"Plan Support Agreements: Key Considerations for Creditors" published in New York Law Journal

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June 8, 2018

Deploying a plan support agreement (PSA) has become an essential component of U.S. Chapter 11 bankruptcy proceedings, especially in larger, more complex reorganizations. Sophisticated debtors and creditors have effectively used PSAs to reduce the costs and risks associated with restructuring a distressed debtor and garner support for a new capital (typically provided through a rights offering). PSAs frame the material terms of the proposed restructuring, and by executing a PSA, a creditor agrees to vote for and support the terms of a restructuring plan that will be circulated to all creditors in the future. Creditors are often induced to sign on to a PSA in return for an enhanced recovery under the proposed plan of reorganization.

PSAs are generally negotiated between the debtor and key stakeholders (which often include the major lenders or bondholders that have significant claims against the debtor). For those creditors that do not participate in the negotiation of the PSA, it is especially important to understand the key legal provisions in the PSA and the implications of becoming a supporting creditor of the debtor’s plan of restructuring.

In this article, RK&O attorneys Gregory Plotko and Richard Lee examine the language of certain key (sometimes overlooked) provisions typically found in a PSA, and provide a brief survey of provisions agreed to by debtors in bankruptcy proceedings, including: (1) representations made by each supporting creditor regarding their claim holdings, (2) the “fiduciary out” exercisable by the debtor, (3) the requirements for amending the PSA, (4) restrictions on buying and selling claims against the debtor, and (5) the creditor’s right to terminate its obligations under the PSA.

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