Restructuring Investment Banking: What Makes It Different

What Is Restructuring Investment Banking?

Restructuring investment banking (RX) is a specialized practice focused on advising companies in financial distress and their stakeholders through complex situations involving over-leveraged balance sheets, liquidity crises, and potential bankruptcy. Unlike traditional M&A or capital markets advisory, restructuring bankers help companies navigate existential challenges where the stakes involve corporate survival rather than growth optimization.

The work centers on reorganizing capital structures to create viable businesses from distressed situations. This may involve negotiating with creditors to reduce debt burdens, raising new capital to provide liquidity, executing distressed asset sales, or guiding companies through formal bankruptcy proceedings. Restructuring bankers serve as financial advisors who help their clients (whether debtors or creditors) achieve the best possible outcome in difficult circumstances.

What makes restructuring fundamentally different from other banking roles is the adversarial nature of the work. In traditional M&A, buyer and seller work toward a mutually beneficial transaction. In restructuring, stakeholder interests often conflict directly: equity holders want to preserve their ownership, senior lenders want full repayment, junior creditors want to avoid being wiped out, and management wants to keep their jobs. Restructuring bankers navigate these conflicting interests while working toward solutions that allow the business to continue operating.

The field attracts professionals who thrive on complexity, enjoy the intellectual challenge of distressed situations, and can handle the pressure of working on transactions where companies and livelihoods hang in the balance.

Why Restructuring Exists as a Separate Practice

Restructuring requires specialized expertise that differs meaningfully from traditional investment banking skills.

Different Legal Framework

Restructuring transactions often occur within or adjacent to the bankruptcy process, governed by the U.S. Bankruptcy Code and complex case law. Understanding Chapter 11 procedures, creditor priorities, absolute priority rules, and court dynamics is essential. Traditional bankers rarely encounter these legal frameworks, while restructuring professionals must understand them deeply.

The bankruptcy process creates unique dynamics. The automatic stay halts collection actions. Debtor-in-possession financing provides critical liquidity. The creditors' committee represents unsecured creditor interests. Confirmation requires meeting specific legal tests. These procedural elements fundamentally shape restructuring advisory work.

Different Stakeholder Dynamics

Traditional M&A involves negotiation between buyer and seller toward mutual benefit. Restructuring involves multiple parties with conflicting interests:

Debtors (companies): Want to reduce debt burdens, maintain operations, and preserve equity value if possible.

Senior secured lenders: Want maximum recovery, often through taking control or forcing asset sales.

Junior creditors: Want to avoid being wiped out, often fighting for any recovery above zero.

Equity holders: Want to preserve their ownership stake, though they often receive nothing in deeply distressed situations.

Employees and other stakeholders: Want continued operations and job preservation.

Restructuring bankers must understand how each party's incentives affect negotiations and how to structure solutions that gain sufficient support to succeed.

Different Valuation Focus

Traditional valuation focuses on going-concern value and growth potential. Restructuring valuation often involves liquidation analysis comparing going-concern value to what creditors would receive if assets were sold piecemeal.

The "fulcrum security" analysis is central to restructuring: identifying which creditor class receives partial recovery and therefore controls the reorganization. Securities above the fulcrum receive full recovery; securities below receive nothing; the fulcrum security holders receive the residual equity in the reorganized company.

Understanding how value breaks across the capital structure requires analytical skills beyond traditional valuation methodologies.

Countercyclical Demand

Perhaps most distinctively, restructuring is countercyclical. When the economy weakens, credit tightens, and companies struggle, restructuring activity increases. When the economy strengthens and capital is abundant, restructuring slows.

This countercyclicality provides career diversification within investment banking. Restructuring bankers stay busy when M&A activity declines, offering protection against economic cycles that affect other banking roles.

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What Restructuring Bankers Actually Do

The day-to-day work in restructuring differs significantly from traditional coverage or M&A roles.

Debtor-Side Advisory

When advising companies in distress (debtor-side), restructuring bankers help evaluate options and execute transactions to address financial challenges.

Situation assessment: Analyzing the company's liquidity position, debt maturity schedule, covenant compliance, and operational performance to understand the severity of distress and available runway.

Stakeholder analysis: Mapping the capital structure, identifying who holds what claims, understanding creditor motivations, and assessing likely negotiating positions.

