9Questions is our Q&A series featuring key decision-makers in leveraged finance and distressed debt — explore the full collection here.

1. What are your ambitions and vision for the restructuring team at Paul Hastings?

One of the core principles of our group is the concept of “team.” This fosters a true loyalty among us, which we believe that it is something our clients greatly value. Being able to provide the opportunity to our lawyers and support staff to join us on the move from our prior firm was a reflection of a shared vision between us and the Paul Hastings leadership, but it was just the beginning.

Other components of our growth strategy are (and will remain) increasing our scale, acumen, and client relationships across our core restructuring, special situations lending and private credit, distressed corporate, and litigation offerings.

Next up for us is continuing to expand the talent on our team in other US offices to match the firm’s macro investment there, expand our client base in those locations, and support the firm’s growth in private equity, mergers & acquisitions, global finance, and capital markets, while maintaining a positive and collegial work environment and a “one group” mentality around the world.

2. The number of liability management deals have been outpacing the number of bankruptcies, and there’s increasingly more public pushback against advisory fees during bankruptcies (case in point, Rite Aid). Do you expect to continue to spend more time on out-of-court deals in the coming year?

We do. Out-of-court transactions are driven by upcoming maturities or near-term liquidity challenges (or both) in situations where a deeper restructuring generally isn’t necessary or where the stakeholder universe is small enough to be able to quickly get to a consensus without the need for a formal process. While the higher advisory fees for an in-court transaction are a factor for the players around a restructuring situation, the primary drivers of an in-court versus an out-of-court process are the level of debt impairment, the need for a change of ownership, the ability to deal with holdouts and whether the debt issuer is public or privately held.

3. Cross-border situations like Altice France and Ardagh are getting a ton of attention in recent months, with the European markets starting to adopt co-op agreements. Is this a turning point for European creditors to increasingly adopt this typical US playbook, and what are some key differences between these pacts in Europe versus US markets?

Our international colleagues have long held the view it was only a matter of time before the creative structures that have become commonplace in the US restructuring and special situations financing market made their way to the UK and Western Europe. Despite contractual provisions that can make it easier for some creditors to advantage themselves over others, differences in director liability and regional culture and practice have held back the proliferation of the “have/have not” deal structures.

The potential for litigation in these cases has also been something that was frowned upon overseas, both for the cost associated with it as much as the stigma of being a litigious investor.

With the US market for these deal structures becoming generally accepted practice, it feels to us like the UK and Western European markets are finally opening up to them, both on the lender and borrower/sponsor side, as evidenced by Ardagh and Altice France. The cooperation agreement frenzy in the US hasn’t put an end to the use of creative structures for liability management transactions, but it has added to the maturity of the market and altered the design of the transactions to move towards more creditor inclusion, albeit on a sliding scale of rights and benefits based on holdings size.

4. We recently saw Pluralsight as the first example of aggressive debt tactics commonplace in the world of distressed debt investing hitting private credit. Is the team seeing or hearing more of these cases and how is the team positioned to help lenders protect their interests?

The structure deployed in Pluralsight, where preferred stock was issued to the sponsor from a non-guarantor restricted subsidiary where IP was moved using investment capacity, is a concept that we long counseled investors in situations could and ultimately would soon occur. Readers shouldn’t be surprised to learn that we’re in the laboratory thinking about new structures to help our clients every day.

5. What was the most memorable restructuring or bankruptcy case you've worked on, and why?

Jayme: Over the past couple of years, I represented a group of lenders holding a supermajority of the global distribution system company Travelport’s $2.4 billion super senior priming term loans.

Most critically, we designed and successfully consummated a landmark cooperation agreement among the term lenders for the full 4-year remaining tenor of the term loan in an attempt to avoid any possibility of “lender-on-lender violence” within the priming term loan or the $2.3 billion legacy junior term loan. 

With the cooperation agreement in place, we defeated the company’s launch of a coercive exchange transaction in January 2023 and ultimately advised the group on active restructuring negotiations that narrowly avoided both a Chapter 11 proceeding and a UK restructuring proceeding and resulted in a transaction where the company deleveraged by almost $2.5 billion but received approximately $600m of new equity from existing lenders and equity owners. The trust that the members of our nearly 50-member ad hoc group placed in us to determine the correct dynamic and implementable strategy on a daily basis in one of their most critical investments, combined with seeing it through to a very successful out-of-court and cost-efficient solution, was extremely gratifying.

