Fossil’s ‘Stapled Exchange’ and the ‘International Two-Step’: Why a US Company Turned to London to Restructure Its Notes and How It Did It

The idea that a U.S. company could be better served restructuring its debt abroad rather than through a chapter 11 proceeding is starting to gain serious traction. Recent legislative reforms, particularly in Europe, have created new and improved restructuring regimes designed to attract new customers by addressing problems germane to chapter 11. As companies continue to temper these new regimes, and as the established debtor playbook faces judicial pushback in cases such as Purdue, lawyers and other advisors in the United States are taking notice.

The U.S. restructuring industry recently convened to discuss the topic at an American Bankruptcy Institute conference in New York. On the syllabus for one of the conference’s panels was a 2024 article by professor Bruce Markell (of “Markell Test” fame) in which he suggests that U.S. companies may utilize one of the new and improved foreign restructuring options, reap the benefits, and then have their foreign plans recognized and enforced back home through a chapter 15. Markell calls this strategy the “international two-step.”

Fossil’s restructuring, completed in November, is a manifestation of the concept. Fossil decided to anchor the restructuring of its 2026 notes using an English Restructuring Plan, or RP, notwithstanding the fact that it is a U.S.-centered brand and its operations in England are relatively de minimis. It was, in several ways, the first such public, U.S.-based company to so prominently use England’s RP process.

So why did Fossil turn to English law rather than proceed under chapter 11 in the United States?

Put simply: Fossil’s choice was not just about dollar costs or days in bankruptcy. Weil Gotshal, which advised Fossil, issued a press release explaining that unique considerations, including the fact that thousands of small “baby bonds” holders controlled the vast majority of notes, made an English law RP and a “stapled exchange” strategy the better choice. Below, drawing on a discussion with two senior partners in Weil’s restructuring practice group, we explore the specific reasons why Fossil chose the path that it did.

Background: Why Fossil Needed to Restructure

Fossil is an international company with headquarters and main operations in the United States. Its stock is listed on the Nasdaq. In early 2023, Fossil disclosed weak earnings and announced it would pursue a “transform and grow” turnaround plan while evaluating strategies for its capital structure.

According to the company, the turnaround plan was “generally” achieving its purpose, but by early 2025, the company determined it would need to restructure its debt obligations. The company faced looming maturity walls in the form of a $225 million ABL set to mature in November 2027 and $150 million of unsecured notes due in November 2026, the latter of which included the retail “baby bonds.”

By August, Fossil was able to refinance its ABL and push the facility’s maturity to 2030, but the notes remained a challenge. According to Fossil Chief Financial Officer Randy Greben, the November 2026 maturity wall put the company “at risk of having to make a ‘going concern’ disclosure with respect to its third-quarter-2025 financial reports,” due on Nov. 13.

Unique Issues Lead to Unique Restructuring Solutions

Fossil did not need to conduct a full-blown operational restructuring in court. All it needed to do was restructure one piece of its capital stack, the 2026 notes. Such single-piece restructuring is not uncommon in the United States – it can be done either out of court or in chapter 11 through a prepackaged plan. Fossil, however, did not do either. Why?

According to Weil’s Gary Holtzer and Sunny Singh, the answer to that question lies in the 2026 notes. First, the notes were subject to the Trust Indenture Act, or TIA, meaning an out-of-court exchange could not force a modification of maturity or payment terms on a nonparticipating holder. The TIA would make an out-of-court exchange difficult.

The notes also included the retail “baby bonds” – notes denominated in amounts as low as $25 – primarily held by “mom and pop” investors that represented about 40% of the notes.

Two institutional holders – HG Vora and Nantahala – held the remaining 60% of the notes.

The baby bonds presented a unique issue that effectively precluded a prepackaged chapter 11 strategy. The Bankruptcy Code requires that at least one class of impaired creditors accept a plan. Whether a class accepts a plan is governed by a tally of total votes cast: class acceptance requires support from two-thirds in value and more than one-half in number of voting claims. Given the huge disparity between value and numerosity in Fossil’s 2026 notes, a handful of “no” votes could swing the class to reject the plan. Holtzer, a partner in Weil’s Restructuring Department and member of the firm’s Global Leadership and Strategy and Management committees, stressed that under such circumstances there would be no certainty that a prepackaged plan would ultimately be accepted by the requisite number of retail creditors.

