ 382(l)(5) and (l)(6)) can mitigate or eliminate the cap.

Stalking‑Horse Bid An initial, binding purchase offer in a § 363 sale, setting the price floor and often securing bid protections (break‑up fee, expense reimbursements). Encourages competitive bidding while protecting first mover.

Superpriority Claim A claim that outranks all administrative expenses, often granted to DIP lenders. Superpriority status provides last‑resort repayment from unencumbered assets.

Turnaround The broader operational and strategic effort to restore sustainable performance, encompassing but not limited to financial restructuring. Turnarounds target revenue growth, cost optimization, culture change, and innovation.

Unimpaired Class A creditor class that receives full payment or reinstatement of original terms under a POR. Unimpaired classes are deemed to accept the plan and cannot vote against it, simplifying confirmation requirements.

Variance Report Weekly comparison of actual vs. forecast cash movements or KPI performance, highlighting deviations beyond thresholds. Prompt variance analysis drives corrective actions and lender transparency.

Waterfall The prescribed order of claim and distribution priority—secured debt, administrative and priority claims, unsecured debt, subordinated debt, and equity. Understanding the waterfall shapes negotiation leverage and recovery expectations.

Workout An out‑of‑court restructuring achieved through amendments, extensions, and covenant waivers, avoiding formal insolvency proceedings. Workouts preserve value but rely on unanimous or supermajority creditor cooperation.

This glossary captures the vocabulary that defines the restructuring craft. Mastering these terms equips practitioners to navigate documents, negotiations, and courtrooms with precision—and to translate complex concepts into clear action for teams and stakeholders alike.