đNotice of Appearance: Damian Schaibleđ
Partner and Co-Chair of Davis Polk & Wardwellâs Financial Restructuring group weighs in on LMEnergy.
Today we welcome an appearance by Damian Schaible, Partner and Co-Chair of Davis Polk & Wardwellâs Financial Restructuring group. Liability management has become the dominant theme in restructuring over the past several years and Damian has been front and center in a lot of those deals. We look forward to getting his perspective on a number of hot button questions weâve been asking of folks. Letâs dive in.
PETITION: Thank you for making an âappearanceâ with PETITION, Damian. Given the nature of your practice, we want to start with the highly unoriginal topic that people in the RX industry donât seem to want to ever stfu about: liability management. Letâs start with laying a foundation: how would you describe, as succinctly as possible, the difference between whatâs been dubbed LME 1.0 versus LME 2.0 versus LME 3.0?
Damian: Happy to be back! Maybe after my second âappearanceâ youâll reveal your identity đ. But, to what everyone is even MORE interested in, LMEs:
LME 1.0: LME 1.0 were the deals that people liked to call âlender-on-lender violence.â These were âleft-behindâ deals. Think Serta, Mitel, Incora and many others. Majority groups negotiated the transactions with the sponsor/company and left behind the minority holders. The minority holders almost always challenged the transactions in court, and that litigation led to significant cost, uncertainty for the business and conflicting case law. And many of the companies that did 1.0 LMEs deals didnât perform very well post-transaction. Itâs also worth noting that at the time that there were a lot of 1.0 LMEs happening, we were also doing a great many pro-rata A&Es and other LMEs. The in-group/out-group deals were of course the spiciest and got all the attention, but there were still a lot of other successful transactions that were done at the time.
LME 2.0: In part because of all of the noise, cost and disruptions around the 1.0 deals , lenders in particular became less interested in LMEs. One of the distinguishing factors of 2.0 LMEs is that they are usually sponsor driven. I would describe these as âdrag-alongâ deals â aimed at incentivizing substantially all lenders (98-99%) to participate and taking advantage of non pro rata dynamics to squeeze most of the discount out of minority holders. The 2.0 deals have been almost singularly driven by the sponsors/companies (or their advisors), using the threat of a deal-away permitted by loose documents to bring existing creditors to the table, and they are usually hated by even the participating lenders. The focus of 2.0 deals is primarily discount capture, but new money and maturity extension often get thrown in for good measure, with the result being a wedding cake with a dizzying number of tranches.
LME 3.0: Eventually, sponsor advisors started to report that sponsors had come to view the 2.0 deals as too expensive and time intensive to justify the modest discounts being captured. We also had decisions in Serta, Incora and others that made sponsors and lenders alike less excited about non-pro rata deals. The market has therefore now been shifting more toward what I call 3.0 LMEs. These deals are principally focused on maturity extension â many seeking extension of capital structures (and therefore equity option value) out past the 2028 maturity wall. New money is part of these deals when liquidity might be needed to actually realize the benefit of the extended stated maturities, but discount is much less of a focus. Because these deals are principally focused on maturity extension, they tend toward being more pro rata (putting aside backstop and other fees that may be allocated to the larger lenders doing most of the work). And since the sponsors want to realize value for tightening their loose documents and the loose documents are a wasting asset, these transactions often get teed up more than two years before maturity. Weâve done a bunch of 3.0 deals recently â Veritas, MSG Networks, Multiplan (now Clarivate), Cubic, iHeart and others.
PETITION: How do the Serta, Wesco/Incora and ConvergeOne rulings factor into those distinctions?
Damian: Serta and the bankruptcy court decision in Incora put roadblocks up for non-pro rata deals. Serta called into question the ability to use open market purchases on a non-pro rata basis, and Incora also called into question the ability to conduct multi-step transactions. The real impact of these decisions goes beyond the precedential impact â the cost and uncertainty of decisions like these are primarily borne by the participating lenders, rather than the sponsors, so they are a key focus in the market.
Iâd also call out the decision in Mitel, which really undermined good faith and fair dealing and other equitable claims. The district court in Incora also came to a similar conclusion, effectively suggesting that courts should focus on the words on the page rather than equitable arguments by aggrieved parties.