To illustrate, imagine that just a few retail noteholders, say three, voted, and they all voted “no.” The plan would not be capable of confirmation – even with HG Vora and Nantahala holding 60% in value of the notes (assuming they each held the notes in a single fund) – because three out of five voting creditors would have rejected the plan. The amount of unaccounted for retail investors simply introduced too much uncertainty for the process.

Going forward with a prepack strategy embedded with such uncertainty would have been detrimental to the company’s turnaround efforts and could pose issues with obtaining regulator signoff for the out-of-court solicitation, Holtzer said. A U.S. bankruptcy would carry other downsides as well.

Holtzer explained that the filing would likely have caused Nasdaq to delist the company. Similarly, the overlay of a chapter 11 case on operations could have introduced certain other complications. The company was looking for as narrow a filing as possible, to take care of the 2026 notes while the rest of the company (which was already undergoing operation changes) stayed out of bankruptcy.

The ‘Stapled Exchange’

So what did Weil advise? Enter the international two-step in a flavor Weil calls “stapled exchange.” The restructuring strategy utilizes an out-of-court exchange in the United States paired with Part 26A of England’s Company Act, avoiding the issues discussed above.

Part 26A of the Companies Act 2006 came into effect in 2020 and allows English companies (and certain foreign companies) to use a “restructuring plan,” or RP, to impose a compromise on one or more classes of creditors. Unlike chapter 11 plans, or the preexisting English scheme of arrangement, RPs do not have a numerosity requirement for class acceptance. Instead, to carry a class, 75% by value of voting creditors need to accept the plan.

Read Octus’ RX 101 analysis of Part 26A restructuring plans versus chapter 11 HERE.

Generally, Fossil’s stapled exchange strategy involved signing a transaction support agreement, or TSA, in August, with its two 60% institutional noteholders. The TSA (which we discuss in more detail below) called for the company to commence an out-of-court exchange offer in the United States with a threshold amount of participation as a condition to effectiveness. In Fossil’s case, it was set at 90%.

In the event the threshold was not reached, the company would seek to implement the exchange through Part 26A of the Company’s Act, avoiding the “numerosity” and other issues outlined above. Once approved, the company would have the plan recognized and enforced in the U.S. through a chapter 15.

The Two-Step and ‘Good’ Forum Shopping

Of course, a strategy that takes a U.S.-based company like Fossil to London to restructure New York law-governed debt must be carefully weighed from a legal perspective. Would an English court take such a case? Would an English plan be recognized and given effect in the United States?

Fossil took the following steps to bolster its case. First, through a consent solicitation, the company utilized support from majority holders HG Vora and Nantahala to change the governing law of the notes to English law (the change required majority consent). After the law governing the notes became English law, the Rule in Gibbs applied. Gibbs is a 1890 case standing for the proposition that English law-governed debt can only be canceled or discharged by an English court. It is a great hook for an English court finding it has jurisdiction for a restructuring. Read Octus’ RX 101 piece on the Rule in Gibbs HERE.

Next, the company created an English entity – Fossil (UK) Global Services Ltd. – that would serve as the “plan company.” That entity then guaranteed the U.S. issuer’s note obligations. English law would allow for the RP to include releases benefiting Fossil’s other corporate group members even when only the plan company was subject to the RP proceeding. Weil’s Sunny Singh, co-chair of the firm’s restructuring department, notes that this allowed Fossil to avoid potential issues under Purdue.

The company also ensured that an independent “retail investment advocate” would represent retail holders in the English proceeding. This would give the court comfort that the retail investors were not being treated unfairly. Singh emphasized that retail holders were given the same participation options as HG Vora and Nantahala.

