Cadwalader’s Schmidt Eyeing Ripple Effects of AI in Private Credit Arena, Lays Out Firm’s Vision for Next Stage of Its Restructuring Practice

 

By Patrick Fitzgerald

While leveraged finance and restructuring professionals continue to devote significant attention to AI and its impact across multiple industries, Cadwalader, Wickersham & Taft’s Shai Schmidt, a partner within the firm’s financial restructuring practice, is focusing on some of the less-discussed ripple effects of AI’s impact, particularly within the private credit arena.

“Private credit funds have lent enormous amounts of money to software companies in recent years,” Schmidt said. “The disruption to those businesses has consequently brought down the share prices of several publicly traded BDCs, and led to significant redemption requests from some large private BDCs.”

“The nascent opening of private credit to retail investors may only exacerbate this dynamic,” he explained. “Given the heightened levels of distress, perhaps the predictions that [liability management exercises] are coming to that side of the market will finally be coming true.”

On the topic of LMEs, Schmidt, who joined Cadwalader this month after his tenure with Glenn Agre, where he became known for representing minority lenders in a wide range of out-of-court and in-court transactions and disputes, has also seen cooperation agreements that are nominally “open” but which allow for differentiated treatment among lenders in recent times.

“The issue for some lenders is that the steering committee is allowed to negotiate a favorable deal for its members without any guardrails governing the treatment of non-steerco co-op members,” Schmidt said. “Unfettered definitions of carve-out premiums are one way to accomplish that, though we’ve also seen coops that explicitly allow different tiers of treatment under an LME.”

“A related issue is that non-steerco co-op members are typically left in the dark while the steerco negotiates a deal on behalf of the entire co-op,” he added. “Those drawbacks have recently led some lenders to refuse to sign such co-ops and fend for themselves as an independent group.”

As for what’s next for Cadwalader’s restructuring practice and Schmidt’s role within it, the group’s co-heads, Doug Mintz and Bevis Metcalfe, along with the firm’s management, have developed a strategy that aligns their restructuring team with the firm’s focus on creditor-side representations.

“There are four categories of secured creditors that Cadwalader is ideally positioned to serve: banks, CLOs, private credit funds and multi-strategy investors, so as we continue to develop our practice and build on our relationships with all types of lenders, my primary focus will be on our CLO clients,” Schmidt said. “The relationships I’ve developed with CLOs, many of which I represented in several large and complicated LMEs, fits nicely into this strategy, and I will continue to be a point person for those investors.”

“The plan is to continue to advocate for those lenders in any type of distressed situation, both in and out of court,” Schmidt added. “When you combine my deep relationships in the CLO world with my partners’ stellar reputation, global reach and connectivity in the financial arena at large, I expect that our practice will continue to grow and expand far beyond where it is now.”
 

 

Domtar

Domtar is exploring options to improve its liquidity amid challenges such as elevated leverage, cash burn and weak end markets. The company is in discussions with existing and prospective investors, advised by Moelis and Latham & Watkins, to negotiate potential deals. An ad hoc group of existing lenders is advised by Davis Polk and Perella Weinberg Partners. Octus’ coverage of Domtar is HERE.

Ingenovis Health

Ingenovis Health is weighing a potential out-of-court restructuring or liability management exercise. Ingenovis Health executed a March 19 amendment to its RCF to extend the maturity date by 14 days. The company and its lenders are utilizing the extra time to negotiate a transaction. Octus’ coverage of Ingenovis Health is HERE.

Cubic Corp.

Atlas CC Holding LLC, operating as Cubic Corp., is working with restructuring advisors to explore options for improving liquidity and delevering its balance sheet. Despite a recent transaction that provided $275 million in new liquidity and reduced debt by $370 million, concerns about cash burn and leverage persist. Octus’ coverage of Cubic Corp is HERE.

Fortna

Fortna, a warehouse and distribution automation provider, is experiencing financial difficulties, leading lenders to consult advisors for credit agreement reviews and potential restructuring. The company faces liquidity challenges: Total liquidity stands at approximately $287 million as of Sept. 30, 2025. The situation is further complicated by a springing covenant that may limit liquidity, alongside a $1.4 billion term loan trading at distressed levels and a $225 million revolver maturing in June 2027. Octus’ coverage of Fortna is HERE.

GoHealth

GoHealth is considering a potential restructuring, which may include a chapter 11 filing, as it faces challenges in the changing Medicare Advantage environment. The company is exploring both in-court and out-of-court restructuring options and has engaged Kirkland & Ellis and Guggenheim Securities for guidance. Octus’ coverage of GoHealth is HERE.

Athletico

Athletico is working with certain large lenders to negotiate a liquidity solution that involves a fresh injection of capital to the provider for orthopedic rehabilitation services. Privately held Athletico is being advised by Kirkland & Ellis, as the company engages in balance sheet talks with lenders. Octus coverage of Athletico is HERE.
 

Cornerstone Building Brands

Cornerstone Building Brands is being advised by Latham & Watkins amid an ongoing performance decline at the CD&R-backed manufacturer of exterior building products. More than 90% of Cornerstone Building Brands’ creditors have signed on to a cooperation agreement to preempt any brawl among them in a potential liability management exercise. Octus’ coverage of Cornerstone is HERE.