Kris: While cases like Caesars and FTX were and have been amazing to work on, the strategy we deployed in cases like Trump Entertainment, where we terminated exclusivity, crammed down our secured lenders after classifying a portion of their claim as under-secured, and won control of the company for our clients in a double plan confirmation battle, or Texas Petrochemicals, where a year of rescue financing and deal structuring to get around complex issues ensured our client’s success when our structure was later challenged in court were extremely satisfying. In the end, it was about the client result, but having the courts in those cases validate our strategy and execution in lengthy published opinions where we made new law was professionally rewarding.

6. If you weren’t in restructuring, what do you think you’d do?

Jayme: When I was at Cornell Law School, I started the Cornell Association of Sports and Entertainment Law (CASEL), and I was fairly certain that I was going to graduate and become the next Ari Gold from the HBO TV Show “Entourage” or the GM of the New York Mets. While I still enjoy film and television (I’m sitting on a plane about to begin Season 3 of “The Bear” as I write this) and have dreams of one day running a sports team, I am not going to get distracted from the many exciting plans that Kris and I have in store at Paul Hastings.

Kris: I probably would have been a mountain guide and a wilderness EMT if I hadn’t gone to law school (even though I have a business degree from college). I love being in nature, preparing for complicated expeditions, and dealing with the unpredictable situations that always come up when you’re in the wild. Besides being a physical challenge, which I find enjoyable, leading others to achieve their goals in a hostile environment draws on mental strength and extreme leadership skills, especially when you’re dealing with injuries or illness. When you’re on the mountain or deep in the woods and someone gets hurt, there are no doctors, nurses, or much in the way of medical equipment, so your rescue plan is about knowledge, preparedness, ingenuity, and a calm demeanor. It’s strange, but it’s not dissimilar to being a restructuring lawyer!

7. Kris, in the annals of restructuring literature, you've been likened to a young Danny Ainge, who was responsible for drafting NBA stars Jaysun Tatum and Jaylen Brown to the Boston Celtics (who are our 2024 champions). Paul Hastings itself has really drafted some stars recently as well. Would you say the comparison extends beyond appearances? And can you go into how Paul Hastings has been able to attract such talent?

Kris: Ha. My wife doesn’t see the Danny Ainge comparison, but he’s a former NBA and college basketball star and was a brilliant GM, so I’ll take it! For those who haven’t read “The Caesars Palace Coup,” go get a copy! It’s a great read. Kudos to the authors for this generation’s “Barbarians at the Gate.” (Editor’s note: We didn’t tell him to say that.)

We were fortunate at our prior firm to create a great farm system where we helped mentor mid to senior-level associates, like Jayme (who is a Celts fan), to have the skills and confidence to become stars as partners. At Paul Hastings, we continue to develop talent from within, and we’ve also been able to use the firm’s brand, resources, and the support of its leadership to land star lateral partners, like Jennifer Daly, Roger Schwartz, and Matt Warren’s team and our recent partners in NY, London, and Paris.

9. Let’s pass the ball to Jayme. There’s a lot of talk about co-ops nowadays and it’s not really clear how many are that effective. Can you tell us how you think Travelport could serve as a model for the right situation in which to implement one?

Jayme: As mentioned above, cooperation agreements can be incredibly effective restructuring tools for lenders.  These days it is more surprising not to see a cooperation agreement utilized, especially very early in a mandate. Lenders are now having their counsel draft those agreements to accomplish things that they haven’t in the past (e.g., deal economics and fees for “Cooperating Lenders,” cementing group organization and related process dynamics, blocking certain parties from being involved in discussions or holding debt, etc.). 

The days of lenders being scared of cooperation agreements because they believe that the agreements will generally “chill liquidity” appear to be over, though, as the existence of a cooperation agreement improves the float for the underlying paper by creating a market for the debt to trade amongst the parties to the agreement. Most importantly, and as occurred in Travelport, cooperation agreements can provide an opportunity for lenders to informally make improvements to credit agreements, such as revising language, improving or eliminating covenants, or creating “sacred” or “supermajority” consent rights without the parties needing to go through the process of actually amending those agreements. 

One of the hottest topics among the lawyers in our group and with clients is whether “cross-class” cooperation agreements, such as the ones successfully being utilized in Bausch, Altice, and other similar large-cap situations, will continue to proliferate in the market. We tend to think it will, as the restructurings are increasingly complex, with multiple capital structure layers and bifurcated created facilities. The desire for structure and efficiency and the ever-present dynamic of competition will likely lead to more comprehensive and intricate cooperation agreements in the near term.

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