Structuring Liability Management Transactions: Sacred Rights Protections, Lessons From Wesco and Other Recent Decisions

This CLE webinar will discuss the latest developments in liability management exercises (LMEs) based on recent litigation, including the latest federal district court decision in the ongoing Wesco Aircraft case. The panel will explore the importance of contractual language in debt instruments and provide drafting and structuring considerations for borrowers and lenders contemplating liability management or uptier transactions under the current legal landscape.

LMEs continue to be the subject of intense debate and litigation. Recent decisions are shaping the future of LMEs, and these decisions highlight how courts interpret uptier and other LME transactions based on specific credit agreement terms. As courts continue to scrutinize LME structures, counsel must understand the lessons these cases provide lenders and borrowers for structuring and responding to liability management transactions (LMTs). 

On Dec. 8, 2025, the U.S. District Court for the Southern District of Texas reversed the bankruptcy court's decision in Wesco and held that a pre-bankruptcy uptier transaction was permissible because it did not violate an indenture's sacred rights provision. Specifically, the court held that the uptier transaction did not require supermajority consent. Instead, the amendments or supplements that authorized additional notes required only simple-majority consent, and the court found that Wesco fully complied with its obligations.

The recent Wesco decision represents an important turning point in LME litigation in the context of the Fifth Circuit's other notable decision in Serta where the court held that the LME in that case violated the existing first-lien and second-lien credit agreements' pro rata sharing provisions. Wesco, Serta, and other recent LME decisions highlight the importance of contract language in credit agreements, and their holdings have the potential to significantly impact borrowers and lenders that have executed or are contemplating liability management exercises.

Listen as our authoritative panel reviews the key aspects of the noteholder litigation in Wesco and other pivotal cases and provides suggestions for structuring and drafting LMTs going forward.