Finally, the company enlisted the support of retired Judge Peck to provide the English court with an expert opinion explaining why even though these steps are a blatant case of forum shopping, it is “good forum shopping.” Peck opined that if an English court accepted jurisdiction for Fossil’s Company Act restructuring, which it ultimately did, a U.S. court would recognize and enforce the RP in the United States through the mechanisms of chapter 15.

The Result

The strategy was a resounding success. Ultimately, as contemplated by the TSA, noteholders received either new “first out” 9.5% notes due 2030 or “second out” 7.5% notes due 2029, depending on whether they agreed to purchase their pro rata allocation of new-money 2030 notes.

Retail noteholders would receive, dollar-for-dollar, first-out notes in exchange for all of their existing notes (among other consideration) if they subscribed for their allocated share of new-money notes. If they declined the subscription offer, the retail noteholders would exchange their 2026 notes for “second out” 7.5% notes due 2029.

HG Vora and Nantahala agreed to backstop the $12.9 million first-out note offering made to retail investors and subscribe for $19.5 million of additional first-out notes, in exchange for various incentives for doing so.

The company commenced the exchange, subscription and consent offer to the retail noteholders in the United States with a 90% threshold to effectiveness. The offering materials made clear that if the threshold was not met, the company would seek to implement terms through the English proceeding.

The public offer was launched on Sept. 9, and as of Oct. 8 only 72% of noteholders had signed on. The company filed its Part 26A English proceeding on Oct. 9.

Only the newly formed “plan company” filed in England. However, the RP sought releases for Fossil’s nondebtor notes issuer and others through related party release provisions (a mechanic generally accepted without controversy in English restructurings but that is impermissible under chapter 11 of the Bankruptcy Code).

Fossil held the first of two required English court hearings – an initial hearing known as a “convening hearing” on Oct. 15, so called because the company is seeking the court’s permission to convene a meeting of creditors to vote on the proposal. The convening hearing typically does not consider the overall merits or fairness of a proposal, rather it focuses on jurisdictional issues and class composition.

The company reported that 363 noteholders voted in favor of the plan and just one voted to reject. Throughout the entire process, only one party – a retail noteholder – raised an objection, but it was withdrawn after the noteholder sold off his holdings.

The company then sought recognition of the English proceeding as a “foreign main proceeding” for purposes of chapter 15 of the Bankruptcy Code in the Southern District of Texas on Oct. 21. On Nov. 10, the English court approved the RP at a “sanction hearing,” which approval was recognized and enforced in the United States via chapter 15 just a few days later on Nov. 12.

Asked why the U.S. corporation has chosen to restructure in England rather than the United States, Fossil’s English barrister told the court that the plan cannot be achieved “as quickly or as cheaply” as in a U.S. chapter 11, in part due the requirement to include all creditors in a chapter 11 plan.

It is important to note that most U.S. courts have been willing, and some very willing, to recognize and enforce foreign law plans even if they include releases or other provisions that might not be permissible in a chapter 11 plan.

Conclusion

With new and improved foreign restructuring regimes in place and advisors learning what those regimes can do, we expect to see more international two-step cases like Fossil’s. Where and how advisors will use these new tools will vary. Fossil’s case proves Weil’s specific form of “stapled exchange” can be an efficient tool for the unique issue raised by the need to restructure a bond issuance with thousands of retail holders.

Further, given robust support for third-party releases under English law, an English RP combined with chapter 15 recognition could be a solution for other stressed or distressed companies, even those without retail bond holders. In particular, the strategy provides a “light-touch” option that can firewall most of the corporate group from a restructuring process while leaving listing status and equity ownership unaffected.

The best form of forum shopping – arguably exemplified by Fossil – allows differing legal jurisdictions to fill the gap for each other, saving costs while preserving stakeholder protections. The opposite type of forum shopping is a race to the bottom, using varying regimes to avoid fundamental legal protections. As the “jurisdictional chessboard” expands, boundaries will be pushed. Can a company go abroad to cram down a particular creditor in a manner that would not be permitted in the United States (McDermott)? What about using a foreign regime to rid a company of tort claims held by thousands of Americans (Asbestos Corp.)? These are questions that still need answering and we will certainly be watching.