đ„Flushed Out a Dealđ„
Plus: a Notice of Appearance from Harvard Professor Jared Ellias
âĄUpdate: United Site Services, Inc.âĄ
Recall that, in late December â25, United Site Services, Inc. (âUSSâ) and twenty-one affiliates (collectively, together with USS, the âdebtorsâ) filed chapter 11 prepackaged cases in the District of New Jersey (Judge Kaplan). We covered the first-day hearing here đ:
To recap, the debtorsâ porta potty rental business was swirling around in the sh*tter in early â24, in response to which the debtors executed a liability management exercise (âLMEâ) in 3Q24 that left skidmarks all over the capital structure âŠ
⊠and arguably violated the âsacred rightsâ of the left-behind CastleKnight Management LP (âCastleKnightâ).*
As usual, though, the LME failed to address USSâ underlying problems in short order; by June â25, it was already bargaining anew with an ad hoc group of LME debtholders (the âad hoc groupâ), and over the course of several months, they digested, labored on, and slowly pushed out a new deal embodied in a restructuring support agreement (the âRSAâ), which was executed the day before the petition date and provided for a chapter 11 plan that gave ~98% of the company to the LMEâs second-out loan holders, prior to further dilution by a $480mm equity rights offering (the âEROâ).
CastleKnight was not impressed. It hired Quinn Emanuel Urquhart & Sullivan LLP (âQuinnâ), who proceeded to dump on the debtorsâ first day by previewing confirmation arguments. And while that wasnât a problem at the hearing â Judge Kaplan didnât think twice before granting all requested relief â he begged folks to get into a room to hash it out and avoid âwastingâ estate cash on professionals.**
The debtors, the ad hoc group, and CastleKnight got the hint.
On January 12, 2026, the court entered an agreed order appointing former bankruptcy judge Robert Drain as mediator. It didnât take him long to flush out a better, case-ending deal. Two weeks later, on January 26, 2026, the debtors filed a revised final DIP order that incorporated the settlement. Here are its salient terms:
Second-out Term Loans. CastleKnight joins the fold on account of its ~$109.2mm in acquired second-out term loans (the âSOTLsâ) and, therefore, will participate pro rata (~6.2%) alongside the RSA parties in the ERO backstop and the exit financing. Same terms, same everything. Relatedly, the chapter 11 plan was amended to give 100% of the reorg equity and 100% of the EROâs subscription rights to SOTL holders.
Amended Term Loan Claims. In lieu of a ~2% reorg equity distribution and ERO rights, amended term loan claims, which are held damn near exclusively by CastleKnight, will receive ~$14mm in post-fee exit term loans (and will keep a ~$10.5mm in cash payment under the OG plan).
Fee Reimbursement. Quinn has to eat too, so CastleKnight will receive $750k to pay professional fees.
Second Out Deficiency, Third Out, and Unsecured Notes Claims. The deficiency claims of the SOTLs and the entirety of the third-out notes and unsecured notes claims will split up ~$4.9mm in cash.***
Customary Minority Protections and Releases. CastleKnight will receive customary protections alongside the ad hoc group (e.g., rights of first offer, tag-along rights, and preemptive rights) and releases.
Unsurprisingly, with CastleKnight sitting on the porcelain throne alongside the ad hoc group, not a soul voted against the as-amended plan:
Which led to a very unremarkable February 25, 2026 combined hearing on final approval of the debtorsâ disclosure statement and confirmation of the plan. In fact, by the time it started, the only objection standing was the US trusteeâs opt-out release and exculpation drivel âŠ
⊠which didnât take long for the court to overrule. The whole hearing lasted an hour and five minutes, and the confirmation order was docketed a couple of days later.
A quiet finish to the initially explosive cases of a literal sh*tco. Congrats to all involved.
*CastleKnight is all over the cap stack. In addition to holding non-LME-privy amended term loans and amended unsecured notes, it also secured up second out term loans and third out notes, which is at least a little odd considering the latter set arose from the violation of its alleged sacred rights. Anyway, here are its full holdings:
**Or, you know, avoid forcing the judge to find new ways to overrule meritorious objections. Hard to say.
***This is technically a reduction from the $5mm found in the OG plan, but economically irrelevant because the drop arises solely from the reclassification of amended term loan claims â including any unsecured portion â under the revised plan.
đNotice of Appearance: Prof. Jared Elliasđ
Today we engage in something new for PETITION. In an effort to promote more diversity of perspective, we welcome our first appearance from a law professor, in this case Professor Jared A. Ellias from Harvard Law School. Letâs dig in.