What happens after the recent ConvergeOne decision (assuming it survives on appeal) is a bit of an open question. The Texas District Courtâs decision called into question certain differentiated Plan-related opportunities (such as backstop fees, equity rights offerings, etc.) in ways that departed from precedent and market practice. This could lead to a push to do more transactions out of court rather than in bankruptcy, but it may also lead to more economics being baked into DIPs or being done pre-prepetition or post-emergence. Itâs too early to say at this point.
PETITION: Whatever the vintage, it sure seems like LME has really slowed down quite a bit in the past couple of months. What do you attribute that to and should we expect things to pick back up in â26?
Damian: I think there are a few factors at play here.
For one thing, there were a lot of LMEs in 2023 and 2024. Many of the names that were the most obvious candidates for LMEs conducted them. So, in some respects we just used up a lot of inventory in the past couple of years.
2025 started with a bang, with a similar number of transactions closing and discussions starting. And then we started to see the impact of the other big factor that I think about, which is the macroeconomic picture. There is a lot of uncertainty in the market right now owing to Liberation Day and tariffs, the war in Ukraine, inflation and interest rate uncertainty, etc.
It seems like a lot of the deals that would otherwise be in the market right now are on pause because of this uncertainty. In this LME 3.0 world, clarity regarding liquidity needs and cost for maturity extensions is particularly important, and that can be hard to come by right now.
Sponsors are well aware that they get one shot at an LME before the documents are tightened, and so they need to use that bullet when they can get the most bang for their buck.
In terms of what 2026 has in store, only time will tell. One thing that I think about is the substantial maturity wall in 2028. Ordinarily, I would expect the market to find a way to push it out. But we are not living in ordinary times, so it gets a bit harder to predict. Given all the uncertainty, it may end up being the case that companies look to deal with 2028 maturities sooner to get safely past that wall.
PETITION: Talk to us about the differences people ought to be cognizant of when looking at potential LMEs involved public companies versus private companies.
Damian: I love this question! Itâs really not as big a distinction as people might think. It used to be that people assumed public companies would be much less likely to do an LME than private companies, but the reality is that public companies have the same loose credit docs, the same holder base and VERY importantly the same bankers advising them. And the private credit/deal away players are just as focused on public companies as they are on private companies, so public companies receive the same pile of inbound proposals from private credit for deals away.
Weâve been involved in a number of public company LMEs in the past few years (Lumen, Multiplan, MSG Networks, iHeart, Graftech, among others), and a bunch of them started because the public company boards got a bunch of inbound proposals and hired a usual suspect banker to help them sort through them and figure out what to do.
PETITION: Do you expect to see more post-LME bankruptcies in â26? What characteristics do you see in companies that engage in an LME and then file anyway? Any common themes?
Damian: In terms of a common theme, it might have something to do with human nature. You have companies with over-levered balance sheets and little to no equity valueâthey do LMEs because they can and because hope springs eternal, and it often predictably doesnât work out in the end (in part because the company just added additional leverage and/or took on more expensive debt).
Yes, weâll see more post-LME restructurings in 2026. Weâre already publicly involved in Anthology and Lifescan, and we are working on a few others that havenât been announced yet. Even for those that donât work out, the common theme is that the lenders who participated in the LME and maintained a senior position in the capital structure are usually the ones driving the restructuring, and because the capital structure was left intact through the LME with most lenders participating, the restructurings are at least relatively straightforward (instead of messy, litigatious chapter 11s dominated by fights with left behind creditors or over collateral with drop down financing parties).
PETITION: Cooperation Agreements are a hot topic these days. What do you think of them generally? What changes have you seen with them over time? How are those changes good? How are they bad? What do you make of this đ take?
Damian: What a world we live in, where a tweet on co-op agreements gets more than 18,000 views!
Co-ops were originally designed to solve collective-action / prisonerâs-dilemma problems, allowing creditors to band together and sleep well at night with the knowledge that it would be difficult to do a deal around them. Most of the early co-op agreements were pro rata in nature and were open to all lenders, which sent a strong signal to the sponsor that it had no choice but to negotiate with the co-op lenders.
