💥RX Pros Weigh In. Part II.💥
A panel of bankruptcy/restructuring pros looks forward to '26.
Last week we released Part I of our end of year survey in which our esteemed slate of restructuring professionals looked back on ‘25. Several of the answers seemed to resonate with our readers:
Our readers generally don’t like to publicly comment in response to our newsletters but we’re always happy when they do:
Of course, not everyone was impressed:
That’s right: someone actually took the time to email us that (whatever “that” even means), LOL.
We can’t wait to see what the response is to this next part 👇, wherein we move past ‘25 and look forward to ‘26. Without further ado, let’s jump back in ⬇️. 1
1. PETITION: Put your prediction cap on: what do you think the biggest restructuring theme of ‘26 will be?
Dan Fisher (Co-Leader of Akin’s Capital Solutions Team): 2026 is the year the market finally steps back from trench warfare. After a series of aggressive LMEs, co-ops pushed to the breaking point, and litigation that created more problems than it solved, people are starting to understand a simple truth: in this environment, enterprise value is too fragile to waste on clever tactics. Defaults remain high, refinancing options are scarce, and many capital structures are already strained from earlier liability management rounds. Both lenders and companies are realizing that the next fight for priority won’t fix anything. The only way forward is a coordinated reset that truly addresses the business’s issues. So the main theme of 2026 is a change in mindset: not “How do we win the next tactical skirmish?” but “How do we stop harming the thing we’re trying to save?” Let’s call it necessary détente. The market has learned that certain aggressive moves, which may seem smart on paper, can lead a fragile enterprise straight into liquidation. Even the most ambitious players will recognize that results matter more than clever strategies. Less maneuvering, more restructuring, more value.
Colin Adams (Partner, COO, and GC of Uzzi & Lall): Private Credit. I’m not going to go as far as “cockroaches” hiding from the light, but I do think there are many private credit loans whose internal marks may not reflect the health and earnings power of their middle and upper-middle market borrowers. Most private credit lending platforms have not been through a cycle and have not been tested with multiple borrowers having meaningful problems at the same time. In addition, the most recent vintage of private credit loans is a lot more covenant light than the casual observer might expect – more entrants into the space have caused competition benefiting borrowers – covenant light means fewer tools at the lenders’ disposal to make an early intervention before borrower liquidity has dwindled to critical levels. In my opinion, an increase in private credit distress will force restructuring professionals to adapt to: structures with fewer, more influential lenders; more focus on process costs; a greater willingness on lenders’ part to equitize and operate for a time; and likely less need for a solution that involves the courthouse for anything more than deal implementation, if at all.
Jeffrey Finger (US Co-Head of the Debt Advisory & Restructuring Group and Managing Director at Jefferies Financial Group Inc.): I predict that the biggest theme of 2026 will be the impact of cost inflation from tariffs and rising labor costs, along with global oversupply of certain commodities, will lead to increased restructuring activity in the chemicals, paper, packaging and building products sectors. Demand is expected to remain weaker in the construction, automotive, and consumer markets. I predict healthcare defaults, such as in hospitals and hospital services, will see distress continue in 2026, due to rising expenses coinciding with lower government reimbursement rates for an aging population. Tariffs could play a role in the cost of supplies and pharmaceuticals, with supply chain concerns continuing to persist.
Angela Libby (Partner, Davis Polk & Wardwell LLP): Not going to say LME … not going to say LME … OK, I’ll go with out of court transactions (real out of court restructurings). I think that we’re likely to see continued distress in middle market companies with very real liquidity challenges, where the cost of an in court process would swamp the value of the company. Many of these will be in the private credit space, with one tranche of debt, where out of court turn overs are relatively straightforward. But others will involve syndicated debt or 1L/2L structures where folks will have to get more creative to effectuate balance sheet restructurings out of court. I expect we’ll all be looking hard at strict foreclosures and other state law tools, and that we’ll see an increase in bare knuckle negotiations over “tips” to junior creditors to avoid the costs of a filing.
Shai Schmidt (Partner, Glenn Agre Bergman & Fuentes): Finding out how effective post-LME lender protections really are. Whether in a bankruptcy or a second LME, they will likely be put to the test in several distressed situations.