PETITION: Youâve written previously about the high and escalating costs of bankruptcy, which is often used to justify liability management exercises (âLMEâ) and avoid chapter 11. However, these too come at a high cost as youâve noted, and your colleagues at Harvard, Mark Roe and Vasile Rotaru, have just come out with a new paper on the high failure rate of LMEs. If a goal really is to bring down the overall cost of restructuring troubled companies, do you see a way out of this bind?
Professor Ellias: First, thanks for the opportunity to have this conversation. I am a huge fan of the newsletter and I always learn a lot from the PETITION team.
In terms of bankruptcy costs and LMEs, here is what I think we know. We know from my recent paper on the topic that bankruptcy costs really have gone up recently â I found that Chapter 11 fees consumed four times as much of a debtorâs pre-bankruptcy assets in 2022 than was the case in the 2010s in constant dollars. In terms of the costs of LMEs, we really have no idea how expensive they are. I donât really understand LMEs as an attempt to reduce bankruptcy costs, although I suppose they can be justified that way â they seem to have much more to do with giving private equity sponsors extra time to turn investments around and with giving favored lenders opportunities to invest money and to set the table to make the DIP loan in Chapter 11.
There have been a lot of lawyer-driven innovations that purported to reduce bankruptcy costs, such as DIP loans that limit managementâs discretion to signing papers that the lenders draft for them, independent directors that aim to shortcircuit official creditorâs committees investigations, and, obviously, prepacks. It is clear that all of these innovations have benefited some stakeholders at the expense of others, such as secured creditors gaining power relative to unsecured creditors. LMEs are just the latest lawyer-driven innovation, and one that empowers majority groups of creditors to do really well in both good and bad states of the world. I recently wrote about the TPC Group bankruptcy, where my back-of-the-envelope calculation suggests that the majority group earned a 48% return in a very short period of time between the uptiering debt, the DIP loan and the exit financing.
Does any of this change the overall costs of financial distress â the amount that a company pays to deal with its troubles, where the costs of bankruptcy are only a subset of that cost? I think there is no reliable empirical evidence that it does.
PETITION: High profile LMEs and restructurings of foreign issuers (Altice, the various Latin American airlines) have gotten us thinking about restructuring and liability management abroad. Your most recent paper on The Global Law of Debt suggested that we could see a whole new level of global forum-shopping â and to this point, we see various attorneys touting the recent success of the Fossil Group restructuring. How do you see this playing out, and how do you feel about this development?
Professor Ellias: When my co-author, Narine Lalafaryan, who is a finance professor at Cambridge in England, and I decided to write about what we tentatively thought was âthe globalization of debt and bankruptcy,â we really did not understand the half of it.
As it turns out, the major investment banks, law firms and debt investors have been working on globalizing the restructuring field ever since U.S. investors in the 1990s decided they wanted to take their restructuring knowledge â honed on the big Chapter 11 cases of the 80s â to Europe, and then to the rest of the world. Globalization has come in fits and starts and I think the Fossil Group insolvency filing, the Altice France LME and so many other incidents signal that we are entering a new world, one where the U.S. bankruptcy courts are going to become somewhat less central to global restructuring, but where American law firms seem primed to own the whole field globally.
In the long run, U.S. bankruptcy lawyers are going to need to help their clients navigate a menu of restructuring options that will include foreign bankruptcy filings. Fossil was in part justified by the argument that, as you suggested above, it would be cheaper to do a London Part 26A plan and a U.S. Chapter 15 than a U.S. Chapter 11 prepack. Was it? We will never know for sure, but bankruptcy lawyers love to innovate and offer novel solutions to clients, so we are sure to see much more of this.
My worry here is that when U.S. Chapter 11 is no longer the baseline for understanding creditorâs rights â when a Texas firm like Fossil Group can hop into an English insolvency proceeding and get a totally different set of default outcomes for creditors â it raises a lot of questions about just what rights creditors will turn out to have. How do you negotiate in the shadow of the law when there is no law at all anymore? I am guessing we will see innovations from the creditorâs bar here, and the game will continue.
PETITION: Beyond LMEs, youâve written about ways that the rise of private credit and loss of public information has impacted bankruptcy practice and the role of the courts. How do you envision the judiciaryâs role in a world with less public info pre-bankruptcy? Do judges have the tools they need to operate as you think they should?
