Cross-Border Restructuring:
A U.S. Liability Management Tool?
September 2026
The recent high-profile victory for the excluded lenders in Serta, shows that liability management exercises (LMEs) and their resulting litigation remain prevalent and, in some cases, a significant risk for borrowers in the U.S.
Running in parallel is the growth of “strategic cross-border restructuring” arrangements, which leverage Chapter 15 recognition of foreign insolvency proceedings. Instead of filing for Chapter 11 in the U.S., a debtor establishes jurisdiction in a foreign venue, restructures under that venue’s law, and then seeks Chapter 15 recognition in the U.S. The July 2026 New Fortress Energy recognition of a U.S. parent company’s UK restructuring process seemingly affirmed that strategic cross-border restructuring is here to stay.
When considering these developments together, a borrower considering an LME transaction in the U.S. might well ask whether a strategic cross-border restructuring constitutes a more attractive, lower-risk restructuring alternative. Recent case law suggests that this can be true in the proper context, but borrowers should appreciate that strategic cross-border restructurings remain bespoke tools rather than fast-track solutions for balance sheet problems.
LMEs Still Account for Most U.S. Leveraged-Loan Defaults
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Source: PitchBook | LCD; Morningstar LSTA US Leveraged Loan Index.
When considering these developments together, a borrower considering an LME transaction in the U.S. might well ask whether a strategic cross-border restructuring constitutes a more attractive, lower-risk restructuring alternative. Recent case law suggests that this can be true in the proper context, but borrowers should appreciate that strategic cross-border restructurings remain bespoke tools rather than fast-track solutions for balance sheet problems.
LMEs Still Account for Most U.S. Leveraged-Loan Defaults
Click to find out more
Source: PitchBook | LCD; Morningstar LSTA US Leveraged Loan Index.
Liability Management Litigation in the U.S.
The current liability management environment is defined by document tightening, heightened judicial scrutiny, and tail-end litigation risks. The recent flurry of LME disputes has also contributed to a distancing from earlier, more “aggressive” LME tactics and toward more consensual transactions.
Several high-profile cases highlight the uncertainty and exposures inherent in LME litigation. The most well-known is the multiyear saga resulting from Serta Simmons’ 2020 uptier transaction. In 2022, excluded minority lenders challenged the uptier as violating an underlying credit agreement. The case was eventually rolled into Serta’s 2023 Chapter 11 in the Bankruptcy Court for the Southern District of Texas, which held that the credit agreement permitted the uptier, under the so-called “open market purchase” exception1. The excluded lenders appealed this decision to the U.S. Court of Appeals for the 5th Circuit, which held in December 2024 that the “open market purchase” language had in fact not permitted the uptier2.
In July 2026, over four years after the dispute began, Serta again took center stage. The bankruptcy court, on remand, held that the uptier had also violated the credit agreement’s pro rata sharing clause, seemingly cutting off the last avenue for justifying the transaction. The court awarded the excluded lenders $261.13 million in damages3.
Serta is no mere outlier when it comes to the turnabouts of appellate review. In December 2025, the U.S. District Court for the Southern District of Texas in Wesco/Incora overruled a bankruptcy court’s previous rejection of a non-pro rata uptier like that in Serta4. The district court’s decision remains subject to a 5th Circuit appeal over three years after Wesco/Incora’s Chapter 11 filing. In other major U.S. bankruptcy jurisdictions, LME litigation outcomes are also unpredictable. The New York First Appellate Division upheld an aggressive LME in its December 2024 Mitel ruling, while the lower New York Supreme Court recently rejected a motion to dismiss claims against a seemingly similar dropdown in STG Logistics in January 20265.
The Serta Uptier
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The Serta Uptier
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One theme in LME litigation is becoming clear: courts often are loath to look beyond the four corners of a contract to determine the validity of a transaction. For example, the Serta court’s July 2026 decision expressed little sympathy for ambiguities surrounding the contested scope of cash payments under the credit agreement, holding that “the parties knew when and how to include Cash when they wanted to. And they didn’t do it.”