Jude Gorman (Founding Partner, Collected Strategies): The potential intersection of a recession and tightening of underwriting standards and the impact that will have on the out-of-court/LME market. If the economy weakens and takes down business projections at the same time as financing sources raise (or are forced to raise) their bar to lending, will the numbers still pencil out for a deal? And if not, does that mean more “out of options” in-court restructurings or more liquidations / fire sales? Or will the new Fed chair cutting rates to zero make this all moot again?
Ron Meisler (Partner, Skadden, Arps, Slate, Meagher & Flom LLP): First, we are bound to see increased impact of AI with respect to the work we are doing. It’s possible — probably likely — that AI will be an effective tool to quickly review and analyze debt documents, assess the art of the possible, compare the options to market precedent, and supercharge our LME work. Second, the robust growth of private credit and the competition for loans will likely contribute both to higher defaults and decreased ability to manage these defaults because of the lack of covenants and early warning “speed bumps.” Finally, in light of the headwinds with respect to EVs and the lingering impact of tariffs (unless they are overturned with refunds owing), “winter may be coming” for the auto industry.
Dave Orlofsky (Americas Co-Leader of Turnaround & Restructuring and Partner & Managing Director at AlixPartners LLP): More of the same. LMEs and private credit will continue to be big restructuring themes.
Matt Barr (Co-Chair of Weil’s Restructuring Department): Maturity walls from COVID debt and A&Es.
Benjamin Beller (Partner, Sullivan & Cromwell LLP): More situations of fraud-like issues and factually complex financing arrangements leading to additional restructuring activity.
Michael Handler (Partner, King & Spalding LLP): I think we could see a new crypto-driven insolvency waive in ‘26.
Ryan Bennett (Chair of Willkie’s Restructuring Group): The return to in-court restructurings.
Nick Campbell (Managing Partner of MERU LLC): More movement of key restructuring professionals across firms and potentially a few mergers or acquisitions. Would it also be too provocative / controversial to add A&M’s potential IPO???
2. PETITION: We’ve noticed the rise in conference panels focused on AI in RX but can’t say we’ve seen a real impact just yet. Where do you see it having a role in the BK/RX process? How influential do you think AI will be in our industry going forward?
Dan Fisher: AI predicting which loans will be issued in the future — and certain advisors promptly organizing creditor groups for those hypothetical credits. At this rate, we’ll soon have ad hoc committees for businesses that don’t exist, capital structures that haven’t been drafted, and maturities that haven’t been born. In all seriousness—the real problem with AI risk is that no one knows how it will actually impact our world (RX and otherwise) and the velocity of change is breathtaking.
Ron Meisler: See my prior answer above. In addition, there is some speculation that AI will be used as an analytical tool for negotiation to support strategic considerations and predict outcomes, for example facilitating mediations. Similarly, these same tools may help practitioners evaluate arguments and reactions from the bench to formulate litigation strategies with respect to disputes in chapter 11 cases. Of course, there is no substitute for a deep understanding of the people involved – the all-too-human motivations, risks and rewards, and perceptions of the risks and rewards, behind any decision-making.
Colin Adams: I’ve recently seen credible commentary comparing AI to a mediocre summer intern. Now, you may be thinking, “Sounds like a step up from the clients’ kids that I get stuck with every summer…” Nevertheless, I don’t think any of us need to worry about losing our seats to the robot overlords just yet. LLM-based AI is untrustworthy in its hallucinations and worse than sophomoric in its critical reasoning capabilities. Restructuring is multivariate in its complexities. To be good at this game, you have to: understand the present, totally-messed-up situation at an exacting level of detail; create a credible future state vision for the enterprise and its stakeholders; and negotiate with these stakeholders across their priors (emotions, incentives), the normative constructs of the contractual relationships, and the overlay of Bankruptcy Code and Rules. We started Uzzi & Lall largely because restructuring is so hard and complicated and messy and deeply enmeshed with human psychology and principles of game theory. Thus, while AI may be brought in to help with basic tasks, initial research, getting a quick first draft together, etc., my partners and I are confident that there is no substitute for experienced, bespoke advice and guidance in a crisis.