Professor Ellias: I love private credit. When I started practicing in 2008, the big new financial player was âhedge funds.â âHedge fundsâ used to have a single web page that just gave their address. Private credit professionals, on the other hand, seem to produce several podcasts a day extolling how they are revolutionizing finance.
That claim of revolutionary innovation feels like a big overstatement to me. Investment funds have made loans for a long time, and while the scale today is different, a senior secured loan is a senior secured loan â itâs not rocket science, and there is no reason to think that every private credit fund is holding a bunch of âFirst Brandsâ level loans to fraudsters.
At the same time, some private credit funded firms will end up in Chapter 11 and the bankruptcy system is going to have to adapt to what is different about this new financial player.
The biggest difference, in my view, is that private credit-backed firms, which also usually have privately owned equity, are less well-known to the market. A major goal of Chapter 11 is to help firms get liquidity â they need to borrow new money on the best possible terms and then sell assets on the best possible terms. Judges are going to have to do a lot more to market those investment opportunities than they are used to, because they have been living in a world where claims trading meant that a lot of the investors most interested in the assets had already bought into the capital structure and traded debt meant that analysts often covered the debtor and had already produced information about it.
Private credit lenders are not entitled to do DIP financings and credit bid 363 sales without real competition to help make the other creditors in the capital structure whole. Judges are going to need to do things like force longer marketing periods, look over the shoulders of investment banks to ensure that DIP loans and assets are really being shopped in a legitimate process, etc. Thatâs a bigger role for judges than they are likely to be comfortable with, but they wonât be able to rely on market forces to allow them to keep the distance from business decisions they would like to keep.
PETITION: On the topic of judges, thereâs been a lot of talk out in the market about judges more or less overtly encouraging forum shopping. Thoughts?
Professor Ellias: This is a development I really regret. It is funny â when I wrote about bankruptcy forum shopping in the mid-2010s, I sort of assumed Delaware and SDNY had this insurmountable lead as the best places to file and they would never change. Boy was I wrong.
I completely understand that we have a lot of talented bankruptcy judges and they want to use their talents to help companies. Itâs no different than the star surgeons who want to do a lot of surgeries. In both cases, talented professionals want to help people who need it. But the system is built on confidence and on integrity, and anything that throws those things into question â even when on closer inspection that question is unwarranted â is really undesirable.
I think bankruptcy judges need to be realistic about the damage that the Judge Jones scandal did to the reputation of the bankruptcy judiciary.
PETITION: Last question about judges. Weâve all noted that the last several years have featured a number of 22s. Thereâve been some this year already, e.g., Francescaâs and Eddie Bauer. Do you think judges should be more scrutinous of feasibility? If not, why not? And what other areas do you think ought to get more judicial scrutiny (putting aside the push-pull dynamic of scrutiny and encouraged forum shopping, lol)?
Professor Ellias: I think we all start off wanting to blame the judges for this, but I want to make an argument here and see what you think.
First, I am not sure Chapter 22s are really a crime. In a paper I started work on but havenât finished, I looked at post-Chapter 11 debt prices and I could see that a lot of the time post-Chapter 11 prepack exit financing often trades at a significant discount to par. Why? I am guessing it is because prepacks are often kind of like a more consensual LME â the debtor and the major creditors agree on a transaction, they run the thing through a prepack and they will see if it works.
Chapter 22s are often kind of like that. The debtor and its creditors got together, tried to do a restructuring and it didnât work out. Maybe they were overly optimistic, maybe they had bad assumptions, maybe management just wanted to keep their jobs and overpaid creditors to do so, leaving them with an insurmountable debt load.
Moreover, even if you think Chapter 22s are really bad, it is the professionals that deserve the blame, not the judges. I wrote once about key employee incentive plans and I reviewed all of the objections to all KEIPs across about 100 cases and I found that objecting parties almost never gave the judge anything to work with. âManagement does not deserve $100,â presented in a conclusory way, is a useless objection. If you think management is overpaid, do your homework and explain how it is with reference to pay at industry competitors, etc.
If we want to blame the judges for Chapter 22s, creditors need to really take on feasibility themselves with high quality evidence and arguments. I donât think that really happens, or at least I havenât seen it happen across a lot of cases. Until that happens, I donât blame bankruptcy judges for repeat filers.
PETITION: While weâre on the topic of the restructuring ecosystem, youâve also previously written about the cottage industry of restructuring independent directors. Thought it seems this has been far less of an issue in the wake of Neiman Marcus, at one point, people â including us â were banging the drum for more disclosure on the part of independent directors so that judges could be more aware of some issues that might arise from challenging creditors from the outset of a case. Do you have any thoughts about how the independent director game works?