The trend in recent years is toward earlier co-ops and co-ops that lock in non-pro rata treatment. When debt starts trading on a co-op basis, it obviously results in noise in the market that can affect trading prices and businesses, and it risks alienating the sponsor and driving them into the arms of third parties for transactions. And locking in treatment too early in a process (particularly when the only reason to co-op up may be a desire by a lawyer to lock in a potential mandate) risks limiting flexibility and making an ultimate deal harder.
Bottom line, I think co-ops are an important tool and are valuable when used in the right time and place. We are often involved in situations with tight-knit, high-trust lender groups in which a co-op wouldnât add much value. Conversely, there are more fragmented lender groups in which a co-op makes a lot of sense to bring together dispersed parties.
PETITION: Thereâs been a lot of talk lately about the latest coop technology that benefits steering committees (âsteercoâ) â so-called carveout premiums â and how theyâve created pricing bifurcation in the market. What are your thoughts on this purported steerco benefit and what challenges do you think they might be susceptible to?
Damian: The challenge from a commercial standpoint is that the more widespread this becomes, the less trust and comfort creditors will be able to take from co-ops. There are now countless co-op âtechnologiesâ out there (lawyer-speak for tinkering with voting thresholds, âapproved transactionsâ definitions, sponsor DQs, and so on).
I return to my point above that co-ops were originally about letting creditors sleep easy. It is a real issue if creditors are entering into co-ops from a place of fear. And youâre right: many creditors are very sensitive to the effects the co-op might have on trading and liquidity.
PETITION: To what degree, if at all, can professionals in your position influence who is and is not part of a steering committee leading an LME? What do you make of the idea that certain lawyers might (đ) threaten to exclude certain funds in LME deal #2 if said funds donât hire said lawyers in LME deal #1?
Damian: I fundamentally believe that the investors should be the ones making decisions in names they are invested in. They should be the ones deciding if they want to organize, whether they sign a co-op, the timing of any co-op, who sits on the steering committee and the choice of counsel.
Market dynamics that have counsel foisting themselves onto creditors (and foisting certain strategic choices or co-ops on those creditors) puts the market in an unfortunate place. My guiding principle is simple: creditors should make the decisions. We are here to give advice and perspective, but ultimately the creditors should make the decisions.
PETITION: Have you ever seen a party violate a coop? What happens in that context?
Damian: No. Like so many parts of the restructuring world, itâs often as much about market reputation and being known to stand behind your commitments as it is about the specific words on the page. If there were a violation that a group actually wanted to fight in court, I foresee an enforcement path that would be long, uncertain, limited in utility (in part because it would take too long) and probably make for excellent PETITION content. I asked ChatGPT* to illustrate what a violation might look like and received this back:
PETITION: Last one on coops, promise. A lot of the market activity seems to have moved earlier and earlier against a maturity, often times surprising issuers and sponsors. Some might argue that some of these negotiations are manufactured by RX professionals who are trying to get in the door earlier. A counterpoint is that that usually just means said RX professionals are working for âfreeâ for longer. Whatâs your take on this dynamic?
Damian: That is 100% true. The joke is that co-ops and groups are now being organized essentially at new issue, which does reflect a sad reality.
Some in our market are pushing aggressively to organize groups very early on, for what often seems to be self-interested reasons to secure a mandate. Thatâs not wrong in and of itself, but it leads the market down an unfortunate path, triggering unnecessary noise and activity around names, causing negative impacts for businesses and debt trading prices. Thatâs not how I would like to see our market operate.
PETITION: The primary financing market is trying to get out ahead of lender coordination/agitation with all sorts of new technologies. What are you seeing now and how effective are these technologies? Why are we hearing about âdisqualificationâ so much more these days â both in the context of lenders and professionals?
Damian: It is somewhat unfortunate that in the broadly syndicated world, it increasingly feels like the borrower and its lenders are at odds. Views and incentives all too often bifurcate into a zero-sum, tit-for-tat game where sponsors and lenders are looking for additional leverage points. Lenders co-op up to give the back of the hand to the sponsors, and sponsors use expansive DQ lists to push back on lenders. I think these modern DQ lists are actually not a great idea from a sponsor perspective, because it artificially limits liquidity for paper, slowing natural trading dynamics and potentially actually making it harder to get deals done.