Nick Campbell: There isn’t anything unique that is going to impact the restructuring industry that isn’t already happening across every other industry. If you are part of a firm that uses a leverage model relying on a bunch of junior team members performing entry-level, repeatable tasks, you are at risk of being disrupted. The challenge that larger firms will have is, how do they pivot when their operating model, compensation structure and culture are fundamentally anti-AI and efficiency…
Angela Libby: AI will affect our law firm and banking practices generally and it’s inevitable that we will all see changes in how we practice (i.e., greater efficiency in data collection, research, lower level drafting, etc.), but I fall into the camp that is skeptical that AI will upend RX as we know it. Our practice requires applying diverse skills to bespoke fact patterns to come up with creative solutions, all in the context of very real, very human and often emotional negotiations. And it’s already the case that our industry is small enough that we are all generally aware of the latest case law and most cutting edge technologies, so it’s not like AI is going to aggregate data about our practice in a way that spits out some secret sauce answer that isn’t already widely available. Maybe this is just wishful thinking because I am officially old enough that I’m bad at change but young enough that I hope to have a long career ahead of me and not be replaced by AI!
Matt Barr: We are in the first inning of AI. From proofreading, to summarizing, to analyzing large data sets – AI will get better and improve the processes through which we analyze and present data. I do not believe AI can replace the experience and judgment needed to advise clients in our nuanced RX matters and the human connection/relationships needed to build trust and confidence in our advice. As you know, RX matters are oftentimes bet-the-company situations, some of the most difficult times in a company’s life cycle, and high-pressure situations for creditors and other stakeholders.
Shai Schmidt: While AI can make bankruptcy litigation less expensive (for example, by performing document review), bankruptcy law is so nuanced and complex that I don’t see AI replacing bankruptcy lawyers anytime soon. A very big part of what we do is based on judgment, experience, and soft skills that (at least at this point) cannot be replicated by a machine.
Dave Orlofsky: It is amazing how many people want to talk about Allen Iverson “We’re talking about practice.”
As it relates to the other AI, I don’t think it has had a profound impact on bankruptcy/restructuring process yet. I think people are still trying to figure out its impact, but AI will change aspects of the industry likely starting with those remedial and repetitive tasks with incremental impact over time.
Jeffrey Finger: Analytical tools have been present in the restructuring world for a while now, mainly to predict companies that might experience distress. We are already utilizing AI to help prospect and identify restructuring opportunities. But, the growth of AI will allow for the analysis and comparison of large datasets of legal documents in a faster period of time. Whether it be analyzing credit documents for potential weaknesses relative to historical liability management transactions, helping analyze financial reports, or targeting buyers/investors for distressed assets, AI will be impactful in the restructuring industry going forward.
Benjamin Beller: We have seen an interesting uptick in court pleadings by pro se individuals in large chapter 11s which likely is a result of AI drafting. For us, AI will have an increasing role in analyzing data and identifying trends and opportunities.
Michael Handler: At least in the near term, AI can serve as an efficiency tool for advisors to aggregate and review large amounts of information (among other things). In the bankruptcy process, it could allow advisors to analyze more detailed data sets of relevant information. That being said, data is often used to serve a particular narrative, so you still need humans to frame the narrative.
Ryan Bennett: AI is a great tool. It can be utilized to help think through issues and sharpen legal writing. But it is a tool, not a panacea. The dynamics, personalities, and negotiations need to be driven and solved by humans. We can use the tools and technology to provide and present better advice.
Jude Gorman: It could be influential from an efficiency perspective, but it probably won’t be, at least not in the short term. Every advisor will be applying AI to its internal processes, and I expect they’ll find some success there, but the problems that the industry solves strike me as pretty AI-resistant. Longer term, it’s hard to imagine the next generation of advisors having quite the same depth of knowledge and experience as current practitioners given that the nuts and bolts of the job that you learn in the first years will be automated, but that’s probably still several years away.
3. PETITION Rapid Fire #1: Last year we asked whether cooperation agreements would get challenged as an antitrust violation in ‘25? Now the challenges are coming. What happens next?
