2026 Could Be the Year of the ‘Busted’ LME, Says Adam Shpeen of Davis Polk

By Gaurav Sharma

2026 may prove to be a year of reckoning for debt-saddled companies that have failed to turn around even after restructuring their debt through liability management exercises, or LMEs, in previous years, says Adam Shpeen, a partner in the restructuring practice at Davis Polk & Wardwell.

Shpeen, who has advised ad hoc groups in various high-profile liability management transactions, said many companies bought time and additional liquidity by employing these tactics, but it is uncertain whether performance improvements will occur and be sufficient to address their balance-sheet issues.

“What may keep me busiest in 2026 is busted LMEs,” he said. “Liability management transactions that gave companies some time but ultimately didn’t fix the balance sheet,” he added.

“These are companies that may be unable to turn around their operations and performance within the given time frame. So 2026 may be a year of reckoning for companies that engaged in LMEs in 2024 and 2025.”

Shpeen cautioned that companies may not be able to execute aggressive LMEs – known for pitting lenders against each other – with ease, as was the case in previous years.

“The market is becoming a lot more sophisticated when it comes to liability management transactions in several different respects. The ability of sponsors [and] majority groups to execute aggressive, non-pro-rata transactions, even when the docs are unambiguously loose, is going to be more challenging than it was in 2025 or 2024,” he said. “We’ve seen that smaller holders have become more attuned to distressed credit. We’ve seen more advisors focus on credits very early. We’ve seen groups form and mobilize very early. We’ve seen press reports highlight credits sooner and sooner.”

“It’s fair to say that market awareness of the risk of liability management has evolved such that, you know, the Mitels and the Sertas of the world, the Boardriders – the first generation of LME deals are just a lot harder to pull off now without engendering significant execution and litigation risk,” he added.

Shpeen said one of the biggest mistakes companies are making is delay, both in fixing their capital structures and in engaging creditors.

“Number one is not addressing capital-structure issues soon enough,” he said. “Number two is failing to engage with creditors early. Waiting too long makes everything much harder.”

The tactic adopted by these companies to weaken creditors before the parleys is equally damaging.

“Some sponsors and some companies think they have to weaken the creditors, weaken the credit and soften them up before engaging,” he said. “The reality is very different. Often, engaging sooner, being transparent and being forthcoming results in better outcomes than trying to weaken creditors to gain leverage.”
 

Multi-Color Corp. 

The commercial printing company backed by CD&R is in advanced discussions with its creditors about a potential liability management transaction, and a deal could be launched soon, according to sources. The company faces about $3.7 billion of maturities through 2028, and labeling companies are wrestling with abnormal seasonality, cautious purchasing by consumer packaged goods customers amid uncertain consumer demand and growth of private-label competitors, according to Octus’ analysis. Octus’ coverage of Multi-Color can be found HERE.

Mohegan Gaming & Entertainment

We expect that net leverage at Mohegan Gaming & Entertainment will fall to 2.7x by 2030 from 4.3x in September 2025. We further believe the company provides incremental yield versus its peer group as the yield to worst, or YTW, on Mohegan’s first lien notes is about 6.7%, and the yield to call is roughly 7.6%, compared with 5.6% YTW for Caesars’ first lien notes due 2032, and 6.6% YTW for Penn Entertainment’s unsecured notes due 2029. Octus’ coverage of Mohegan Gaming & Entertainment can be found HERE.

NAPA Management Services Corp.

Prices for NAPA Management’s term loan have been declining, with sources noting lenders are selling the company’s loans in small amounts amid its falling revenue. The American Securities-owned company, which provides outsourced anesthesia and perioperative services, underwent a 10% decline in EBITDA and a 12.6% decline in revenue for the third quarter of 2025. The company’s $610 million term loan due 2029 is trading in the 60s, down from indications of 75/80 earlier this month. The company also has a revolver due in February 2027. Octus’ coverage of NAPA Management Services Corp. can be found HERE.

Bloomin’ Brands Inc

Octus analysts anticipate leverage at Bloomin Brands gradually declining through 2027, assuming subdued cost intensity and a relative improvement in customer traffic metrics, as turnaround efforts begin to bear fruit. As we’ve previously noted, 2025 marked a recovery for casual-dining establishments relative to fast-casual or quick-service segments, driven by an improved value perception. We believe this trend, coupled with the resilience of middle- and high-income consumers, offers meaningful tailwinds for casual dining industry participants heading into 2026. Octus’ coverage of Bloomin’ Brands Inc can be found HERE.

Trinseo

The publicly listed specialty materials provider is working with advisors on a potential debt restructuring while two groups of lenders have also separately organized. Certain lenders to the pari-plus loan are working with Paul Hastings, and some lenders to the opco loans are advised by Gibson Dunn, according to sources. Trinseo disclosed that on Jan. 6 its compensation committee of its board of directors approved one-time conditional retention bonus awards for the company’s named executive officers. Additionally, the company is dealing with excess supply pressures from Asia and has recently announced a $1.077 billion financing transaction to address its debt obligations. Octus’ coverage of Trinseo is HERE.