PETITION: On the flip side, what do you make of all of the blockers (and their carveouts)? Do you have some sort of cheat sheet you can share with us on these?
Damian: In some respects, this is another front for the incremental warfare between sponsors and lenders after multiple years of aggressive LME transactions. I always say that these blockers are designed to âwin the last war.â J-Crew blockers, Serta blockers, Incora blockers . . . the list goes on!
They are for sure not a panacea because, when read closely, blockers are usually still open to ambiguity and uncertainty. Deals still get done despite documents being loaded up with various blockers. Smart lawyers reading documents in a creative manner can usually find a way around almost anything. And then the documents evolve further and so does the creativity âŚ.
PETITION: Talk to us about the âdeal away.â It seems like itâs been a big threat in the markets these past couple of years with very little to no traction/bite. What do you make of âdeal awayâ prospects and how do you advise the ad hoc groups youâre leading to contend with that possibility when negotiating with an issuer/sponsor?
Damian: I actually see the deal away becoming an increasingly real option for a lot of sponsors in distressed situations. I feel like historically the special situations lending market was expensive, limiting, not willing to take much risk and really more looking for straightforward and safe financings. However, in recent years, special situations funds have proliferated and have raised tremendous amounts of money for this mandate, increasing competition and leading to third-party deals becoming less expensive, quicker, more flexible and more willing to embrace complexity. At the same time, existing lenders are co-oping up earlier, which as discussed above can limit flexibility and potentially push sponsors into the arms of a third-party deal away suitor. Deal away financings canât extend a companyâs maturity or solve a balance sheet, so they will always be somewhat limited, but I think we will see more of them in the coming years.
PETITION: What are you seeing in Europe these days in terms of RX generally and LME specifically? What are some interesting issues there that have yet to play out that could impact volume in coming months/years?
Damian: We are currently witnessing a fundamental shift in the European restructuring landscape. It began with the introduction of restructuring plans (akin to US Chapter 11 proceedings) across EU member states back in 2020 and can be seen more recently in the rise of LMEs in Europe. While we in the US have become all too used to LMEs in our market, our European counterparts have had less experience with them for several reasons, including: the comparably smaller size of the European credit market; the wider range of restructuring tools available to European borrowers; the restrictive nature of directorsâ duties regimes in certain European jurisdictions; the minority protections that can be invoked to challenge LMEs in Europe; and the fact that LMEs are simply not a tried and tested tool in European courts, so they bring with them potentially heightened litigation risk. Notwithstanding the litany of reasons why sponsors and creditors have previously resisted LMEs in Europe, we are seeing a steady rise in the number of LMEs being implemented in Europe â from zero in 2022 and 2023 to four in 2024 and at least seven in 2025, with three more reportedly in process.
The European restructuring market seems to be in a state of flux, so it will be interesting to see where and how that settles. We expect to see more LMEs in the coming years as European sponsors and debtors become more familiar with the tools and the macroeconomic backdrop continues to deteriorate. However, as in the US, LMEs generally result in tighter documents, so we also expect more formal restructuring proceedings over time time. For these reasons, after a lot of exploration and thought, this year Davis Polk launched a European Restructuring Practice, led by my new partners Jifree Cader and Mark Knight, two very experienced and well-respected UK restructuring lawyers.
PETITION: What is the firm seeing in private credit distress and should we expect to see more PC-oriented LME deals?
Damian: The private credit market has obviously exploded in size over the past few years. More participants have more money to put to work each year, leading to an enormous market shift. The old days of the sleepy private credit landscape of tightly documented middle-market deals with one to three lenders has been supplemented with a new creature that is ably challenging the BSL market for some of the biggest deals. With that competition and convergence comes bigger deals, bigger syndicates (including new and different participants) and looser and looser documents. It only stands to reason that there will be more distressed deals to be addressed and more BSL-like attributes â like, someday, LMEs âŚ
PETITION: What is a recent LME deal you were involved in that youâre particularly proud of and why?