Colin Adams: On July 31, 2018, the New York Mets lost to the Washington Nationals by a final score of 25-4, the worst loss in Mets franchise history. The antitrust challenges to cooperation agreements lose by an even larger margin. Collective action is not collusion; a bond is not the bond market; and the ability of financial parties to organize has been enshrined in US and UK markets for centuries – in reply, I hope at least one creditor cites to the East India Company dividend fights of the 1760s.
Michael Handler: I have no idea because last year I wrongly predicted they would not be challenged. Even if advisors and creditors view the risk of cooperation agreements being found to violate antitrust law as low, it might give them pause to use the cooperation agreement as broadly and regularly as they are now used (rather than its original roots as a situation-specific tool designed to protect against a limited set of risks). I also think lenders are generally exhausted by the downsides of coops, and some say they benefit advisors by locking in counsel more than the lenders themselves.
Ron Meisler: Until there is an adverse ruling, which will be at least a year away, cooperation agreements will continue into 2026. The is critical role of creditor groups in the restructuring process (in and out of court) and we need stakeholder groups to coalesce to get deals done efficiently and effectively.
Benjamin Beller: Lenders will likely start to seek counsel from antitrust experts before signing onto any coop and we are likely to see new technology in coop agreements to contract around any potential challenge (whether or not they have merit) on antitrust grounds.
Shai Schmidt: Given that Altice USA’s lawsuit focused on the fact that the coop there covered 99% of the debt, we may see a chilling effect on “open” coops with tiered treatment and carve-out premiums. I expect to see more 50-something percent coops moving forward.
Jeffrey Finger: Excluded creditors will continue to try and find ways of not being left out of a transaction or getting terms that are worse than the co-op group. Sponsors who like to utilize LME transactions for their portfolio companies will also look for ways to mitigate creditor organization. This could include additional legal actions. The additions of new provisions in credit documents and the use of DQ lists could try and mitigate the formation of co-op groups but they will continue to be formed in the near-future as LME concerns are materializing earlier and earlier.
Ryan Bennett: Most likely, deals will get cut before the courts can decide. It will lead to borrower companies and their lenders in those coops to come to the table and negotiate.
Jude Gorman: Nothing. It seems unlikely to me that whatever juice is left in the antitrust world will get used on lender cooperation agreements.
Angela Libby: No slow down of coops and eventually a court decision.
4. PETITION Rapid Fire #2: The District of Delaware has had quite the comeback in ‘25 but the S.D. of Texas continues to hold strong. The SDNY appears dead, the District of New Jersey never really took off and the N.D. of Texas is rising but remains a far cry from its southern sister. If another jurisdiction were to emerge, what would it be and why?
Shai Schmidt: Maybe the Eastern District of Virginia deserves another shot? Selfishly (being based in NYC), I would welcome the shorter flight to Richmond.2
Angela Libby: Southern District of Florida. Full disclosure, I’m typing this response at 5:44 p.m. ET on December 15 (yes, I’m late on the submission deadline) and it is 20 degrees in NYC. My response may be entirely driven by the idea of doing cases in Miami in the winters.
Benjamin Beller: Based on the weather in NY the last few days, Miami or Hawaii?
Michael Handler: Given that my practice is more heavily weighted toward creditor representations, I can only speculate that it will be a mix of sponsor/company friendly precedent (or lack of adverse precedent), predictability, and decent weather/quality of life for those in-court appearances. So maybe Southern District of Florida?
Nick Campbell: We typically defer to counsel for venue, but I vote Miami for a non-academic reason of ease of travel and the weather.
Jude Gorman: Texas and Delaware seem to have a hammerlock on things. Nevada is trying to supplant Delaware for incorporation purposes, but that’s a long way to go for a hearing. I’ve always been surprised that Florida hasn’t risen in the rankings given how much everyone purports to like Florida, so if I had to pick one that isn’t on your list, I will pick the Southern District of Florida. But I don’t think that’s likely.
Colin Adams: The Eastern District of Louisiana. It sits in the 5th circuit, just like Houston; features a commercial and competent jurist in Judge Grabill; and the court house is in New Orleans. Imagine emerging from the courthouse with these guys saluting your victory: Laissez les bons temps rouler!