In response, borrowers and lenders are increasingly turning to so-called “consensual” LME alternatives. These generally involve creditors forming groups under cooperation agreements and then negotiating an advantageous restructuring transaction, often by amending debt documents. The prevalence of consensual LMEs is exemplified by the growth of cooperation agreements, with 15 signed in just the first three months of 20266.
LME Transactions Involving Uptiers,
Drop-Downs or Pari-Plus Debt
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Source: Octus
These consensual transactions are, however, not a catch-all for LME success. They can require widespread creditor participation to reach document amendment thresholds. Consensual deals also do not necessarily imply pro rata treatment, and many cooperation agreements provide preferred creditors with significant economic upsides not enjoyed by others. Some lenders have also formed so-called “defensive” cooperation agreements that seek to limit borrower control over LME terms7.
One theme in LME litigation is becoming clear: courts often are loath to look beyond the four corners of a contract to determine the validity of a transaction. For example, the Serta court’s July 2026 decision expressed little sympathy for ambiguities surrounding the contested scope of cash payments under the credit agreement, holding that “the parties knew when and how to include Cash when they wanted to. And they didn’t do it.”
In response, borrowers and lenders are increasingly turning to so-called “consensual” LME alternatives. These generally involve creditors forming groups under cooperation agreements and then negotiating an advantageous restructuring transaction, often by amending debt documents. The prevalence of consensual LMEs is exemplified by the growth of cooperation agreements, with 15 signed in just the first three months of 20266.
LME Transactions Involving Uptiers,
Drop-Downs or Pari-Plus Debt
Click to find out more
Source: Octus
These consensual transactions are, however, not a catch-all for LME success. They can require widespread creditor participation to reach document amendment thresholds. Consensual deals also do not necessarily imply pro rata treatment, and many cooperation agreements provide preferred creditors with significant economic upsides not enjoyed by others. Some lenders have also formed so-called “defensive” cooperation agreements that seek to limit borrower control over LME terms7.
The Growth of Strategic Cross-Border Restructurings
Historically, developments in U.S. liability management had little relation to Chapter 15 recognition. However, a series of Chapter 15 cases have demonstrated the ability of companies to avail themselves of advantageous foreign insolvency regimes (even when they were not previously present in that country). These strategic cross-border restructuring decisions point to what could begin to look like judicially sanctioned liability management mechanisms.
Mega Newco
Strategic cross-border restructurings were pioneered by the Mexican entity Mega in 2025, which restructured its New York law-governed debt under a UK scheme of arrangement by creating a UK entity (Mega Newco Ltd.), adding the new entity as a guarantor of that debt, and completing a UK restructuring. Mega then sought recognition of the scheme in the U.S. through a Chapter 15 filing.
In the resulting Mega Newco Chapter 15 case, Judge Wiles of the Bankruptcy Court for the Southern District of New York recognized Mega Newco’s scheme as a foreign main proceeding that met the requisite center of main interests (COMI) test, permitting Mega to enforce the scheme as against its U.S. creditors and assets8. Judge Wiles attributed the Chapter 15 recognition both to a lack of “contrary evidence” and to the fact that the scheme involved no “frustration or thwarting of creditor rights9.” The court did, however, warn that “[i]f there were an actual contention or evidence that the structure at issue here had been used in an unfair way,” there would be “serious questions” about recognition and questions of forum shopping10.
Mega Newco
Strategic cross-border restructurings were pioneered by the Mexican entity Mega in 2025, which restructured its New York law-governed debt under a UK scheme of arrangement by creating a UK entity (Mega Newco Ltd.), adding the new entity as a guarantor of that debt, and completing a UK restructuring. Mega then sought recognition of the scheme in the U.S. through a Chapter 15 filing.
