2025 was the year of the co-op. In 2026 they’ll still be prominent, but probably less cooperative.

In the past year, cooperative agreements among creditors morphed from pacts with the same creditors agreeing to the same treatment, to a growing number of carveouts for the steerco that presumably does most of the work, to full on tiered co-ops baking in multiple outcomes for similarly situated creditors, much like an LME would anyway.

There’s been some public back-and-forth between major law firms for and against co-ops in general — are they creditors’ best tool in an increasingly issuer friendly world? Are they anti-competitive? And of course, now there are two lawsuits, challenging cooperation agreements between creditors of Selecta and Altice USA as violating antitrust laws.

Attendees at a recent 9fin webinar voted tiered co-ops the 2025 liability management innovation with the most staying power in the year to come. And panelists — which included White & Case Partner Gregory Pesce, Glenn Agre Partner Shai Schmidt, Davis Polk Partner Adam Shpeen, Gibson Dunn Partner Stephen Silverman and Latham & Watkins Partner Joe Zujkowski — agreed.

“I think we’re going to continue to see these things; it’s just a matter of how tiered they are and how much flexibility there is,” Silverman, who helped pioneer these tiered agreements at Gibson Dunn, said during the webinar.

These new co-op agreements hitting the market differ from traditional ones, where all creditors were treated pro rata, except for the steering committee which had carve-out premiums typically in the form of a fee. Now, some of these pacts provide for the possibility of multiple tiers of treatment or exchange ratios, some of which may depend on how long you waited to join the group, and have been opened to more creditors up and down the capital stack.

Silverman explained that there are two instrumental objectives for creditors when a company is looking to capture discount: (1) maximize the syndicate's leverage, which can be accomplished through getting as many lenders as possible on board and (2) include enough flexibility to a get a deal done — and the new co-op technology which Silverman characterized as "flavors of carveout premiums" was designed to achieve the flexibility to get a deal done when there are different types of lenders in the co-op e.g. CLOs, distressed shops and hedge funds.

One example that utilized this new technology and consequently made waves was Medical Solutions, which Gibson Dunn drafted to allow for up to four tiers of treatment and the flexibility to give certain lenders pro rata treatment outside of their tier within the co-op.

There’s been pushback against that deal — including some minority lenders opting out of the co-op and forming their own group with Schmidt's Glenn Agre — but Silverman defended it by saying it was done to provide the most flexibility as possible to get a deal across the finish line, chalking the criticisms as much ado about nothing.

“I honestly think it’s more about optics than it is about substance,” Silverman said. “The carve-out premium is meant to get a deal done … Without any flexibility in the agreement, it becomes very, very difficult to get something done.”

For sponsors and companies, the old pro rata co-ops, which were overly broad and open to lenders of different classes without multiple carve-outs made them almost “too big that they must fail,” White & Case’s Pesce said during the webinar.

“The [open] co-op agreements are just so broad-based it’s kind of hard to really find common ground in there,” Pesce said. “Companies are thinking more creatively and aggressively about things they can do around the co-op group so they can get some leverage over them, that leads to litigation.” He added that this includes tactics like negotiating with minority lenders who choose not to join the co-op or seeking financing from third parties not involved in the capital structure.

Trust busters

The litigation caused by open co-ops Pesce mentioned isn’t just one-way traffic against lenders. There’s the recent Optimum nee Altice USA lawsuit, which levied an antitrust violation against lenders in a co-op agreement — including powerhouses like Apollo, Blackrock and JP Morgan — calling the groups a “classic illegal cartel,” as 9fin previously reported.

That’s the first antitrust suit filed against a co-op agreement by a company.

“Will it have a chilling effect on this sort of open co-op that are not only open, but are coercive in some ways and limit the company’s flexibility to deal with different subsets of lenders?” Glenn Agre’s Schmidt said. “We’ll see how that plays out.”

Minority lenders, even if they’re being asked to step behind the velvet rope, are feeling the crunch of these co-ops since lenders more upstream have more say and are weighing the pros of signing on.

“You’re essentially binding yourself to a process where you have no influence and there could be a really bad outcome for you and you have very limited ability to push back,” Schmidt said. “On the other hand, if you don’t sign the co-op, you have to ask yourself, is it going to be worse for me because I’m not part of the co-op, because we don’t know what the deal will look like.”

Some of these agreements have been “weaponized” to push smaller lenders to join no matter what by giving parties only a tiny sliver of time to join.

“That limits the opportunity for smaller lenders to make a decision and to coalesce and to try push back against carve-out premiums,” said Davis Polk’s Shpeen. “I don’t know if that trend is going to continue, but we’ve seen it happening more frequently recently.”

