Young Conaway’s Michael Nestor Discusses Chapter 11 Alternatives, When Bankruptcy Is Necessary

By Harvard Zhang

There has been a massive uptick in the use of alternatives to chapter 11 for a change-of-control deal in the last two years, driven almost exclusively by cost efficiency, and this trend will certainly continue, according to Michael Nestor, vice-chair of Young Conaway, a partner in the firm’s corporate restructuring and bankruptcy group and co-head of the firm’s portfolio company management group.

“The cost of the chapter 11 process has caused private equity sponsors, lenders and investors to look much more closely at out-of-court alternatives,” including assignment for the benefit of creditors (ABC), receivership and UCC foreclosure or disposition, Nestor said in an interview with Octus. “In 2025 alone, 54% of our company-side engagements were consummated out of court.”

While costly, a chapter 11 proceeding provides material benefits of the automatic stay and judicial approval of transactions, which obviates the need for shareholder approval and provides the board and management with federal court approval of the process and exit strategies that binds all stakeholders, according to Nestor.

Litigation and liability risk evaluation and mitigation is an important part of the process for management teams and boards of directors to decide whether to use a chapter 11 or an alternative as a tool to effect a restructuring.

“The best way to ensure deal certainty in a chapter 11 is ensure that the process has been comprehensive and included top-shelf advisors, the record is clear, independence at the board has been implemented to address any perceived conflicts, the company is prepared and positioned to litigate any issues on an expedited timeline out of the gate, and the exit strategy communication plan is clear, well defined and published in a manner that addresses the interests of all stakeholders,” Nestor said.

“With respect to out-of-court alternatives, it is critical to comprehensively assess the potential liabilities and thoughtfully work through strategies to mitigate those issues for the remaining entity, management and the board,” according to Nestor. “Risk mitigation considerations include securing a D&O tail policy, having the acquirer assume as many liabilities as possible, pushing for an equity deal, conducting a detailed analysis of left-behind liabilities and risk assessment of each, negotiating indemnity agreement with acquirer, and ensuring the wind-down funds are appropriate (with a huge cushion), among others.”

For post-LME capital structures, if the company hits a liquidity shortfall, and there is an inter-lender contest regarding the debt stack, then a chapter 11 represents a good option to provide funding and resolve the inter-creditor disputes, Nestor said. A chapter 11 can be expensive, but it is likely the most-efficient way to best position the company for success in a single forum with a definitive ruling that binds all stakeholders, he added.
 

 

Global Liability Management Quarterly

The latest edition of our Global Liability Management Quarterly covering LME trends across the globe is out. The report summarizes the latest trends in liability management, including “aggressive” transactions completed or contemplated by U.S., European and Asian borrowers during the first quarter that, among other things, raise cash, extend maturities or reduce outstanding principal, and sometimes all three. The report concludes with a table summarizing select aggressive U.S. LME transactions covered by Octus during the quarter. The latest edition of the report can be found HERE.

Americas Court Opinion Review

In the latest installment of the Court Opinion Review, we discuss Judge Michael Kaplan’s creative decisions in Multi-Color, a fight over counsel fees, conflicts in FAT Brands and Judge Martin Glenn’s Ardagh chapter 15 recognition decision. Read the Court Opinion Review HERE.

US Bankruptcy Law 101

The legal team published another installment of U.S. Bankruptcy Law 101, an Octus series focused on discussing fundamental U.S. bankruptcy law topics and issues. This edition takes a closer look at substantive confirmation requirements and issues that often arise in plan confirmation. Read the US Bankruptcy Law 101 series HERE.
 

Staples

Staples projected its 2026 EBITDA to fall between $810 million and $840 million up from $805 million in 2025. During its latest earnings call, management at the Sycamore Partners-sponsored company clarified that its newly created “Fulfilled by Staples” segment will remain within its existing collateral group, with its creation driven by segment reporting purposes as opposed to any intent to separate it from the collateral pool. Octus’ coverage of the Staples is HERE.

Oldcastle BuildingEnvelope

Oldcastle BuildingEnvelope, a manufacturer of building products sponsored by KPS Capital Partners, expects its first-quarter 2026 EBITDA to decline 56% amid a broader sector slowdown. The company recently set up an “uncommitted” $100 million accounts receivable facility from its sponsor to help bolster its liquidity, which was at $153 million in early April, while net leverage stood at 13x. Multiple creditor groups have already organized with advisors like Milbank and PJT Partners as the company’s financial performance continues to deteriorate. Octus coverage of the Oldcastle BuildingEnvelope is HERE.

Wonder Group Inc.

Wonder Group Inc., the “fast fine” dining platform that is the parent company of GrubHub, is exploring an equity investment from the private capital markets. The company is preparing for a potential 2027 initial public offering and recently reported 2025 revenue of $1.44 billion, although EBITDA performance remains pressured by aggressive marketing spend and recent acquisitions. Wonder has so far raised $1.87 billion in funding from investors such as New Enterprise Associates, Bain Capital Ventures and Grishin Robotics. Octus’ coverage of the Wonder Group is HERE.