Damian: Like any good parent, I love my children equally, but just not always in the same way! Iâm tremendously proud of a number of deals weâve done over the past few years (for example, Lumen, Veritas and Shutterfly), where we achieved positive outcomes for our clients because the company actually turned around after the transaction had closed. As a group, weâve done upwards of 85 LME deals since the beginning of 2023 (including around 30 so far in 2025 alone), and each of them had aspects I am proud of (and some aspects I didnât love!).
PETITION: Letâs switch gears for a second. Davis Polk has been making a push to do more company-side work: the firm currently has the Spirit Airlines 22 (a classic âdouble dip, lol) and recently had Azul, AeroMexico, Big Lots, Fisker Automotive and Instant Brands. Is this a play to harness whatâs already on platform or is the strategy to do that and compete with the likes of Kirkland & Ellis LLP and Latham & Watkins LLP? If the latter, does the firm intend to do something it doesnât typically do: hire laterals?
Damian: Actually, our debtor-side practice is not new at all. We have been handling large restructurings for sizable companies both in and out of court for decades. Delta Air Lines, Frontier Airlines, Pinnacle Airlines, Arch Coal, Patriot Coal, James River Coal, American Rock Salt, Ford, the list goes on. And donât forget Purdue â the highest profile company-side deal this decade! But you are correct to note that this is a big current focus of ours, with great results so far. In particular, as the firmâs private equity platform grows, our restructuring partners are actively practicing alongside our corporate colleagues to provide full service advice to those clients.
As for laterals, we view it as exceedingly important to develop and grow our practice from our deep bench of amazing homegrown lawyers wherever possible. Our lawyers stick with us in part because we invest deeply in their development and provide real opportunities for growth. We donât need to look to lateral partners to continue our current trajectories on the U.S. creditor or debtor sides.
PETITION: Speaking of building a company-side practice, from the outside looking in and seems like Davis Polk is also making a big push into private equity. Is that a tacit admission that the firmâs leaning towards its traditional banking practice was perhaps misguided given how robust PE work has become and how much PE work feeds RX work?
Damian: Great and super insightful question. Who are you again . . .? Thereâs a lot here and I am worried about boring people, so I will give you the short version of a really interesting topic. Davis Polk has long practiced in PE and has been very successful at it, but in the past few years, our corporate teams (M&A, Finance and Capital Markets) have really poured gas on that fire; it is a huge focus for our firm right now. But this is in no way to the detriment of our market leading bank practice, which always has been and presumably always will be one of the (numerous) bedrocks we have been built on. And from a Restructuring Group perspective, we view the strength of our lender side and bank practices as value accretive to our sponsor clients â and vice versa. Both because of the technical expertise, after years of designing all of these LME and restructuring tools, but also because itâs helpful to have the relationships across the aisle on these deals. Just like the bankers who pitch their ability to build bridges, we view the diversity of our practice as a core strength.
PETITION: What would be your selection for the most impactful restructuring matter of â25 thus far and why (donât shamelessly list your own work)? Feel free to acknowledge a matter that filed for chapter 11 or one that restructured out-of-court.
Damian: Is it cheating to say the quartet of Serta, Mitel, Incora and ConvergeOne? Their collective sound is not harmonious (or melodious), but they have really helped develop the current storyline in the LME opera we are all watching and acting in together. OK, enough musical imagery from a guy who stopped playing guitar while Kurt Cobain was still with us. But these four decisions (and where three of them go from here) are pretty significant in their own ways (and together) to how we are constructing transactions, thinking about groups and pricing and advising our clients on risk.
PETITION: What is your favorite thing about the bankruptcy code? On the flip side, you must have some thoughts about inefficiencies in bankruptcy. What is f*cked and needs fixing? Is there one subject that not enough people are talking about? If you could implore Congress to take action about one thing, what would it be?
Damian: Favorite thing: For the law and economics nerd in me, I love that the Bankruptcy Code was in many ways designed to encourage deals â to push opposing factions in a case to a more pareto optimal outcome. Like all great living documents, however, there are certainly aspects that need attention. And spoken like the true fulcrum creditor lawyer I often am, Iâd focus on two areas that can lead to unnecessary cost. First, Congress should make clear that Bankruptcy Courts have the discretion to appoint or not appoint an examiner when one is requested, contra to the Third Circuitâs FTX decision, to avoid out of the money creditors being able to expend estate resources to gain leverage through examiner requests. And Iâd argue for guardrails around the expense of Unsecured Creditors Commitees. In particular in modern capital structures where the value of a company is subject to secured creditorsâ interests and unsecured creditors are unambiguously out of the money, having a committee that runs up costs most benefiting professionals really just runs in the face of the absolute priority rule.