Option evaluation: Considering alternatives including operational turnarounds, liability management transactions, out-of-court restructurings, and Chapter 11 bankruptcy.

Restructuring support agreement negotiation: Working with major creditors to reach agreements on debt reduction, maturity extensions, or debt-for-equity conversions before any formal bankruptcy filing.

DIP financing: Arranging debtor-in-possession financing to provide liquidity during Chapter 11 proceedings.

Plan of reorganization: Developing and supporting confirmation of a restructuring plan that addresses the company's capital structure issues.

Distressed M&A: Executing sales of the company or its assets, either out of court or through Section 363 bankruptcy sales.

Creditor-Side Advisory

When advising creditors, restructuring bankers help lenders and bondholders protect and maximize their recoveries.

Recovery analysis: Estimating likely recoveries under various scenarios including operational turnaround, restructuring, and liquidation.

Negotiation strategy: Developing approaches to negotiations with the debtor and other creditor classes.

Ad hoc committee formation: Helping organize creditor groups to negotiate collectively with greater leverage.

Credit bid analysis: Evaluating whether creditors should credit bid their claims to acquire assets through bankruptcy sales.

Litigation support: Providing financial analysis supporting legal claims or defenses in bankruptcy proceedings.

New money investment: Advising on opportunities to provide rescue financing or invest in reorganized equity.

Liability Management Transactions

Increasingly, restructuring bankers execute liability management exercises (LMEs) that address debt problems outside formal bankruptcy. These transactions have grown significantly in recent years as companies and creditors seek to avoid bankruptcy costs and uncertainty.

Common LME structures include:

Exchange offers: Offering creditors new securities (often with better collateral or priority) in exchange for existing claims at a discount.

Uptier transactions: Moving certain creditors to a senior position in the capital structure, often at the expense of non-participating creditors.

Drop-down transactions: Transferring valuable assets to unrestricted subsidiaries beyond creditor reach.

Amend and extend: Negotiating extended maturities and modified terms with existing lenders.

These transactions often create tension between participating and non-participating creditors, leading to litigation and requiring careful legal and financial structuring.

Key Skills for Restructuring

Success in restructuring requires a specific skill set that overlaps with but differs from traditional banking.

Credit Analysis

Restructuring bankers must deeply understand credit and lending dynamics. This includes:

This credit focus contrasts with traditional banking's equity-oriented perspective. Understanding debt covenants is foundational knowledge for restructuring work.

Legal Knowledge

While not lawyers, restructuring bankers must understand relevant legal frameworks:

This legal literacy enables effective collaboration with restructuring counsel and informed advice to clients.

Negotiation and Interpersonal Skills

Restructuring involves intense multi-party negotiations where emotions run high. Bankers must:

These interpersonal skills matter more in restructuring than in some other banking roles because the adversarial dynamics require sophisticated stakeholder management.

Analytical Rigor Under Pressure

Restructuring situations often involve time pressure from liquidity constraints, covenant deadlines, or court schedules. Bankers must:

The combination of complexity and time pressure creates a demanding analytical environment.

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The Restructuring Market (2024-2025)

Understanding current market dynamics provides context for the restructuring landscape.

Elevated Default Activity

Default rates have remained elevated, with 2024 seeing approximately $84 billion of defaults across leveraged loan and high-yield bond markets, representing a default rate of roughly 3.1%. This level, while not crisis-level, exceeds the historical norm below 2% during non-recessionary periods.

The primary driver has been interest rate reset. Companies that incurred floating-rate debt when rates were near zero now face dramatically higher interest burdens as SOFR increased to approximately 5%. Many leveraged capital structures that appeared sustainable at 3-4% total interest rates become distressed at 9-11% rates.

Out-of-Court Restructuring Growth

A notable trend has been the growth of out-of-court restructurings relative to Chapter 11 filings. Since 2021, liability management transactions have captured an increasing share of default volume as companies and creditors seek to avoid bankruptcy costs, delays, and uncertainties.

These out-of-court transactions often involve aggressive tactics that have generated litigation. "Uptier" transactions that advantage participating creditors at the expense of non-participants have been particularly controversial, with courts providing mixed guidance on their permissibility.

Sector Concentration

Distress has concentrated in specific sectors:

Healthcare: Facing reimbursement pressures, labor cost inflation, and pandemic-related operational challenges.

