A Bothersome Amphibology

Jargon Divergence: Liability Management Transactions & Liability Management Exercises, and Why & How LMEs/LTEs Should be Performed Early & Often

According to Merriam-Webster, an amphiboly [i] is a sentence or phrase (such as ‘nothing is good enough for you’) that can be interpreted in more than one way.

In the corporate restructuring world, the phrase ‘Liability Management Transaction’ (also known as a ‘Liability Management Exercise’) has become a trendy term in the last few years. But what does it mean? And does it describe something new?

The bottom line is that while some people in the industry say it’s a new concept, it’s not. However, the term can be used to differentiate certain related strategies used in the corporate restructuring industry. More on that below.

In Search of a Progenitor [ii]

Taking a step back, I spent several years as a corporate restructuring partner at Kirkland & Ellis, I taught a corporate restructuring MBA class at Chicago Booth, and as a visiting professor at the University of Tennessee College of Law, and I’ve authored a couple of books about business bankruptcy and its alternatives. In all these travels, I never heard anyone use the term ‘Liability Management Transaction’ or ‘Liability Management Exercise’ before around 2017, and I didn’t hear it used more than once in a blue moon even then, until sometime last year.

I was curious, so I looked back. The earliest reference to either term that I could find was in connection with the J.Crew Chapter 11. It was used there to describe that debtor’s shuffling of some of its intellectual property assets into an unrestricted subsidiary, enabling it to issue fresh debt secured against that IP. King & Spalding’s J Crew & The Original Trap Door is a great summary of what happened.

The J.Crew restructuring got a lot of press, and that move created quite a stir. But it’s anything but clear that that’s where the term was born. In fact, best I can tell, the term was a simultaneous invention (like calculus, being developed independently by both Newton and Leibniz or, more precisely, a cumulative innovation, in that it seems to have been developed by many folks.

LMTs & LMEs Defined

So, what does it mean? My definition is that Liability Management Transaction (LMT) and Liability Management Exercise (LME) are synonymous, catch-all phrases encompassing various personal (through the use of estate planning and asset protection planning) and corporate (through the use of front-end corporate structuring and back-end restructuring techniques like debt exchanges, maturity extensions, tender offers, covenant modifications, and asset transfers) strategies aimed at limiting the pool of assets from which creditors can collect.

But it’s also an annoying amphiboly. More on that below.

New or a Re-Brand?

If you were in the industry before 2017, you would likely be familiar with these various techniques, even if you had never heard of the umbrella term before.

But hey, if you think restructuring professionals coming up with clever names for debt-shuffling maneuvers is novel, remember Wall Street has been repackaging the same ideas under fancier names since before Gordon Gekko proclaimed, “Greed is good.”

Examples:

• ‘High-yield debt’ was once simply ‘junk bonds”
• Today’s ‘independent sponsor’ was yesterday’s ‘fundless sponsor’
• Investing in ’emerging markets’ sounds a lot better than investing in ‘third-world countries’
• And I’d rather invest in a ‘growth stock’ than a ‘speculative stock’
• ‘Rightsizing’ sounds better than ‘downsizing’
• You’d rather your company make a ‘facilitation payment’ instead of a ‘bribe’

What’s that expression about putting lipstick on a pig? Anyway…

For those who crave precise taxonomy, I define corporate restructuring as activities that involve reorganizing a company’s financial, operational, and/or legal structures. This includes but is not limited to debt restructurings, operational turnarounds, mergers, divestitures, bankruptcy proceedings, etc.

The term LMT/LME, in contrast, refers to “various corporate restructuring techniques like debt exchanges, maturity extensions, transferring assets to unrestricted subsidiaries (the J.Crew trapdoor), tender offers, covenant modifications aimed at optimizing a company’s capital structure, or otherwise negotiating directly with select creditor groups to improve a company’s debt profile, liquidity, or strategic flexibility.” (See what I did there? I quoted myself.) These techniques are typically considered aggressive and sometimes considered controversial.

So, I say the term, when used by corporate restructuring attorneys, is mostly a rebranding of certain techniques that they have long used.

So, How’s This an Amphibology?

If I were to stop here, then I’d have not made a good case that the term is amphiboly. But here’s the thing: I can’t stop. I won’t stop. And now I’ll raise the ante: not only are the dual terms LMT/LME amphibologies, but so is ‘corporate restructuring.’ [iii]

Take a step back: you know that expression, ‘when you’re a hammer, everything looks like a nail?’ Well, consider the following terms of art that mean one thing in one context and something quite different in another.

For example:

‘Equity’ means, in-

• Finance: Ownership value in an asset or company.
• Law: A system of rules that supplements strict legal rules and aims for fairness.
• Real Estate: The value of an owner’s interest in a property.

‘Discharge’ means, in-

• Medicine: The release of a patient from care.
• Law: The release from a legal obligation or debt (e.g., bankruptcy discharge).
• Military: A person leaving service, often honorably or dishonorably.

‘Draft’ means, in-

• Sports: A system for assigning new players to teams.
• Banking/Finance: A written, signed, and dated order for payment.
• Writing: A preliminary version of a document.

‘Attachment’ means, in-

• Law: Seizing a defendant’s property through court order.
• Psychology: The emotional bond between a child and caregiver.
• Email/Tech: A file sent along with an email.

See where I’m going?

The Duality of the Term ‘Corporate Restructuring’

The term is often used as a euphemism for layoffs. But if you spend all day, every day, dealing with financially distressed companies, then you know the term has a broader meaning, something like ‘efforts to reorganize a company’s obligations, typically because it is in financial distress.’

