As interest rates continue to rise, many financially distressed companies are looking to restructure their debt without losing the more favorable terms on outstanding legacy loans. Bankrupt companies, through a process allowed under Chapter 11 proceedings, may be able to keep original loan terms if they can meet certain conditions, including catching up on missed payments.
Explaining the rationale behind this strategy, partner Kurt Mayr told The Wall Street Journal, “It’s like a person with a 3% mortgage who is having financial problems. You’d rather keep the 3% than go out and pay 7%.” Kurt shared that “bankruptcy watchers say firms in commercial real estate in particular are expected to try to reinstate debt as refinancing becomes more difficult and expensive for the stressed sector. Real estate borrowers also typically involve fewer lenders, and the owners may hope to keep the property by turning to reinstatement as a tactic against the secured lender.”