Consumer discretionary: Dealing with changed consumer behavior, e-commerce competition, and inflation impacts on spending.

Industrials: Navigating supply chain challenges and demand uncertainty.

Real estate: Particularly office properties facing structural demand decline from remote work trends.

Distressed M&A Opportunities

Distressed M&A has become an increasingly important exit path for troubled companies. Private equity firms and strategic acquirers have shown willingness to acquire distressed assets, often at valuations reflecting the distressed circumstances but representing the best available outcome for creditors.

Section 363 sales through bankruptcy provide mechanisms for selling assets free and clear of liens and liabilities, making distressed assets more attractive to buyers despite the complexity.

Top Restructuring Banks

Restructuring practices exist within bulge bracket banks and as standalone advisory boutiques.

Elite Boutiques

Several boutiques have built dominant restructuring practices:

Houlihan Lokey: Consistently ranked as the leading restructuring advisor by number of transactions. Known for deep expertise across debtor and creditor mandates.

Lazard: Strong restructuring practice integrated with broader M&A capabilities. Active on large, complex situations.

PJT Partners: Built significant restructuring capability through experienced hires. Known for sophisticated creditor-side work.

Evercore: Restructuring practice complements broader M&A advisory. Active on both debtor and creditor mandates.

Moelis & Company: Selective restructuring practice focused on larger situations.

Bulge Bracket Restructuring Groups

Major banks maintain restructuring groups, though with different positioning:

Goldman Sachs, Morgan Stanley, JPMorgan: Maintain restructuring capabilities often integrated with leverage finance and principal investing activities. May face conflicts between advisory and investing roles.

Perella Weinberg Partners: Independent advisory with significant restructuring focus.

Centerview Partners: Selective restructuring work within broader M&A advisory.

Specialty Restructuring Firms

Smaller firms focus specifically on restructuring:

Ducera Partners: Founded by former Houlihan Lokey bankers with significant restructuring expertise.

Miller Buckfire (part of Stifel): Established restructuring boutique.

Alvarez & Marsal: Combines financial advisory with operational turnaround expertise.

Restructuring vs. Traditional IB: Key Differences

Understanding how restructuring differs from traditional banking helps candidates evaluate fit.

Work Content

Traditional M&A: Focus on growth, strategic positioning, synergy analysis, and value optimization. Clients are generally healthy companies pursuing opportunities.

Restructuring: Focus on liability management, creditor negotiations, and survival. Clients are companies or creditors dealing with distress.

Client Relationships

Traditional coverage: Long-term relationships with corporate clients who may transact repeatedly over years.

Restructuring: Episodic mandates when companies face distress. Relationships may be shorter but more intense.

Transaction Dynamics

Traditional M&A: Buyer and seller negotiating toward mutual benefit. Generally cooperative with shared goal of deal completion.

Restructuring: Multiple parties with conflicting interests. Adversarial negotiations where one party's gain may be another's loss.

Market Conditions

Traditional banking: Activity correlates positively with economic strength and capital availability.

Restructuring: Activity correlates negatively with economic strength. Busiest during downturns and credit stress.

Exit Opportunities

Both paths provide strong exit opportunities, though with different emphasis:

Traditional banking: Natural paths to private equity, corporate development, and hedge funds focused on growth investing.

Restructuring: Natural paths to distressed debt funds, credit-focused hedge funds, turnaround consultancies, and distressed private equity. For more on PE exits, see our guide on investment banking to corporate development.

Recruiting for Restructuring

Restructuring recruiting shares some characteristics with broader banking recruiting but has distinct elements.

What Firms Look For

Beyond standard banking qualifications, restructuring recruiters value:

Credit knowledge: Understanding of lending, credit analysis, and debt markets. Prior credit experience (rating agencies, leveraged finance) is valuable.

Legal interest: Comfort with legal concepts and frameworks, even without formal legal training.

Analytical depth: Ability to handle complex, ambiguous situations requiring nuanced analysis.

Interpersonal maturity: Poise to handle difficult situations involving company distress and stakeholder conflict.

Technical Interview Focus

Restructuring interviews include standard technical questions plus specialized topics:

Credit concepts: Understanding of debt covenants, lien priorities, and credit agreement terms.