Professor Ellias: Independent directors are a great example of how lawyers are constantly changing restructuring practice without Congress needing to do anything, which is very healthy given how unproductive our national legislature has become. I am really of two minds here. On the one hand, adding experts to boards is almost always a very good idea. On the other, experts on boards (especially experts appointed by the shareholders) are no substitute for a real Chapter 11 process, with an empowered official committee of unsecured creditors and a bankruptcy judge who isnât afraid to push back and ask questions.
My sense is that the practice and the marketplace continue to evolve. We saw the FTX bankruptcy, where an independent director basically ran the show to much bigger success than the petition date claims trading marketplace seems to have anticipated. We have also seen more controversial cases. I am guessing that as time goes on, the integrity of the process will grow.
In bankruptcy, we traditionally believe that the boardroom is no substitute for the courtroom. In corporate law, they traditionally think the opposite. I am guessing bankruptcy will keep its litigation and courtroom focus and independent directors will adapt to trying to add value within the traditional paradigm of Chapter 11. And of course, they can inform their more traditional boardroom colleagues about the majesty of LMEs.
PETITION: The classic restructuring prof question: setting aside the likelihood of congressional action today, what would you like to see changed in the Bankruptcy Code?
Professor Ellias: I would echo Douglas Bairdâs recent Congressional testimony and say that we need something like an English scheme of arrangement â an insolvency law that is less onerous in terms of judicial supervision and allows for a cost-effective cramdown of minority creditors and even dissenting classes in situations where the overwhelming majority of constituents agree to a restructuring and the debtor only wants to impose losses on some creditors. Itâs not the right solution to all distress problems, but where it is useful we should have it.
PETITION: What do you make of the recent decisions coming out of Texas and what is your take on venue in bankruptcy? Do you anticipate more appellate action?
Professor Ellias: The Texas courts are making a lot of law. It is interesting because, as you know, itâs only the Supreme Court that can really make law that matters, and even there you can try to get around it these days with clever structuring or âChapter 15 + a Part 26A Planâ if you want to do it the fancy way.
Bankruptcy lawyers are likely to largely ignore appellate decisions they donât like, just like they always have. Will there be more appellate decisions? Sure. Will they matter? Well, youâll know they mattered when the Houston Chapter 11s start to disappear. Until that happens, I am not sure that the appellate courts are really getting in the way of dealmakers doing the deals they want to do.
Without venue reform, appellate lawmaking wonât mean a whole lot. And even with venue reform, you donât have a single obvious venue for Chapter 15 cases, meaning that you can always get a court order from Mexico or England or wherever else getting the relief you want and shop for a Chapter 15 order.
PETITION: What do you think was the most impactful restructuring matter of the last year and why? (For once, we arenât worried about an interviewee talking his/her own book!)
Professor Ellias: This has already come up, but I think Fossil Group was really important. A NASDAQ-listed company doing the equivalent of a U.S. Chapter 11 in London on the theory that English law is better than American law for a classic set of insolvency issues shows that lawyers are thinking more expansively than ever about what tools their clients might need to maximize value.
If you think that the U.S. judges are bad when they try to signal âfile here,â you should see what English courts (and Parliament!) do. They have absolutely no hesitation about trying to attract big companies to their bankruptcy system. No U.S. debtor that I am aware of ever brags in their first day affidavit, âyour honor, we made all these kind of superficial, pointless moves to make venue in this jurisdiction more proper.â In the UK, scheme debtors do exactly this â the papers are jaw dropping for someone used to the U.S., where forum shopping is at least mildly embarrassing. âTo firm up venue, we held a board meeting in London and our CEO rented an apartment here.â It really looks like that. At the same time, the lawyers and judges in London are very good and getting better all the time as they build their bankruptcy system into a true global rival to the U.S.
PETITION: What do you think will be the biggest RX theme of â26?
Professor Ellias: There are a lot of interesting things â exit financing after ConvergeOne, global forum shopping, private credit â but I think the biggest story will continue to be LMEs.
PETITION: What is one issue that you think deserves more focus in restructuring circles?
Professor Ellias: I do a lot of conferences, both academic conferences and practitioner conferences. Something I always love about practitioner conferences is that bankruptcy lawyers are a group of deeply pragmatic and, for the most part, constructive people. There is something special about that which people take for granted.