Even as tiered co-ops step in to help with some of the issues of open co-ops, not everybody is happy about them. As mentioned above, in the Medical Solutions case, a group of minority lenders opted to rip up their invitation to the group and instead organize with Glenn Agre, as 9fin reported. Schmidt said more minority creditors are taking that option because they’d rather have more freedom in the process, even if the results turn out worse.

“They place a lot of value on having the ability to fend for themselves and push back when necessary, and the way to do that is not to be part of a co-op like that and form their own group,” Schmidt said. “It doesn’t guarantee that you’re going to end up with a better deal, but at least you have the flexibility and the freedom to fight for it.”

Revolving floors

Minority lenders aren’t the only groups fighting back during the LME process to scratch out more upside. Revolver lenders are increasingly asking for more during the process.

Previously, they were happy to simply extend the maturity and remain at the top of the capital stack post-restructuring.

But, with a 9fin report finding about 30% LMEs wind up in bankruptcy, revolver lenders approach many of these LMEs with cynicism and want to protect their downside if a bankruptcy subsequently occurs. Therefore, worried about a process where revolving lenders can easily get outvoted by bigger lenders, this normally docile lending group has started to ask for more and more on non-economic terms in out-of-court negotiations.

“We’re seeing more asks for class voting for the revolvers in connection with regular way amendments, tighter LME protection, controlling agent rights under an inter-creditor agreement, pro-rate DIP rights, pro-rata right offering rights, pro-rata backstop rights, pro-rata rollup rights,” Shpeen said. “Terms that are being pushed basically to guarantee the revolver will be taken out in connection with a bankruptcy … or out of bankruptcy would be treated similarly to a majority group.”

And some have even started banding together themselves to defend against a potential LME or restructuring. Over the summer, revolving lenders of QVC Group brought on Simpson Thacher and Lazard and signed a co-op as the home shopping network started exploring restructuring options, the Wall Street Journal reported.

Other lenders, in an effort to keep the deal moving, let revolvers’ requests slide in the past. But now more have started to push back and these standoffs have gotten worse as the co-op groups keep opening up to all tranches of debt.

“I think as the structures have gotten more complicated, where the RCF slots in have become a more complicated discussion,” Latham’s Zujkowski said.

Part of the reason these LMEs ended up in bankruptcy was that they failed to address the root of a company’s problems, just simply amended and extended the debt.

Although in the first quarter of the year, Serta and "open market" workarounds were the main character of every discussion related to LMEs, there was very little discussion related to the Fifth Circuit's bombshell opinion during the webinar. Over the last year, drop-downs and uptier transactions have continued at much the same pace as in prior years, but have been structured generally to reduce litigation risks.

When asked about lasting LME technology, the extend and exchange took second place as most likely to continue. Adam Shpeen explained that this technology, pioneered by the Better Health transaction, came as a reaction to the Serta decision and relies heavily on how the documents are structured.

“The technology is different doc to doc and it varies considerably,” Shpeen said. “The type of transactions the market is seeing that rely on loan modification offers or refinancing provisions are that way because of the language in the docs and the language matters.”

Taking equity

Perhaps, in response to lenders and companies tiring of LMEs being used as kick-the-can solutions, another trend taken hold this year is reshaping how some LMEs look and end up altogether.

Previously, the out-of-court process helped lenders avoid taking equity or control of a company, but the aversion to that has faded away over the past year.

This started early on with the February restructuring of Altice France, which gave secured creditors a 31% equity stake and unsecured lenders a 14% stake of the telco.

Another one hit in the summer when contract brewer City Brewing handed over its fermentors (and the rest of its business) to lenders. That deal had to overcome militant lenders but eventually a deal closed, giving first-lien lenders 96% control of the reorg equity and second-liens splitting the remaining 4%.

But those were just one of many in 2025. There were 35 completed restructurings — both in and out-of-court — that had an equity component this year, with another 12 still in progress, according to 9fin data. That’s slightly above the 34 completed in 2024.

Out-of-court deals with equity components also grew this year, from 13 in 2024 to 19 in 2025, according to the data.

More lenders are also taking the keys of the companies rather than simply getting a piece of the pie. Of the 84 completed and in progress restructurings in 2024 and 2025, 55 of them handed control over to lenders, 9fin’s data shows.

And 15 of those — including City Brewing and Guitar Center — already went through a restructuring before ceding control to lenders in another one, according to the data.

These are expected to continue over the next few years as an incentive to help lenders work to fix up a business more wholesale instead of just slapping a band-aid on their problems.

“I think we’re going to see that over the next few years, transactions that look like LMEs but are actually recapitalizations, where equity consideration is used as a carrot to get the deal done,” Gibson Dunn’s Silverman said. “There’s only so much consideration you can really offer lenders and I think companies are becoming increasingly more willing to look at equity consideration as an option to drive more deleveraging and discount capture.”