Bankruptcy basics: Familiarity with Chapter 11 process, automatic stay, DIP financing, and plan confirmation.

Fulcrum security analysis: Ability to identify where value breaks in the capital structure.

Liquidation analysis: Comparing going-concern value to liquidation value.

Restructuring scenarios: Walking through how different restructuring approaches affect various stakeholders.

Behavioral Considerations

Restructuring interviews often explore:

Interest in distress: Why do you want to work on troubled situations rather than growth transactions?

Ethical dimensions: How do you think about working on situations that may result in job losses or creditor losses?

Stress tolerance: How do you handle pressure and ambiguity?

Intellectual curiosity about credit: Genuine interest in credit dynamics and distressed investing.

Common Interview Questions

"Why restructuring instead of traditional M&A?"

"I'm drawn to restructuring for several reasons. First, the intellectual complexity appeals to me. Restructuring involves understanding legal frameworks, multi-party negotiations, and capital structure dynamics beyond typical M&A analysis. Second, I find the stakeholder dynamics fascinating. Navigating conflicting interests to find solutions requires creative problem-solving and sophisticated negotiation. Third, restructuring offers countercyclical exposure within banking. Being busy during downturns provides career diversification. Finally, the exit opportunities into distressed investing and credit funds align with my long-term interests."

"Walk me through what happens in a Chapter 11 bankruptcy."

"Chapter 11 allows a company to reorganize while continuing operations. Upon filing, an automatic stay halts creditor collection actions, giving the company breathing room. The company continues operating as debtor-in-possession, typically with DIP financing providing new liquidity. A creditors' committee forms to represent unsecured creditor interests. The company develops a plan of reorganization addressing its capital structure, which requires creditor voting and court confirmation. If confirmed, the company emerges from bankruptcy with a restructured balance sheet. Key timing milestones include the exclusivity period for the debtor to propose plans, the disclosure statement approval, voting, and confirmation hearing. The process typically takes 6-18 months depending on complexity."

"What is a fulcrum security?"

"The fulcrum security is the class of claims that is partially impaired in a restructuring, receiving neither full recovery nor zero. In a capital structure analysis, we waterfall enterprise value through the priority stack. Senior claims above the fulcrum receive full recovery. Junior claims below the fulcrum receive nothing. The fulcrum security holders receive the residual value, typically in the form of equity in the reorganized company. Identifying the fulcrum matters because those holders effectively control the reorganization since they are the ones with economic interests at stake in negotiating terms. For example, if a company has $100 million of senior debt and$50 million of subordinated debt with $120 million of enterprise value, the senior debt is fully covered while the subordinated debt is the fulcrum, receiving$20 million of value or 40 cents on the dollar."

"What is DIP financing and why is it important?"

"DIP financing, or debtor-in-possession financing, is new money provided to companies in Chapter 11 bankruptcy to fund operations during the restructuring process. It is critically important because distressed companies typically have exhausted other financing sources. DIP financing receives administrative priority, meaning it gets repaid before pre-petition claims, and often receives priming liens that sit ahead of existing secured debt. This super-priority status makes DIP lending attractive despite the borrower being in bankruptcy. Without DIP financing, many companies could not continue operations long enough to execute a successful restructuring and would be forced into liquidation, destroying going-concern value."

Key Takeaways

Conclusion

Restructuring investment banking offers a distinctive career path within the broader investment banking landscape. The work requires specialized skills, involves fundamentally different dynamics than traditional M&A, and provides countercyclical exposure that complements other banking roles.

For candidates genuinely interested in credit, distressed investing, and complex multi-party situations, restructuring provides intellectually challenging work with strong exit opportunities into credit-focused investment roles. The combination of financial analysis, legal frameworks, and high-stakes negotiation creates a demanding but rewarding environment.

As you evaluate whether restructuring fits your interests and career goals, consider whether the specific characteristics of the work appeal to you. The adversarial dynamics, legal complexity, and focus on distress rather than growth suit certain personalities better than others. But for those who find these elements compelling, restructuring offers one of the most intellectually engaging paths within investment banking.

Understanding restructuring also strengthens your broader banking knowledge regardless of specialty. The credit analysis, capital structure dynamics, and stakeholder considerations central to restructuring appear throughout leveraged finance and private equity contexts, making this knowledge valuable even outside dedicated restructuring roles.