PETITION: Our prior NOA features have discussed the way LMEs have changed bankruptcy practice. What impact has it had on the way you teach bankruptcy to the next generation? What advice do you give to aspiring RX professionals?
Professor Ellias: Your readers who are lawyers probably remember taking a four unit bankruptcy class in law school, where they read cases and learned the basics of Chapter 11, e.g. claims, the estate, executory contracts, etc.
Last year, for the first time, I created a four unit class I call âcorporate restructuringâ that covers the non-bankruptcy law of corporate distress. It is a complement to the normal bankruptcy class I teach, where I still cover the U.S. bankruptcy system. In corporate restructuring, I start with debt contracts and move into fiduciary duties to creditors, successor liability, fraudulent transfer, veil piercing, lender liability and then I move into about 12 class periods worth of LMEs, covering Windstream, TPC Group, Boardriders, Serta (four Serta decisions in the latest syllabus!), J Crew, Neiman, Robertshaw, Wesco and this year I added STG Logistics. It is so much fun. We do not cover Chapter 11 at all.
I created this class because I noticed that I kept having conversations with bankruptcy lawyers about their work, which I do a lot, where the stuff they talked about werenât things I covered in the traditional bankruptcy class. That made me think the curriculum was missing something important. I then did a survey, where I got input from about 100 bankruptcy partners about what I needed to include in a class like this, and they largely agreed on the list of topics I am covering.
At HLS, I have the privilege of teaching a LOT of future bankruptcy lawyers, investment bankers and distressed debt traders. Every year, I teach students who go on to do these things right after law school. I care a lot about making sure they are well-prepared for what they will encounter in practice. I have multiple students who graduated from HLS and joined restructuring practices and have never seen a bankruptcy court â they are just negotiating and executing LMEs. You can complain about it, but this is the reality of practice these days.
For me, teaching about LMEs also gave me the chance to dive really deep on these transactions and really figure out how they worked. It is such a different way to practice than what I grew up on as a junior associate during the financial crisis, and teaching about it has brought my skills much closer to current than they would be if I was just covering executory contracts.
Something your readers may not understand is how excited the next generation of lawyers is to get out there and do LMEs. They love these transactions â the complexity, the sophistication, the sheer craft of it. Every year, I advise a lot of HLS students who have offers at everywhere you might expect, and the best of them always want to know where they can work on the most innovative deals with partners and clients that are pushing the boundaries and innovating. LMEs attract talent in a way I personally would not have expected.
PETITION: Thank you for participating, Professor.
đResourcesđ
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. đ„You can find it heređ„. One getting a lot of attention after recent headlines is âIf Anyone Builds it, Everyone Dies: Why Superhuman AI Would Kill Us Allâ by Eliezer Yudkowsky and Nate Soares.
đ€ Noticeđ€
Akash Amin (Director) joined CR3 Partners from MorrisAnderson (J.S. Held).
Angeline Hwang (Associate) joined Latham & Watkins LLP from Ropes & Gray LLP.
Shai Schmidt (Partner) joined Cadwalader Wickersham & Taft LLP from Glenn Agre Bergman & Fuentes LLP.
đŸCongratulations toâŠđŸ
Fox Rothschild LLP (Joseph DiPasquale, Michael Herz, Agostino Zammiello) for securing the legal mandate on behalf of the official committee of unsecured creditors in the Francescaâs Acquisition, LLC chapter 22 bankruptcy cases.
FTI Consulting, Inc. ($FCN) (Liz Hu) for securing the financial advisor mandate on behalf of the official committee of unsecured creditors in the Sailormen, Inc. chapter 11 bankruptcy case.
Greenberg Traurig LLP (David Kurzweil, Shari Heyen) for securing the legal mandate on behalf of the official committee of unsecured creditors in the Inspired Healthcare Capital Holdings, LLC chapter 11 bankruptcy cases.
Jennifer Mercer on the launch of Command Point Advisors, a strategic communications advisory firm.
McDermott Will & Schulte LLP (Darren Azman, Joseph Evans, Gregg Steinman, David Hurst) for securing the legal mandate on behalf of the official committee of unsecured creditors in the Archblock LLC chapter 11 bankruptcy cases.
Willkie Farr & Gallagher LLP (Brett Miller, Todd Goren, James Burbage, Joseph Brandt) and Womble Bond Dickinson LLP (Matthew Ward, Todd Atkinson) for securing the legal mandate on behalf of the official committee of unsecured creditors in the Avenger Flight Group LLC chapter 11 bankruptcy cases.