Restructuring and Creditor Advisory: A Playbook for Sponsor-Backed Companies

Sponsor-backed companies enter restructuring conversations from a unique position. The GP has fiduciary obligations to its limited partners, a management team it installed, a board focused on preserving value, and lenders who increasingly control the negotiating leverage. The question is rarely whether to engage creditors—it is how to preserve optionality while stabilizing the business, protecting franchise value, and maximizing recoveries across the capital structure.

Successful restructurings are rarely driven by financial engineering alone. They require disciplined execution across capital, operations, governance, and stakeholder communication. Our role is to help sponsors navigate all four simultaneously, ensuring today's decisions strengthen—not constrain—the company's long-term strategic alternatives.

The framework

We view sponsor-backed restructurings as four interconnected negotiations that must be managed in parallel, not sequentially.

The first is the “capital structure negotiation” with the lender group. This is where covenant relief, amendments, forbearance, incremental liquidity, forbearance agreements, refinancing alternatives, or debt-for-equity transactions are negotiated. Success depends on understanding not only the legal documents, but also the economics driving each lender. Original bank lenders, direct lenders, private credit funds, and distressed investors each approach restructurings differently, and successful negotiations begin with understanding those incentives before the first conversation occurs.

The second is the ”fund-level negotiation”. Sponsors must evaluate what the partnership agreement permits, whether existing funds have capital available to support the investment, and whether continuation vehicles, co-investments, or third-party capital should be considered. Equally important are LP communication, governance requirements, and protecting the sponsor's broader fundraising franchise.

The third is the ”operational negotiation” inside the company. Liquidity management, financial reporting credibility, organizational alignment, governance, executive incentives, forecasting discipline, and performance transparency all become critical. Companies built for growth must quickly become organizations capable of disciplined execution and informed decision-making

The fourth is execution. Strategies create options; execution preserves value. Financial forecasts must become operating tools. Boards require timely, decision-ready reporting. Stakeholders expect transparency. Vendors, customers, employees, and lenders all need confidence that management is executing against a credible transformation plan.

Our role extends beyond advising on restructuring strategy. We work alongside sponsors, boards, management teams, lenders, and legal counsel to help design and execute the restructuring from liquidity management and stakeholder negotiations through operational stabilization, governance enhancement, and, where appropriate, interim executive leadership.

When this comes up

Covenant breach approaching within the next two to four quarters
Liquidity is tightening, covenant cushion has largely disappeared, downside scenarios are becoming more probable, and lenders have requested enhanced reporting. Sponsors must decide whether to proactively engage lenders, pursue alternative financing, or preserve flexibility until additional operating initiatives can be implemented. 

Timing matters. Beginning negotiations before operational credibility is established weakens the sponsor's position. Waiting too long often increases amendment costs and reduces strategic alternatives. We help sponsors develop lender-grade financial forecasts, identify operational improvements that strengthen negotiating leverage, and sequence discussions so the company approaches lenders with both a credible business plan and a well-supported liquidity strategy. 

Debt trading below 80 with new holders entering the capital structure
When debt begins trading into the hands of secondary investors, the restructuring dynamic changes materially. Original lenders focused on credit preservation may be replaced by investors pursuing control positions or debt-to-equity outcomes. Sponsors often recognize this shift only after new advisors appear requesting information beyond traditional lender reporting.

We help sponsors map the lender landscape, understand likely investment objectives, evaluate negotiating leverage, and develop strategies that align operational improvements with capital structure alternatives. Understanding who owns the debt is important. Understanding why they own it is even more valuable.

Continuation vehicle as a restructuring solution
In certain situations, the optimal restructuring begins at the fund level rather than the company level. A continuation vehicle can provide fresh capital, extend ownership horizons, and create optionality for both existing and new investors while strengthening the balance sheet.

Success depends on more than transaction mechanics. Sponsors must establish a defensible valuation, develop a credible operating plan, negotiate lender participation, satisfy governance requirements, and demonstrate that the transaction creates long-term value rather than simply extending ownership. We help evaluate the commercial viability of continuation structures while coordinating the parallel operational and creditor workstreams necessary to support the transaction.

What we'd do

1. Develop a comprehensive stakeholder strategy before formal negotiations begin. We identify lender composition, investment objectives, decision-makers, governance dynamics, and sponsor priorities before the first outreach occurs. Successful restructurings are driven by understanding stakeholder incentives, not simply reading legal documents. 

2.  Stand up lender-grade liquidity management and financial reporting. We work alongside management to implement 13-week cash flow forecasting, liquidity governance, forecasting discipline, KPI reporting, and board-ready financial reporting that restore credibility with lenders and support informed decision-making. Where appropriate, we supplement existing management with interim finance leadership.

3.  Align operational execution with restructuring objectives. Capital solutions succeed when supported by operational improvement. We help management prioritize working capital, cost optimization, organizational design, performance management, governance, and transformation initiatives that demonstrate sustainable business improvement, not simply temporary liquidity relief.

4.  Coordinate sponsor, lender, board, and LP communications. Every restructuring affects multiple stakeholders. We help GPs develop consistent communication strategies that support lender negotiations, board oversight, LP reporting, and broader fundraising objectives while maintaining alignment across constituencies.

5. Implement governance and incentive structures that support long-term value creation. Successful restructurings reset more than balance sheets. We help establish governance frameworks, executive incentives, board reporting, and operational accountability that position the business for sustainable performance after the transaction closes. 

FAQ

When should a GP bring in restructuring advisors versus handling it internally?
Earlier than most sponsors expect. Once covenant pressure begins affecting operational decisions, or lenders request enhanced reporting, the restructuring has effectively started. Early involvement provides more strategic alternatives, greater negotiating leverage, and additional time to implement operational improvements before capital solutions become urgent.

How does a restructuring at one portfolio company affect the rest of the fund?
Significantly. Restructurings influence LP confidence, fundraising, governance, investment pacing, and portfolio management. GPs often focus appropriately on the portfolio company, but protecting the broader franchise requires thoughtful communication with LPs, investment committees, and advisory boards throughout the process.

What is the difference between our role and a Chief Restructuring Officer?
A CRO typically operates within the company and focuses on day-to-day execution during periods of financial distress. We advise the GP while also supporting boards and management through financial leadership, operational transformation, governance, stakeholder coordination, and execution. Depending on the situation, CBC may also serve in interim leadership roles, including CEO, CFO, Treasurer, CRO, or Transformation Office leadership, to help implement the restructuring strategy.

Can a continuation vehicle actually solve a distressed situation, or is it simply delaying the inevitable?
It can create significant value when the underlying business remains fundamentally strong but is constrained by its capital structure or fund lifecycle. It becomes ineffective when used solely to postpone recognizing structural challenges. Successful continuation transactions combine fresh capital, disciplined execution, operational transformation, and realistic valuations within a governance framework that withstands scrutiny from lenders, LPs, and prospective investors.