In the resulting Mega Newco Chapter 15 case, Judge Wiles of the Bankruptcy Court for the Southern District of New York recognized Mega Newco’s scheme as a foreign main proceeding that met the requisite center of main interests (COMI) test, permitting Mega to enforce the scheme as against its U.S. creditors and assets8. Judge Wiles attributed the Chapter 15 recognition both to a lack of “contrary evidence” and to the fact that the scheme involved no “frustration or thwarting of creditor rights9.” The court did, however, warn that “[i]f there were an actual contention or evidence that the structure at issue here had been used in an unfair way,” there would be “serious questions” about recognition and questions of forum shopping10.
Fossil Group
Despite the hesitancy expressed by Judge Wiles in Mega Newco, debtors took the strategic cross-border restructuring playbook one step further by restructuring a U.S. entity in the 2025 Fossil case. Fossil Group is a Texas-based watch producer that sought to restructure $150 million of its New York law-governed unsecured notes using a “stapled” exchange process that relied on access to a foreign insolvency regime. First, Fossil provided noteholders the chance to participate in an out-of-court exchange where the unsecured notes were exchanged into first-lien notes in return for providing new money funding. This exchange was “stapled” to a UK scheme out of a concern that Fossil could not rally the requisite voter thresholds under its indenture to approve an out-of-court transaction. Fossil therefore set a 90% participation requirement for the exchange and indicated that it would pursue a scheme if the threshold was not reached.
With participation below 90% by September 2025, Fossil changed the governing law of its unsecured notes to UK law (with majority consent), and a newly created UK subsidiary then guaranteed the notes. Fossil sought approval of a scheme with terms similar to the original exchange, which was almost unanimously approved by the roughly 83% of creditors present. The Bankruptcy Court for the Southern District of Texas subsequently recognized the scheme in a Chapter 15 proceeding11.
Although the bankruptcy court in Fossil remained silent on its rationale for granting Chapter 15 recognition, Fossil had previously filed an expert witness report by a retired U.S. bankruptcy judge as part of its UK scheme process. This report argued in favor of recognition because Fossil’s actions constituted “good forum shopping,” which occurs when (1) creditors are no worse off under the foreign restructuring plan than under Chapter 11, and (2) the foreign restructuring is more efficient than Chapter 1112. The report also acknowledged the Mega Newco court’s concerns about foreign forum shopping, but disregarded these as “musings of the court” that “turned out to be of no consequence13.”
New Fortress Energy
The July 2026 Chapter 15 recognition of New York-based New Fortress Energy (NFE) apparently affirms that the trend of strategic cross-border restructuring of U.S. entities is here to stay. NFE had previously attempted to resolve liquidity issues via a refinancing exchange in November 2024, but the company again faced cash flow problems. In March 2026, it entered into a restructuring agreement with 97% of its creditors holding approximately $5.7 billion of the company’s debt. NFE then incorporated two UK entities that guaranteed the debt, which included New York law-governed notes and term loans.
New Fortress Energy
The July 2026 Chapter 15 recognition of New York-based New Fortress Energy (NFE) apparently affirms that the trend of strategic cross-border restructuring of U.S. entities is here to stay. NFE had previously attempted to resolve liquidity issues via a refinancing exchange in November 2024, but the company again faced cash flow problems. In March 2026, it entered into a restructuring agreement with 97% of its creditors holding approximately $5.7 billion of the company’s debt. NFE then incorporated two UK entities that guaranteed the debt, which included New York law-governed notes and term loans.
The UK entities next commenced two scheme proceedings with proposals that jointly reduced NFE’s debts from $5.7 billion to less than $1 billion. Out of the seven creditor classes restructured across both schemes, six provided unanimous support for the restructuring, and the seventh approved with 99.84% consent. On July 14, 2026, the Bankruptcy Court for the Southern District of New York recognized both schemes without objection14.