Ron Meisler: The Eastern District of Missouri, Judge Walsh. Judge Walsh presided over 23andMe Holding Co., et al. (Case No. 25-40976-357), where we represented the purchaser. He was practical, thorough, and thoughtful. It was truly a terrific experience.
Ryan Bennett: Here is what people need to understand about venue. Chapter 11 can carry with it a lot of uncertainty and variability for corporate debtor clients. Where debtor counsel can reduce that uncertainty and inject more predictability, we will. It’s our job, so when it comes to choosing venue, we want a court that is sophisticated, makes decisions, is consistent on those decisions, and is accessible in real time. As such, we look for jurisdictions with those attributes. Unlike litigation, chapter 11 cases are about the whole company and therefore bankruptcy courts need to be business courts and to operate commercially. I think you’ll continue to see D. N.J. and N.D. Texas deliver on this front like S.D. Texas, Delaware and S.D.N.Y. have for many years. For the record, we don’t see SDNY as dead (e.g., Spirit, Azul, among cases, and a prime chapter 15 jurisdiction), and NJ had its share of large filings (e.g., Del Monte, where we represented the debtors’ parent), but (to the disappointment of Springsteen fans) not every company has a NJ entity or presence – go figure!
5. PETITION Rapid Fire #3: The subject you expect most clients to bring up when they call you in the new year will be _____________________.
Dan Fisher: How to run a private-credit-style restructuring in a capital stack that wasn’t originally designed for it. Clients are increasingly asking how to get a fast, coordinated, value-preserving solution when their lender group looks more traditional, operates by consensus, and wasn’t built around the tools private credit now uses every day. The 2026 focus will be aligning diverse stakeholders around an efficient reset before market volatility or operational drift erodes value. This will be similar to the challenges in the early waves of CLO restructurings.
Jeffrey Finger: In 2026, we expect to see an increase in the number of calls from sponsors looking for more flexibility in their capital structures. Sponsors are starting to see portfolio companies really hit their stride, but are in need of additional financial flexibility to allow this growth to materialize. We expect the calls by sponsors to raise additional ‘bespoke’ capital will increase in the new year.
Ron Meisler: How much will this cost?! (I’m quite serious. We have made a real effort to involve co-counsel who charge lower rates, where warranted — ask Andrew Glenn about our success in that regard. The professionals should be a reason for a case’s success, not its failure).3
Benjamin Beller: Avoiding unnecessary case cost, including because no matter the deal, the most expensive advice is bad advice.
Jude Gorman: The cost of taking a company through chapter 11.
Shai Schmidt: LMEs (sorry).
Angela Libby: LME transactions. What can I say, they’re just the ghost of Christmas past, present and future.
Michael Handler: Collateral audits.
Nick Campbell: Same as every other year ➡️ “We need someone to actually fix this broken company. When can you start?”
Dave Orlofsky: Company: “I wish we called you sooner.”
Matt Barr: Liquidity, liquidity, liquidity.
Ryan Bennett: Whether coop agreements violate the antitrust laws.
Colin Adams: Alabama Football’s National Championship in January (my son, Oliver, is UA Class of ’28).
6. PETITION Rapid Fire #4: Will the default rate be higher in ‘26 versus ‘25? Do you expect to be busier in ‘26? If so, compared to your historical practice, do you think it will lean more in-court, more out, or about the same?
Ron Meisler: I expect the default rate to be higher and our industry will be busier in 2026, both with in court and out of court transactions. The economy, and certain industries, are facing a variety of headwinds, and troubled company restructurings are on the rise. In addition, given a material change in jury behavior I expect to see more mass tort-driven restructurings, which will take place both in court and out of court. Finally, it’s likely that there will be more Tricolor/First Brands tragedies in 2026 because of the fierce competition in the lending origination marketplace.
