PRACTICE AREAS
Practice Areas
Practice Areas

Distressed Debt


Practice Leaders: Richard P. Eckman and David B. Stratton

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"Distressed" debt has increased significantly recently, fueled by tightening credit and the liquidity crisis facing many lenders, and the advent of opportunistic investment funds focused on the purchase of loans in workout situations involving borrowers.

Distressed debt transactions, involving either the lender itself or a third-party purchaser, are often quite complex, and require legal counsel who is experienced in these matters and who can bring timely judgment and efficient representation to bear, as well as bringing a practical business approach to successfully achieving the client's goals.

Pepper Hamilton LLP is experienced in representing commercial banks, finance companies, hedge funds and other lenders in working out distressed debt situations. These transactions include consensual restructuring of debt, negotiating with mezzanine lenders and other sub-debt holders, realizing on collateral, deed-in-lieu transactions, judicial enforcement of creditor rights, and enforcement of rights in bankruptcy proceedings. The firm also is experienced in representing lenders in debtor-in-possession financings.

With more than 70 lawyers and other professionals in our Financial Services and Corporate Restructuring and Bankruptcy practice groups, working together as a seamless team, Pepper has the depth and breadth to handle distressed debt matters of any size and complexity.

Representative engagements include:

  • representing a hedge-fund-affiliated finance company working out its $50 million loan to a large luxury resort club company, including restructuring its debt and establishing the debtor-in-possession lending facility which enabled the borrower to find permanent financing of its debt, resulting in our client recovering all it was owed, including contracted interest and fees
  • representing Versa Fund (formerly Chrysalis Partners/Agarista Funding) in its acquisition of Holliston Mills, the nation’s oldest and largest manufacturer of coated cloth material and specialty packaging materials, through an acquisition of the distressed senior debt, bankruptcy filing and provision of DIP financing, and credit bid in the bankruptcy sale; and negotiation and closing of partial acquisition financing and post-reorganization credit facilities
  • representing a regional bank in a restructuring of the debt to a major automotive supplier, including negotiating guarantees by third parties, real estate mortgages and working capital
  • handling numerous bankruptcy and workout matters for a major financial institution involving various industries including coal mining, manufacturing, retail and finance
  • representing a secured commercial lender in the liquidation of one of the nation’s largest egg producers; this multi-state representation involved restructuring of loan documentation to include cross-collateralization and cross-defaults, forbearance agreements, foreclosure actions, confessions of judgment and commercial collection suits in several jurisdictions; we also represented the lender in the sale and financing of the recovered collateral to purchasers
  • representing a real estate lender in the workout of its financing of several large residential subdivisions owned by single-purpose entities with the same guarantors. Because of market conditions, including the termination of lot take-downs by national homebuilders, the developers defaulted on the loans. Matters are complicated by subordinate purchase money and mezzanine lender and intercreditor agreements. Forbearance agreements, featuring extended maturities in exchange for increased equity, are in place.
  • representing four funds specializing in investments in distressed debt with respect to their claims in the Dow Corning bankruptcy case, which involves claims in excess of $330 million. Pepper clients are demanding payment of the default interest rate on the bank debt that they own. Dows plan of reorganization went effective in 2004 and paid creditors in full with interest at the non-default rate.


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