However, in a departure from the silent recognition provided in Fossil, the bankruptcy court in New Fortress Energy articulated a set of “cautionary principles” for considering instances of “bankruptcy tourism” subject to “COMI manipulation”15. The court’s assessment cited the warnings in Mega Newco favorably and emphasized the importance of ensuring that creditors are “sufficiently protected” and “treated fairly” under a foreign insolvency plan16.
The UK entities next commenced two scheme proceedings with proposals that jointly reduced NFE’s debts from $5.7 billion to less than $1 billion. Out of the seven creditor classes restructured across both schemes, six provided unanimous support for the restructuring, and the seventh approved with 99.84% consent. On July 14, 2026, the Bankruptcy Court for the Southern District of New York recognized both schemes without objection14.
However, in a departure from the silent recognition provided in Fossil, the bankruptcy court in New Fortress Energy articulated a set of “cautionary principles” for considering instances of “bankruptcy tourism” subject to “COMI manipulation”15. The court’s assessment cited the warnings in Mega Newco favorably and emphasized the importance of ensuring that creditors are “sufficiently protected” and “treated fairly” under a foreign insolvency plan16.
The “In-Court” Liability Management Exercise
If strategic cross-border restructurings provide a bridge for U.S. borrowers to foreign insolvency jurisdiction, the natural follow-up question is “Why would a borrower use a foreign restructuring regime when it could achieve the same results via a domestic LME?”
Stuck in the Middle
Imagine a borrower is facing a liquidity crisis but its business is fundamentally sound. It likely is not interested in the operational reorganization enabled by a Chapter 11 case, and even a prepackaged case may feel daunting from a time and cost perspective, so it is weighing an out-of-court liability management exercise.
The borrower first considers a consensual LME, encouraging a majority of holders to generate the critical mass needed to amend its debt documents. However, the transaction stalls for one of several reasons. Perhaps the cooperating lenders, even though forming a simple majority, cannot reach the voting thresholds required to make crucial amendments to the debt documents. Or maybe the lenders cannot coordinate, due to unavailability, jurisdictional restrictions, indecisiveness, or complex intercreditor dynamics.
The borrower is also aware that even a consensual LME can be threatened with litigation by a well-funded group of minority lenders, who, even if they may not have ironclad document-based arguments, could see litigation as a leverage tool to increase their position in the LME.
The borrower, in need of financial liquidity and unable to risk such long-running disputes, turns to the idea of a more aggressive non-pro rata liability transaction. However, the increased focus on tight document drafting and the introduction of blockers by creditors makes such a restructuring under the debt documents unworkable. Even if an aggressive LME were possible by contract, the borrower has read Serta and is concerned about the litigation risks from any “creative” document reading.
The Road Less Traveled
The above situation reveals a conflict in the borrower’s needs: a demand for the speed and surgical refinancing of an out-of-court LME, but also a desire for the judicial blessing provided in a Chapter 11 process. A strategic cross-border restructuring may provide both.
Consider first the benefits of select foreign insolvency regimes when compared with Chapter 11. For example, the UK scheme of arrangement is widely recognized for its flexibility and speed as a restructuring tool. A scheme is generally unburdened by the administrative and reporting requirements in a Chapter 11, resulting in the speed that is crucial for any “in-court” LME strategy. Fossil Group and New Fortress Energy, for example, took only about two months to complete their UK proceedings.
The structural parameters of a scheme are similarly LME-friendly. Unlike a Chapter 11 plan, a scheme proposal does not require absolute priority treatment for creditors, allowing a debtor to more easily differentiate treatment between creditor classes in a manner akin to the terms offered in an LME. A scheme also permits cross-class cramdowns if 75% of creditors by holdings approve without any numerosity requirement. This again operates similarly to an LME, allowing debtors to coordinate with a group of large holders to reach consent thresholds without needing to marshal or sway dispersed small holders. Perhaps most important, a scheme allows the debtor to restructure only a portion of its debt rather than its entire balance sheet, permitting targeted creditor treatment that is ideal for strategic financial restructurings.