Dan Fisher: Yes — the default rate will be higher in ’26. The stress is sitting inside existing private-credit deals with smaller borrowers, negative operating cashflow, rising labor and input costs, and capital structures that can’t take another turn of financial engineering. And yes, we’ll be busier. We’ve invested heavily in our private-credit restructuring practice, and 2026 will be the payoff — a significant rise in sponsor-lite and mid-market deals that now need real fixes, not incremental tweaks. At the same time, a second wave of post-LME bankruptcies is coming. The companies that stretched themselves to the limit in 2023–24 and limped through 2025 will finally run out of runway. The mix? More out-of-court for private-credit credits that can still be stabilized, but a noticeable increase in traditional in-court cases for the heavily engineered, post-LME situations that now require a full reset.
Jeffrey Finger: Defaults and restructuring activity should remain relatively consistent in 2026 compared to 2025. The majority of at-risk credits are middle market companies that have a predominant loan only structure. Those companies generally have less access to the capital markets and less optionality, so we could see an increase in in-court transactions as rescue financings for these companies become more difficult in the current interest rate environment.
Dave Orlofsky: 2026 will be slightly busier than 2025. I think we will see a slightly higher default rate. The in-court/out-of-court mix should be about the same.
Angela Libby: Yes, yes, more out of court.
Colin Adams: Default rate will be higher. Busier (much). In court.
Matt Barr: Higher, busier, and in-court.
Benjamin Beller: Yes, yes, and about the same.
Dave Orlofsky: 2026 will be slightly busier than 2025. I think we will see a slightly higher default rate. The in-court/out-of-court mix should be about the same.
Michael Handler: I expect ‘26 since to be similar to ‘25, which means busy but not second quarter of 2020/COVID busy.
Ryan Bennett: I think the default rate will be higher and we will see more in-court situations.
Jude Gorman: Default rate will be higher and we’ll be busier, leaning more in-court.
Shai Schmidt: I expect the current pace of LMEs to continue, driven by (i) the need to address upcoming maturities; (ii) sponsors’ inherent desire to avoid (or delay) bankruptcy to preserve their equity; and (iii) the fact that credit agreements in the broadly syndicated loan market continue to be generally permissive. I also expect to see more in-court restructurings, including following failed LMEs. It’s going to be a busy year!
Nick Campbell: You’ve got to think that Private Credit is going to go through a correction at some point. Is it 2026? Who knows what the catalyst will be. It’s already weathered geopolitical tension and unexpected and sporadic global tariffs. And we expect to be much busier in 2026, but that has nothing to do with the market 😊.
7. PETITION Rapid Fire #5: In the US, which industry will surprise by having a meaningful amount of distress in ‘26 and why?
Dan Fisher: The surprise distress sector in ’26 will be legacy consumer companies built on unhealthy demand curves. We’re reaching a GLP-1 tipping point — sustained adoption, real behavioral change, and a shift toward lower-calorie, lower-volume consumption that isn’t cyclical. The names most at risk aren’t the usual suspects; they’re the large, established food and beverage companies whose models rely on steady or growing consumption of products people are now actively eating less of. Even a small but durable reduction in volume hits margins fast — especially in businesses with high fixed costs and leverage sized for a different era of demand. 2026 is the year lenders start seeing GLP-1 impact show up in earnings (and start repricing it).
Dave Orlofsky: We expect to see distress in the consumer home products sector, especially in the bigger ticket items for the home, such as appliances and furniture, which are usually more discretionary in nature. The chemical sector is also likely to have more distressed situations.
Colin Adams: Anything AI related. Right now, the money is chasing all manner of AI, AI-related and AI-adjacent projects. A meaningful percentage of these won’t bear fruit. By way of historical example, the railroads were the game-changing technological breakthrough for the United States in the 19th century, but more than 250 railroads went bankrupt in the 20 years between 1873 and 1893 causing two “great panics”.
Benjamin Beller: Chemicals, Paper/Packaging, Software, Crypto 3.0 and luxury retail. Given the significant amount of money being put into data center transactions and the apparent arms race among AI companies, data center financing and infrastructure more long term. And the “race to orbit” for data centers will likely affect the terrestrial data center market.
Nick Campbell: Business services. Again, anything with a leverage model with repeatable tasks… with actual leverage will be impacted by AI and be at risk in the coming years.
Angela Libby: Software (as a result of AI).
Shai Schmidt: The banking sector, particularly regional and community banks with high exposure to commercial real estate.
