In a unanimous decision issued on December 31, 2024, the U.S. Court of Appeals for the Fifth Circuit reversed the bankruptcy court’s ruling on the permissibility of Serta Simmons’ 2020 liability management exercise (LME), stating that the uptier transaction did not constitute an “open market purchase” and therefore was a violation of the company’s credit agreement. This decision forced companies, sponsors, and lenders to rethink how to structure LMEs and uptiers, and parties need to consider how to strategically communicate these complex transactions to maximize value.
THE IMPACT OF SERTA
C Street Advisory Group’s dedicated Liability Management communications practice surveyed the industry’s response to gauge the general consensus and outstanding questions around the implications of the Serta decision. While the dust is still settling on what the post-Serta landscape means for LMEs, a consensus is emerging that the Serta decision may deter aggressive, non-pro-rata liability management exercises – particularly those relying on undefined or ambiguous contractual terms like "open market purchase." Experts agree that future LMEs will necessitate clearer drafting and greater inclusivity, with more creditors offered participation rights to avoid breaching pro-rata sharing provisions. Additionally, there is broad alignment on the need for precise contract language and innovative, compliant mechanisms to balance borrower flexibility with lender protections. We have already seen a post-Serta example with Better Health launching an LME with an innovative structure.
However, what remains to be seen is the broader market implications of the Serta decision. Some firms are predicting industry-wide caution around LMEs, while others anticipate that the decision may encourage more out-of-court restructuring transactions under clear contractual frameworks, particularly in New York. Still others view the Serta decision as setting parameters that creative restructuring professionals will structure around.
THE ROLE OF STRATEGIC COMMUNICATIONS IN LMES
Despite the uncertainty following the Serta decision, one point is clear: a strong communications strategy remains critical for companies and sponsors pursuing LMEs in 2025 and beyond. With increased media attention and a likely uptick in legal challenges, companies should be prepared to clearly and proactively articulate the rationale for their transaction to their stakeholders and how the LME aligns with broader corporate priorities.
Drawing on C Street’s experience and key learnings from past transactions, C Street Advisory Group’s dedicated Liability Management communications team has identified critical takeaways and recommendations for successful communications strategies to help companies navigate future creative capital structure solutions.
CONNECT TO COMPANY PRIORITIES
Connecting LMEs to broader company priorities is essential to communicate to stakeholders that the transaction is not an isolated event, but rather a strategic move that supports the company's long-term goals and value creation.
In 2024, C Street partnered with a telecommunications client to develop a communications strategy for their multi-billion dollar refinancing transaction. By aligning the messaging of the LME with broader company priorities and its ambitious growth trajectory, C Street helped highlight the transaction as a milestone step forward for the Company, reinforcing leadership’s vision and positive trajectory.
LEVERAGING THE MEDIA
Leveraging media during LMEs is crucial to shape public narratives, mitigate misinformation, and build confidence among key audiences. As stakeholders turn to the media to better understand the transaction, strategic and proactive engagement is necessary to ensure they consider the rationale and impact on operations.
C Street collaborated with a leading manufacturing company to execute a communications strategy for its chapter 11 cases and ongoing litigation related to a prior LME. The high-profile and consistent media coverage of these situations ultimately reached stakeholders who were less familiar with complex debt transactions, making it more essential to leverage media to reassure stakeholders about the process and continuity of operations.
Through strategic media engagement, C Street effectively reshaped the media narrative and communicated why the transaction was the optimal choice for the company, how it favorably compared to alternative transactions, and reassured key stakeholders of the company’s commitment to deliver on their obligations throughout the process. Importantly, this media engagement helped minimize business disruption and promote stability through the restructuring and litigation, positioning the client for a sustainable future.
ENGAGING INVESTOR AUDIENCES
For public companies, engaging the investor community is critical during liability management exercises. Investors prioritize clarity, alignment with strategic goals, and a clear outlook on value creation. Companies should transparently communicate with Wall Street to explain the transaction, demonstrate its alignment with broader capital structure initiatives, and outline the expected financial and operational benefits. Additionally, engaging the analyst community is crucial to influence investor sentiment and market perception, specifically equity analysts who may be less familiar with the intricacies of credit transactions. Highlighting how the LME supports long-term growth or operational flexibility can provide confidence for investors and analysts around a company’s equity story.
For example, C Street supported a publicly traded technology company to communicate the role of its LME to investor and analyst audiences. C Street successfully created tailored messaging and worked with the media to communicate the successful refinancing transactions concurrent with other financial disclosures. By addressing investor concerns with clarity and confidence, companies can leverage the opportunity to secure buy-in and position themselves for success.
THE FUTURE OF LMES POST-SERTA
The Serta decision has impacted the liability management landscape, emphasizing the importance of clear contract terms and inclusive practices. As the industry adapts, strategic communications will remain essential to aligning stakeholder expectations and building trust so that a company can successfully move past the LME to drive value for stakeholders. By connecting LMEs to long-term priorities, leveraging media to educate stakeholders, and addressing investor concerns, companies can turn these complex transactions into opportunities for growth. With thoughtful communication strategies, organizations can navigate this evolving environment and emerge stronger in 2025 and beyond.