Multi-Color 

Multi-Color is working with Kirkland & Ellis and Evercore, and creditor groups are represented by Milbank, PJT Partners, Jones Day and Guggenheim Securities. The labeling sector has been under pressure due to destocking and changing consumer behaviors, affecting the company’s financial performance and necessitating strategic financial maneuvers. Octus’ coverage of Multi-Color is HERE.

Saks Global Enterprises

Saks Global Enterprises filed chapter 11 in the Bankruptcy Court for the Southern District of Texas on Jan. 13. The New York-based company is the world’s largest multibrand luxury retailer, operating as Saks Fifth Avenue, Saks OFF 5TH, Neiman Marcus, Neiman Marcus Last Call, Bergdorf Goodman and Horchow. The debtors enter bankruptcy supported by $1.75 billion in new-money financing provided by an ad hoc group of the global debtors’ noteholders holding approximately 72% of the company’s existing special purpose vehicle notes and approximately 50% of existing second-out notes and the debtors’ prepetition ABL lenders.
Judge Alfredo Perez approved the DIP financing on an interim basis at a first day hearing that ran into Thursday morning, Jan. 15, overruling an objection from Amazon. The ruling unlocks $550 million in liquidity, including $400 million of new-money under a $2.6 billion SGUS term loan DIP facility and incremental liquidity under a $1.5 billion ABL DIP facility. The judge also granted interim approval of the Saks OFF 5th Digital debtors’ cash collateral and cash management motions. The debtors will be back in court on Feb. 13 for a second day hearing. Octus’ coverage of Saks Global Enterprises is HERE.

STG Logistics Inc.

STG Logistics, a leading provider of container transportation services in North America, entered chapter 11 protection on Jan. 12 in New Jersey. The filing comes just one week after the company lost a motion to dismiss a New York state court suit filed by minority lenders Axos and Siemens, which challenges the company’s October 2024 drop-down transaction as a violation of the credit agreement.

An ad hoc group of lenders has committed to funding the case with a $293.75 million DIP – including a rollup of $143.75 million of prepetition debt – under a restructuring support agreement with the debtors. The RSA calls for a chapter 11 plan that would generally equitize all or a portion of the DIP claims, first-out claims and second-out claims. The plan would also exchange third-out claims and claims held by the excluded lenders into a $100 million take-back debt facility, and restructure first-out RCF claims into an exit RCF.

Judge Mark E. Hall granted interim DIP approval at a hearing on Jan. 13, overruling objections from competing DIP offeror RenWave Kore and the “Selendy Group,” made up of Axos and Siemens. With interim DIP approval, the debtors will have access to $85 million of new money and roll up $97.5 million of prepetition debt. The debtors noted that the RSA provides the option to toggle to one or more sale transactions and they are actively marketing their assets to multiple potential bidders. Octus’ coverage of STG Logistics Inc. is HERE.
 

First Brands Group LLC

At a hearing on Jan. 13, Judge Christopher Lopez declined to approve the First Brands Group debtors’ interim agreement with a subset of third-party factors on their factoring procedures motion. Citing due process concerns, the judge said he could not approve a process to release more cash from the segregated factoring receivables account in the face of objections from factors Evolution, Katsumi and ABC Bank, scheduling further hearings in February. Also this week, the debtors sued equipment lessor Onset Financial and First Brands’ former executive vice president Edward James. First Brands seeks to recover about $2.9 billion in alleged fraudulent transfers, saying Onset and Edward James saddled the debtors with “ruinous debts” at exorbitant interest rates while enriching themselves Octus’ First Brands coverage is HERE.

Ligado Networks / Viasat Inc.

On Jan. 14, Judge Thomas Horan heard arguments on Ligado and AST SpaceMobile’s motions to enforce the automatic stay against Viasat affiliate Inmarsat and the terms of a mediated agreement against Viasat. The judge said he plans to issue a bench decision “quickly” but encouraged the parties to discuss a settlement. Ligado and AST moved to enforce the automatic stay against Inmarsat on Jan. 2 after Inmarsat filed a December 2025 suit against Ligado and AST in New York state court. In the suit, Viasat alleges Ligado’s application to the FCC for approval of a SkyTerra Next satellite system gives the false impression that Inmarsat supports the application. However, Ligado and AST say that Inmarsat is obligated to support the FCC obligation and that they will transfer the New York suit to the bankruptcy court. Octus’ Ligado coverage is HERE.

Bankruptcy Fee Legislation

Congress this week passed legislation that would increase the quarterly chapter 11 fees that fund the Department of Justice’s U.S. Trustee program and extend temporary bankruptcy judgeships. The bill heads to President Donald Trump’s desk for signature. The Bankruptcy Administration Improvement Act of 2025 extends the current chapter 11 quarterly fee structure established by the Bankruptcy Administration Improvement Act of 2020 for five years. The legislation would also replace the 0.8% fee with a 0.9% fee for cases with over $1 million in quarterly disbursements. The legislation also extends the terms of temporary bankruptcy judgeships in various districts for an additional five years, including several bankruptcy judgeships in Delaware. Octus’ coverage of Bankruptcy Industry Update can be found HERE.