Matt Barr: Consumer products and related industries. Inflation and tariffs have brought sustained supply chain disruption and declining consumer confidence.
Jeffrey Finger: I expect the wave of technology restructurings will increase, compared to an already high 2025, as companies are forced to proactively address large 2028 and 2029 maturities.
Michael Handler: Crypto. Less regulation + more capital = bigger downswing cycle and more insolvencies. In ‘25, we have already seen Bitcoin and other cryptos decline with equity markets at all-time highs. Imagine what happens if there is a significant correction in the public equity markets? What happens if one of the major Bitcoin holders has to sell?
Ryan Bennett: Law firms. We will see many law firms need to strategically grow, merge or potentially liquidate.
Jude Gorman: Sin industries—gambling, cannabis and alcohol. Too much money chasing too few customers at a time when those customers are going to have less discretionary income to spend.
Ron Meisler: Automotive industry related to EV losses and the consumer finally pushing back on new vehicle pricing.
8. PETITION Rapid Fire #6: Post-Purdue, we’ve seen companies employ new means to obtain third-party releases, e.g., FOSL’s UK scheme of arrangement and concurrent chapter 15. Clearly, that is not a problem in the UK, but what are your thoughts on the risk that those releases are not enforceable in the US? If the trend continues, do you expect to see objections based on the bankruptcy code’s public policy exception? Do they prevail?
Benjamin Beller: There have been at least two decisions out of the SDNY bankruptcy courts on this issue in the past that have made it relatively settled law in that jurisdiction that the public policy exception doesn’t foreclose releases in foreign restructurings in a chapter 15. So the question will be whether any judges will take a different approach, and whether that takes the industry through appeal courts again on a releases issue. Of course, objections on public policy grounds have had limited success in general in the past. The area we have been keeping an eye out for is the first instance of the public policy exception being invoked to object to a Part 26A restructuring plan that materially violates the absolute priority rule at the expense of bondholders, which we see as real possibility on the horizon.
Angela Libby: I would expect the releases to be enforceable once blessed through a US court order, including a chapter 15 order. And I would be surprised to see anyone with a US nexus really try to bring litigation in violation of those releases. Yes, we’ll continue to see the trend and yes we’ll see the public policy objection. My view is that the courts will likely continue to recognize chapter 15 orders even if they give recognition to third party releases under another jurisdiction. While the Purdue decision was a SCOTUS decision, it was also a highly technical one (if anything it was the dissent who was more focused on public policy), so I’m skeptical that the reasoning gives sufficient grounds for failing to recognize on public policy grounds.
Matt Barr: Congress codified comity in chapter 15 and non-consensual third-party releases in 524(g). The public policy based objections should continue to face an uphill battle.
Michael Handler: While it is far from a settled issue, limited case law suggests that Chapter 15 courts can recognize and enforce foreign insolvency plans with non-consensual third-party releases even though they would not be permissible in chapter 11. This strikes me as generally consistent with the framework of chapter 15, which seeks to recognize the insolvency regime of a foreign country, subject to certain limitations. I expect to see objections, however. And it is definitely not a settled issue, so courts could rule the other way.
Ron Meisler: There is some risk to the recognition of releases because Chapter 15 has its own guardrails that could limit the application of releases based on fairness, justice, and whether the interests of creditors are sufficiently protected. See Sections 1507, 1521 and 1522 (in addition to the “public policy” limitation in Section 1506, which is read narrowly and may well not be implicated by Purdue because it was a plain meaning decision rather than one based on constitutional rights) But, if the approving court has a tradition and history of fairness and justice (including due process) and the non-U.S. venue is determined to be proper, I think U.S. courts are likely to continue to grant comity. That is the better answer; our courts should recognize a properly vetted outcome in another court of competent jurisdiction.
Colin Adams: I think the essence of all restructurings is compromise and mutually beneficial exchange of consideration. Settlements require finality. I would like to see releases granted in exchange for meaningful consideration where the parties have agreed to the terms, or where, after appropriate notice an opportunity to be heard and the presentation of evidence, the court determines that the releases are reasonable as part of a transaction or settlement.