American Trailer World

American Trailer World reported 2025 EBITDA of $98 million, within its guidance range, and is projecting an increase to a range of $100 million to $120 million for the upcoming year. The company’s $750 million first lien term loan has recently declined into the low-80s. Last year, some large lenders consulted with legal advisors to review credit agreement protections as they were weighing the impacts of cyclical demand and potential tariff risks on the company. Octus’ coverage of the American Trailer World is HERE.
 

Mercer International Inc.

Mercer International Inc, a publicly listed wood and pulp producer, has been working with Houlihan Lokey and Latham & Watkins to evaluate balance sheet options ahead of its 2027 revolver maturities, which had $295 million outstanding as of Dec. 31. The company has suffered significant input cost inflation and the impact of tariffs for pulp exported to China. An ad hoc group of creditors led by Redwood Capital and Mackay Shields has signed a cooperation agreement and is represented by Paul Weiss. Octus’ coverage of Mercer International Inc. can be found HERE.

Advancion Corp.

Advancion Corp., a leading producer of performance additives for the pharmaceutical industry, is working with Evercore and Latham & Watkins as the company looks to address its looming debt maturities. An ad hoc group of creditors has already organized and is working with Gibson Dunn and Centerview Partners as the Golden Gate Capital-backed company weighs its options. Octus’ coverage of the Advancion Corp. is HERE.
 

QVC Group

On April 16, “live social shopping” company QVC Group filed chapter 11 in the Bankruptcy Southern District of Texas to consummate a prepackaged $6 billion balance sheet restructuring. The filing follows a $975 million draw on its revolving credit facility in late 2025 amid a difficult retail environment. The plan is supported by holders of at least 75% of revolver claims, 45% of LINTA notes claims and 55% of QVC notes claims, and the debtors hope to emerge within two months.

The plan would leave general unsecured creditors unimpaired while ABL lenders and QVC noteholders would share cash estimated at approximately $882 million, a $1.275 billion to $1.325 billion take-back term facility and 100% of reorganized equity, subject to dilution by a management incentive plan funded with up to 10% of reorganized equity. LINTA noteholders would receive approximately $111 million in cash, net of certain deductions.

The plan also reconciles intercompany claims between ultimate parent QVCG and debtor QVC and its subsidiaries and cancels QVCG common and preferred equity interests with no distribution. The plan does not provide for any distribution on a potential $1 billion-plus deferred tax liability related to the LINTA exchangeable debentures, with the debtors contending that tax rules allow them to avoid the potential liability. Octus’ QVC coverage is HERE.
 

Multi-Color Corp.

At a hearing on April 16, Judge Michael Kaplan confirmed Multi-Color’s chapter 11 plan, overruling an objection from the U.S. Trustee. The judge agreed with the debtors that the plan’s opt-out nondebtor releases are consensual and do not violate the U.S. Supreme Court’s Purdue Pharma decision.

The UST was the lone objector to confirmation after the debtors announced a settlement between, on the one hand, the RSA parties (the secured ad hoc group and equity sponsor Clayton Dubilier & Rice) and, on the other, the ad hoc cross-holder group, excluded first lien lenders and the official committee of unsecured creditors. The deal provided unsecured noteholders that had not signed the RSA with new warrants and new debt. Octus’ Multi-Color coverage is HERE.

Oi SA

In a bench ruling on April 15, Judge Lisa G. Beckerman denied the Oi secured noteholders’ motion to enforce the bankruptcy court’s chapter 15 recognition order of Oi’s recuperação judicial, or RJ plan. The noteholders brought the motion in an attempt to halt a Brazilian court-approved 4.5 billion Brazilian reais (approximately $873 million) sale of Oi’s 27.26% equity stake in V.tal to a consortium led by BTG Pactual, V.tal’s controlling shareholder. Octus’ Oi coverage is HERE.

Bestwall

In a brief filed on April 10, mesothelioma claimants said they have learned that the Bestwall debtor’s affiliate and funder New GP has “given up” on the almost nine-year-long Texas two-step bankruptcy. New GP intends to file a new, separate bankruptcy case for another affiliate aimed at confirming a plan that would give preferential treatment to settling victims, according to the claimants. Octus’ coverage of Bestwall is HERE.

Optimum Communications

On April 15, Optimum Communications opposed creditors’ motion to dismiss the company’s amended antitrust complaint, which accuses the co-op lender defendants of colluding to drive the company into bankruptcy. The cooperation agreement between the defendants, which allegedly prohibits a participating creditor from dealing with Optimum unless they all consent, is a horizontal conspiracy to eliminate competition between rival creditors, which “offends the Sherman Act’s very core,” Optimum argues. Octus’ coverage of Optimum is HERE.

Radiology Partners

On April 16, Judge Brian J. Davis of the U.S. District Court for the Middle District of Florida granted Radiology Partners’ motion to dismiss Aetna’s amended “pass-through” billing fraud complaint. Although the amended complaint adequately alleges fraud, Aetna cannot challenge the payments awarded to Radiology Partners under independent dispute resolution, or IDR, proceedings because it failed to raise the fraud concerns during the IDR, Judge Davis holds. Octus’ coverage of Radiology Partners is HERE.