However, other professionals use the term more broadly to refer to any change in a company’s financial structure. Yet other professionals use the term even more broadly, including reorganizing a company’s operations.

So, what’s my point?

Liability Management Exercises Should be Performed Early & Often

Aside from noting a couple of obvious truisms, like that words matter and context matters, my point is that an ounce of prevention is worth a pound of cure.

Terms like ‘corporate restructuring,’ ‘liability management transactions,’ and ‘liability management exercises’ seldom are used in the literature to include engaging in longer-term strategic planning by a company when it is at its strongest (i.e., not only not distressed, but not even stressed) to restructure the legal organization/relationships among the various legal entities that comprise the corporate family (and/or their respective operations), to provide maximum protection to each of the legal entities in the event one of them comes under attack.

Quite to the contrary, corporate restructuring attorneys use LMEs/LTEs reactively to clean up messes. But wouldn’t it be better to engage in preventive medicine?

In other words, I’m advocating an ounce of protection (several ounces, really, performed regularly).

More specifically:

1. LMEs should begin before you start a company. These take the form of perfectly legal/ethical personal estate planning and asset protection actions that founders can take before they amass wealth, which, if taken after wealth has been accumulated, would be problematic if not forbidden.
2. LME’s should continue as a company’s operations grow. Examples include using separate legal entities (i.e., subsidiaries) to perform various functions and setting them up and running them in a manner that can isolate problems at one entity from impacting other members of the corporate family. In other words, if one’s toe gets infected beyond repair, one should not wait and let the infection spread to infect the rest of the body if there is a way to amputate it.
3. When a company borrows money, the lender commonly seeks intercompany guarantees, pledges of assets by affiliates, and even equity pledges. But none of these things are pre-ordained, and the specifics of each are undoubtedly subject to negotiations. After all, if they were not, many of the techniques commonly referred to as LMEs/LTEs could not be done, as many rely on negotiated holes in the legal documents for their very existence.
4. Further, not all financial crises are brought on by voluntarily incurred financial debt. Tort liability and unforeseen litigation, for example, can take down an otherwise healthy company. But the damage can be contained if that liability infects just a toe that can be amputated.
5. Insurance is another helpful tool that commonly does not get enough attention. Note, I didn’t say “does not get used.” Most companies have insurance, but most do not utilize the right professionals to review, advise, or negotiate it regularly. [iv]

Insurance coverage is the quintessential LME, yet it is like buying a pig in a poke if not properly scoped and tailored. [v] So much so that I all but insist that the companies for whom I serve as general counsel have my firm review their policies in toto every few years.

Engaging in proactive, front-end LMEs can reduce the need for reactive, emergency LMEs. Excluding the former from the definition is wrong because failing to engage in them is irresponsible.

Additional Reading About LMEs/LTEs

If you want a deeper dive into the sort of LMEs/LTEs represented by cases like AMC, Audax Credit Opportunities Offshore, Boardriders, Bombardier, Golden Nugget, J Crew, Murray Energy, Neiman Marcus, Mitel, PetSmart, Revlon, Serta, TPC Group, TriMark, and Wesco Aircraft, I commend the following:

• “Drafting Tips to Address Liability Management Transactions” by King & Spalding (2020)
• “Liability Management Exercises: A Transatlantic Perspective” by Akin (2023)
• “Spotlight: Liability Management Exercises” by Kirkland & Ellis (2023)
• “Uptier Transactions and Other Lender-on-Lender Violence: The Potential for More Litigation and Disputes on the Horizon” by Laura Davis Jones and Jonathan Kim (2023)
• “Liability Management Exercises: What They Are and What They Mean for Market Participants by Quinn Emanuel” by Rajat Prakash (2025)
• “Corporate Restructuring — Liability Management Transactions, Private Credit, and the Road Ahead” by Rajat Prakash (2025)

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Editors’ Note: This article is based on a similar one published in the LinkedIn Newsletter, “Opportunity Amidst Crisis,” on 5/1/25

© 2026 Much Shelist, P.C.

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Footnotes

[i] A few other fun ones: (1) You can’t get too much sun, (2) Flying planes can be dangerous, (3) They are hunting dogs, (4) The chicken is ready to eat.

[ii] Did you know that Leonard Nimoy hosted a TV documentary series from 1976 to 1982 called “In Search of…?”  It explored mysterious phenomena like extraterrestrials, myths, lost civilizations, and strange phenomena. And get this, Rod Serling was the original choice to host but he passed away before the show began production. And get this:  Zachary Quinto, who, like Nimoy, stars as Spock in the rebooted Star Trek films, hosted a reboot of the series.

[iii] I know, you think I’m bold. Sort of like the James Dean of restructuring, or dare I say, even more like this guy.

[iv] This is a mistake. For whatever reason, these tasks typically go to insurance brokers who are not usually attorneys and who, I think, are conflicted because the insurer often pays them for their work. Moreover, not all brokers are equally skilled at complex policy negotiations, endorsements, or claims advocacy. Specialized coverage lawyers or risk management consultants might sometimes be better suited for negotiating bespoke coverage terms.

[v] In case you like phraseology, this one comes from medieval times, when unscrupulous market sellers might try to trick buyers by selling them a ‘poke’ (a bag) that was supposed to contain a valuable pig, but actually contained something worthless, like a cat or a less valuable animal. If the buyer didn’t look inside the bag before buying, they’d get cheated.