Shai Schmidt: To succeed, such objections may need to demonstrate some unfairness in the foreign proceeding, going beyond the mere existence of a release. We’ve already seen bankruptcy judges, including Judge Horan in Crédito Real, holding that nonconsensual third-party releases are not manifestly contrary to public policy. Also recall that section 524(g) of the Bankruptcy Code expressly permits such releases in the asbestos context, which bolsters the argument that they are not manifestly unfair.
Nick Campbell: Probably best for the attorneys to weigh in but I find this development fascinating. For years, the US has been touted as superior in bankruptcy law. Now we are going across the pond for our restructurings? Love it. Maybe this will be a catalyst for us updating the bankruptcy code? After all, it’s been 20 years since the last major revision. If so, maybe we could add in some more robust protections for employees this time…
Ryan Bennett: Releases in most situations are overblown. In most chapter 11 cases, third party releases are nice to haves but not required because most third party claims are theoretical. The third party with the future issue is not in the room yet (if ever). When you have a situation where there are actual third party claims, a deal will need to be made.
9. PETITION Rapid Fire #7: Finally, what will be the most dramatic thing to happen in RX circles in ‘26?
Dan Fisher: The most dramatic thing in ’26? A major player will try one last hyper-aggressive LM move — and it will backfire so badly it ends the entire genre. After years of pushing documents to their breaking point, someone will finally trigger the perfect combination of litigation, lender revolt, and valuation collapse. It will be the moment everyone agrees that enterprise value is too fragile for LM brinksmanship and the market pivots to real restructurings again (from the start!).
Dave Orlofsky: We are going to see the continuation of MLB free agency for lawyers where top firms try to add top talent to their respective All-Start lineups while other firms try to recruit lawyers to lead their restructuring practice. These firms will try to answer the age-old question; how much of this person’s success is driven by the individual vs. how much is driven by the platform they are on? Regardless of how this plays out, one thing is for certain: it is a good time to be a highly competent restructuring lawyer.
Colin Adams: Open AI is forced to restructure. I am not saying this will happen or is likely to happen, but I do think the probability of it happening is above zero. Open AI’s war chest is impressive, but its burn rate is stunning. Open AI has likely raised $100 billion since its founding -- more than any other company in history; yet it has already spent most of this money and now has $1.4 trillion in infrastructure commitments on its books. It wasn’t that long ago that WeWork had a nearly $50b valuation. The difference is that if the capital markets lose confidence in Mr. Altman he could well take the house down with him.
Angela Libby: More musical chairs — if we assume the big moves amongst practice group leaders has settled out, the drama is likely to be around who is jumping ship to round out the ranks.
Jeffrey Finger: As the M&A market picks up in 2026, you will likely see a number of private equity firms try and “rescue” their current distressed portfolio companies by acquiring other businesses in debt financed transactions to fuel growth, add new revenue generators to the business and ultimately lower leverage ratios.
Michael Handler: Crypto insolvencies adversely affect a major financial institution, requiring a bailout.
Jude Gorman: An actual recession. We haven’t had one of those in a long, long time.
Matt Barr: Prior LMEs and A&Es will keep us busy.
Ryan Bennett: Competition for clients and top talent will be fiercer than ever!
Nick Campbell: See prior question on the biggest restructuring theme.
Shai Schmidt: Haven’t we had enough drama in the last couple of years? Here’s to a scandal-free, peaceful 2026.
Ron Meisler: Jamie Sprayregen heads to Ann Arbor as the new Athletic Director and turns around Michigan football. Pat Nash heads to Notre Dame as the new Athletic Director, and the two meet up at Cubs games and the CFP – College Football Playoffs, for those that are not college football fans. (Go Blue!)
Benjamin Beller: We will learn that PETITION’s Johnny is in fact the bartender at the Rye Grill & Bar.
PETITION: Oh f*ck, Johnny’s cover is blown, 🥸! We would like to thank everyone who participated in this year’s survey for providing engaging answers and (mostly) following instructions. Have a happy and healthy New Year, 🥳, everyone. We will see you in ‘26.
As before, some answers have been edited (i) for more clarity and correct grammar and (ii) to add links to prior PETITION coverage.
We would venture a gazillion dollars that this will not be happening any time soon.