OldCastle Building Envelope

A group of creditors to OldCastle Building Envelope has engaged Perella Weinberg Partners as financial advisor. The group is also advised by Davis Polk. These creditors own crossover holdings in the company’s capital structure, including unsecured notes. Oldcastle BuildingEnvelope is working with Paul Weiss as counsel and Evercore as financial advisor as the company’s financial performance continues to deteriorate amid ongoing challenges in the building product sector. Octus’ coverage of OldCastle Building Envelope is HERE.

Rackspace Technology

Certain lenders to Rackspace Technology are consulting with law firm Gibson Dunn as the company faces challenges related to its approaching 2028 debt maturities and ongoing performance concerns. Moody’s Ratings expressed concerns about the sustainability of Rackspace’s capital structure, suggesting that it may need to be addressed within the next 18 months because of the risk of a distressed exchange. Despite expectations of modest EBITDA growth and gradual margin expansion, Rackspace’s financial leverage is projected to remain elevated. Octus’ coverage of Rackspace is HERE.

Bingo Industries

An ad hoc group of lenders to Bingo Industries is working with Houlihan Lokey and Akin Gump to navigate the situation, while Bingo has engaged Sidney Austin and Moelis for legal and investment advice. Bingo Industries, a Sydney-based waste management company, is facing financial challenges due to a weakening construction market in Australia. Its sponsor, Macquarie Asset Management, is exploring options to address the company’s balance sheet issues, which may include significant concessions from lenders. Octus’ coverage of Bingo Industries is HERE.
 

Multi-Color Corp.

Today Judge Michael Kaplan entered a final order approving Multi-Color’s DIP financing after a three-day trial. The order implements a proposal from the debtors, ad hoc secured group and equity sponsor CD&R modifying the judge’s final DIP ruling from Thursday, March 26: Multi-Color will be able to access $62.5 of new money and $62.5 million of rollup loans now, and the remaining $62.5 of new money and $62.5 million of rollup loans would be funded upon further court order, or if a plan reflecting the RSA is confirmed.

The debtors and DIP lenders negotiated the revised funding after the judge announced on Thursday that he was not prepared to increase the $125 million rollup authorized under the interim DIP order. The ad hoc cross-holder group and excluded first lien lenders opposed both the original and revised funding requests as unlawful diversions of value to the DIP lenders. Octus’ Multi-Color coverage is HERE.

Ardagh Group SA

Southern District of New York Bankruptcy Judge Martin Glenn issued a 44-page opinion on Wednesday granting recognition of Ardagh PIK notes issuer ARD Finance SA’s Luxembourg restructuring proceeding as a “foreign main proceeding” under chapter 15 of the Bankruptcy Code, overruling objections from PIK noteholders represented by White & Case.

This is the first time a court considered whether to grant chapter 15 recognition to a proceeding commenced under Luxembourg’s 2023 restructuring law – a procédure de réorganisation judiciaire par accord collectif. For the PIK notes issuer, the ruling is a necessary first step for eventually obtaining recognition and enforcement of its proposed cross-border restructuring plan in the United States, although Ardagh’s plan has not yet been approved. Octus’ Ardagh coverage is HERE.

Serta Simmons Bedding

On Wednesday, Judge Christopher Lopez heard closing arguments on the validity of Serta Simmons’ 2020 non-pro-rata uptier exchange. Counsel for the excluded lenders and participating lenders primarily disputed the meaning of “payment” under the credit agreement, the good faith of the excluded lenders and the excluded lenders’ efforts to mitigate their damages. Judge Lopez took the matter under advisement and suggested he will issue a ruling within 80 to 90 days.

The judge’s decision will resolve six years of litigation over the bellwether liability management exercise in state, federal and bankruptcy courts. Almost exactly three years have passed since former judge David R. Jones granted summary judgment in favor of the company and participating lenders in March 2023. The U.S. Court of Appeals for the Fifth Circuit reversed that decision in December 2024, sending the dispute back to the bankruptcy court. Judge Lopez heard evidence over five days this month. Octus’ Serta Simmons Bedding coverage is HERE.
 

Optimum Creditor Co-Op Antitrust Litigation

The Optimum Communications creditor co-op steering committee moved to dismiss the company’s amended complaint alleging the cooperation agreement violates antitrust laws. A coalition of industry organizations, including the Loan Syndications and Trading Association, also submitted an amicus brief warning that allowing Optimum’s case to proceed would have “wide ramifications” for credit markets, increase borrowing costs and upend assumptions underlying existing credit agreements. Octus’ coverage of Optimum is available HERE.

Liberty Latin America Notes Litigation

Noteholders for Liberty PR, Liberty Latin America subsidiaries comprising the company’s Puerto Rican telecommunications business segment, filed a complaint in New York state court alleging that the borrowers breached note agreements by transferring assets to unrestricted subsidiaries in a drop-down transaction. Octus’ coverage of Liberty Latin America is available HERE.

FSOC Nonbank Designation Reforms

The U.S. Financial Stability Oversight Council proposed rescinding Biden-era guidance that lowered the threshold for designation of nonbanks as systemically important and subject to Federal Reserve supervision and prudential regulations. Treasury Secretary Scott Bessent said the proposed guidance would largely focus “on risks that arise from specific activities and practices across markets, rather than single out individual firms.” The proposal by regulators dovetails with similar efforts on Capitol Hill. Octus’ coverage of regulatory policy and litigation is HERE.