Executing an “in-court” LME by strategic cross-border restructuring has two further benefits. First, most foreign courts, much like U.S. bankruptcy courts, can provide judicial approval for restructuring terms that would otherwise fall beyond the scope of debt documents. Second, both a foreign court’s confirmation and U.S. court’s Chapter 15 recognition imbue validity to a restructuring that might otherwise be subject to litigation. While an “in-court” LME does not eliminate the risk of creditor opposition, it meaningfully shifts the court’s review from the contestable “does the transaction comply with the underlying debt documents?” to the more well-trodden “does the plan comply with approval/recognition requirements and applicable law?”
The Road Less Traveled
The above situation reveals a conflict in the borrower’s needs: a demand for the speed and surgical refinancing of an out-of-court LME, but also a desire for the judicial blessing provided in a Chapter 11 process. A strategic cross-border restructuring may provide both.
Consider first the benefits of select foreign insolvency regimes when compared with Chapter 11. For example, the UK scheme of arrangement is widely recognized for its flexibility and speed as a restructuring tool. A scheme is generally unburdened by the administrative and reporting requirements in a Chapter 11, resulting in the speed that is crucial for any “in-court” LME strategy. Fossil Group and New Fortress Energy, for example, took only about two months to complete their UK proceedings.
The structural parameters of a scheme are similarly LME-friendly. Unlike a Chapter 11 plan, a scheme proposal does not require absolute priority treatment for creditors, allowing a debtor to more easily differentiate treatment between creditor classes in a manner akin to the terms offered in an LME. A scheme also permits cross-class cramdowns if 75% of creditors by holdings approve without any numerosity requirement. This again operates similarly to an LME, allowing debtors to coordinate with a group of large holders to reach consent thresholds without needing to marshal or sway dispersed small holders. Perhaps most important, a scheme allows the debtor to restructure only a portion of its debt rather than its entire balance sheet, permitting targeted creditor treatment that is ideal for strategic financial restructurings.
Executing an “in-court” LME by strategic cross-border restructuring has two further benefits. First, most foreign courts, much like U.S. bankruptcy courts, can provide judicial approval for restructuring terms that would otherwise fall beyond the scope of debt documents. Second, both a foreign court’s confirmation and U.S. court’s Chapter 15 recognition imbue validity to a restructuring that might otherwise be subject to litigation. While an “in-court” LME does not eliminate the risk of creditor opposition, it meaningfully shifts the court’s review from the contestable “does the transaction comply with the underlying debt documents?” to the more well-trodden “does the plan comply with approval/recognition requirements and applicable law?”
No Silver Bullets
Despite the potential use value of strategic cross-border restructurings as an alternative to liability management transactions, they are no catch-all.
The clearest limitation of strategic restructurings as an LME tool is the view of some courts, as shown above, that the foreign restructuring plan must be widely approved by creditors and constitute “good forum shopping” in order to achieve Chapter 15 recognition. Although a showing of creditor “fairness” was relatively easy to achieve in the near-unanimous consent contexts of Mega Newco, Fossil, and NFE, many LMEs could fall significantly short of that requirement. Liability management is often a contentious environment as between parties. U.S. bankruptcy courts have yet to sanction Chapter 15 recognition of a strategic cross-border restructuring involving a plan that faced material creditor opposition.
In addition, strategic cross-border restructurings should also not be conflated with providing the complete suite of structural benefits available in Chapter 11. A Chapter 11 bankruptcy has the almost unique capacity to provide a venue for the operational overhaul of a debtor. Though this is of limited use to a borrower who only needs short-term liquidity, the judicial approval provided in some foreign insolvency regimes can do little more than a liability management transaction to resolve structural problems.
Recent case law indicates the potential for strategic cross-border restructurings as a tool to achieve liability management objectives. Attempting to approve more aggressive LME tactics through that process remains untested and will be more challenging, but foreign restructuring mechanisms will likely play an increasingly important role for borrowers in distressed situations, including those in the U.S.
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