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93 Fordham L. Rev. 1 (2024)

handle is hein.journals/flr93 and id is 1 raw text is: TACTICAL RESTRUCTURINGS Diane Lourdes Dick* The traditional legal account of a corporate debtor's journey into and through bankruptcy reorganization naturally focuses on legal rights and entitlements, such as obligations arising under the debtor's existing agreements and rights articulated in the U.S. Bankruptcy Code. But the traditional legal account does little to probe why these prior agreements and transactions were entered into in the first place, and how they interact with the bankruptcy system to generate predictable outcomes. Rather, the traditional legal account applies a presumption that the debtor's financial characteristics, qualities, andfeatures (what this Article calls restructuring attributes) are not premeditated, at least insofar as a future bankruptcy filing is concerned. In contrast, this Article advances a theory of tactical restructurings, which acknowledges that corporate debtors engage in deliberate prebankruptcy planning to achieve the ideal restructuring attributes and thus gain significant advantages in a future bankruptcy. By illuminating these understudied aspects of commercial restructurings, this Article contributes to a broader understanding of Chapter 11 bankruptcy as a dynamic rather than static process. Simply by manipulating key variables and inputs that are almost entirely within their control, debtors and their preferred stakeholders control the behavior of the Chapter 11 system and effectively lock in restructuring outcomes. INTRODUCTION ......................................................................................2 I. KEY RESTRUCTURING ATTRIBUTES ..................................................7 A. The Debtor's Apparent Insolvency........................................9 B. The Administrative Expenses Hurdle..................................14 C. The Character of the Fulcrum Security ..............................16 D. The Secured Debt Hurdle ...................................................18 E. Secured Debt Subhurdles ................................................ 22 * Charles E. Floete Distinguished Professor of Law, University of Iowa College of Law. For helpful comments and suggestions, I owe a debt of gratitude to Kenneth Ayotte, Douglas Baird, Ralph Brubaker, Kara Bruce, Vince Buccola, Mihailis Diamantis, Andrew G. Dietderich, Jared Ellias, Christopher Hampson, Edward Janger, Robert Lawless, Robert Miller, Edward Morrison, Christopher Odinet, Anya Prince, John Reitz, Greg Shill, Vinita Singh, Sean Sullivan, Cristina Tilley, Joseph Yockey, and participants of the Wharton-Harvard Insolvency & Restructuring Conference, 2022-23 Corporate Restructuring & Insolvency Seminar, and the University of Iowa College of Law 2023 Summer Workshop Series. 1

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