PETITION: What are some of the biggest changes youâve witnessed happen to the business of bankruptcy over the course of your career?
Damian: This could be another long answer because our profession has changed so much and so rapidly in the past dozen or so years. I used to say that if you were out of the business for six months, youâd be lost. Now I sometimes feel that way after a long weekend. Hedge funds taking over from banks; the birth of the ad hoc group; giant money managers taking over from hedge funds; the rise of CLOs; the rise of private credit; the rise of private equity and private companies; everything becoming a prepackaged or prearranged case; âindependentâ director service as a new career field; liability management taking over from bankruptcies; equity backstops; roll ups; equitizing DIPS; scattershot (and professionally-induced) co-ops; ad hoc groups forming basically at new issue . . . howâs that for a socially awkward version of âWe Didnât Start the Fireâ?
PETITION: What is the best piece of professional advice that youâve ever gotten and why? Please lay some wisdom down on our readers who may be at the initial stage of their careers.
Damian: Bring your full, authentic self to the office. I truly believe that the best way to be successful and also satisfied is to openly be who you are and not try to be someone else. It helps people to understand you, relate to you and trust you. And it helps you to understand, relate to and enjoy those you work with and opposite. Everyone who knows me knows I am a terrible golfer who loves the game, an Eagle Scout with a passion for Scouting, a terribly uncoordinated wannabe athlete, a Sunday School teacher who takes faith seriously (the 2nd graders are sometimes easier to manage than my ad hoc groups), a heavily invested husband and father, a huge fan of the Christmas season (see below) and a bit of a wine snob. Bringing my whole self to my profession helps me to be a better advisor, lawyer and colleague and helps me better enjoy my career.
PETITION: Youâve likely noticed that we like to snark âLong ABCâ or âShort XYZ.â What are you âlongâ these days? What are you âshortâ? Feel free to be creative here but please list one thing thatâs legal/financial and one thing thatâs ⌠well ⌠whatever.
Damian: Taking investment or market advice or views from a lawyer is usually a bad idea, but Iâll give it a try:
Long âbig institutions getting biggerâ â I just see so much money looking to be invested at every level and such a massively lopsided playing field for big players of every type â banks, CLOs, money managers, advisors, corporates, PE firms, you name it.
Short global security â there are so many simmering (or intense) fires all across the world â economies in real danger, environmental disasters growing, wealth disparities intensifying, wars raging, nations and their people suffering, empathy failing. I donât mean to sound apocalyptic, but there are real concerns globally, and sometimes it feels a bit like we are playing piano on the deck of the Titanic while the U.S. market roars and we talk about non-pro rata LMEs.
PETITION: Finally, youâre well known for your quirky/crazy/adventurous holiday decorations and gifting (something we spotlighted in PETITIONâs early days). The holidays are upcoming: what insanity do you have up your sleeve for this year?
Damian: Many who know me know that I love the Christmas season, and I spend two days every year putting up a holiday display in my yard that is the embarrassment of my buttoned-up Westchester neighborhood.
Every year my kids choose one or two new holiday inflatables, and I am particularly excited about this yearâs new one â The Nemecek Who Stole Christmas . . .
PETITION: Thanks Damian. This was a long one and we appreciate your participation. đ
đResourcesđ
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. đĽYou can find it heređĽ.
Weâre nerds so weâre actually a bit excited about Andrew Ross Sorkinâs newest title, â1929: Inside the Greatest Crash in Wall Street History and How It Shattered a Nation,â which comes out on October 14, 2025. You can preorder it now.
Another one that is getting a lot of attention that we want to dig in to is âIf Anyone Builds it, Everyone Dies: Why Superhuman AI Would Kill Us Allâ by Eliezer Yudkowsky and Nate Soares. Itâs available now.
