The Complete Restructuring Investment Banking Guide

Understanding The Complete Restructuring Investment Banking Guide: A Complete Overview

Restructuring investment banking is the practice that helps companies in financial distress, and the creditors who lent to them, navigate the choices between out-of-court workouts, liability management transactions, Chapter 11 reorganizations, and distressed sales. It is one of the most technical, legally intricate, and counter-cyclically essential disciplines in finance: when capital markets close and defaults rise, restructuring desks become the busiest groups on Wall Street. 2025 made that point clearly. Total commercial Chapter 11 filings reached 7,940 for the year, the highest count in a decade, with named cases like First Brands, Rite Aid, Forever 21, and Joann reshaping their respective sectors. Liability management transactions continued to dominate the out-of-court playbook even as the December 2024 Fifth Circuit ruling in Serta Simmons reset the rules of the game.

Unlike most other coverage groups, restructuring is a single-domain practice that spans every industry. An RX banker at PJT, Houlihan Lokey, Evercore, Lazard, or Moelis works on retail bankruptcies one quarter and pharmaceutical distress the next, applying the same technical toolkit (the 13-week cash flow model, recovery waterfalls, fulcrum security analysis, plan-of-reorganization mechanics) across vastly different fact patterns. The discipline rewards depth in a way few other groups do, which is why elite boutiques rather than bulge brackets dominate the league tables.

This guide covers everything restructuring bankers actually do, from diagnosing distress and choosing between out-of-court and in-court paths through the full Chapter 11 lifecycle, the LMT toolkit, distressed M&A under Section 363, distressed valuation methodology, the 2025 market backdrop, and the careers and interviews that get candidates into this seat. Every article is written from the perspective of the IBD restructuring banker, with bankruptcy lawyers, turnaround consultants, and distressed credit funds treated as essential context and counterparties rather than as the focus of the work.

Restructuring is structurally different from M&A coverage in ways that shape every aspect of how a desk is built. The most consequential of these differences is the wall between debtor-side and creditor-side advisors, a wall that determines workstreams, fee structures, the analytical work product, and the bank's reputation in the market.

Debtor-Side and Creditor-Side: Two Different Mandates

In a typical restructuring engagement, the company hires one investment bank as its debtor-side advisor, and a creditor group (usually an ad-hoc committee of bondholders or term loan lenders) hires a different bank as its creditor-side advisor. Each side runs its own workstream. Debtor-side work is more process-heavy: diagnosing distress, building the operating model and 13-week cash flow, designing the proposed restructuring, marketing it to creditors, and shepherding the company through court if it files. Creditor-side work is more diligence-heavy: stress-testing the company's projections, building independent recovery analyses, negotiating treatment, and (if the deal goes adversarial) developing arguments to challenge the debtor's plan. The two seats require different skills, attract different bankers, and pay different fee structures, with debtor-side typically commanding larger flat fees.

The Major RX Firms

The restructuring league tables look nothing like M&A. Bulge brackets effectively withdrew from in-court restructuring after the financial crisis, leaving the field to a small group of specialized firms. Tier 1 is PJT Partners, Houlihan Lokey, and Evercore. Tier 2 is Lazard and Moelis, just behind. Guggenheim and Perella Weinberg sit in Tier 3 alongside Rothschild. Houlihan Lokey leads on volume (88 global distressed debt and bankruptcy advisory deals in 2024, nearly 50% more than the next-largest competitor) and dominates the creditor-side advisory market. PJT leads on debtor-side flagship cases. Evercore has built a balanced practice known for sponsor-restructuring work. Each firm cultivates its own deal mix and reputation, and candidates targeting RX recruit firm-by-firm rather than at the platform level.

The RX Ecosystem

Restructuring bankers do not work in isolation. The standard distressed engagement involves the debtor's RX banker working alongside bankruptcy counsel (Kirkland & Ellis, Weil Gotshal, Davis Polk, Latham & Watkins are the dominant firms) and a turnaround/operational consultant (Alvarez & Marsal, AlixPartners, FTI Consulting, Riveron). On the other side, creditor groups hire their own RX banker, their own bankruptcy counsel (Akin Gump, Paul Weiss, Stroock, Milbank are common), and often their own financial advisors. Distressed credit funds (Apollo, Oaktree, Centerbridge, Anchorage, GoldenTree, Silver Point, Elliott) sit on the other side of the table, often holding the fulcrum security and driving the recovery negotiation. Understanding the ecosystem matters because every action a restructuring banker takes is filtered through coordination with these counterparties.

Restructuring engagements begin with diagnosis. Before any structural decision can be made, the company and its advisors need to understand exactly how bad the situation is, how much runway exists, and which restructuring paths are viable. This work typically takes weeks and produces specific deliverables that drive the rest of the engagement.

When Companies Need Restructuring

Most restructuring engagements are triggered by one of four catalysts: a covenant breach (the company has tripped a financial maintenance ratio in its credit agreement), a maturity wall (large debt principal coming due with no obvious refinancing path), a liquidity crisis (cash runway is measured in weeks, not quarters), or operating distress (revenue or margin deterioration that makes the existing capital structure unsustainable). Each trigger calls for different urgency. A covenant breach can sometimes be cured with an amendment fee. A maturity wall requires months of refinancing or restructuring planning. A liquidity crisis can force a Chapter 11 filing within days. The diagnostic phase exists to determine which trigger the company is actually facing and how much runway remains.

The 13-Week Cash Flow as the Workhorse

The single most important model in restructuring is the 13-week cash flow forecast (TWCF). The TWCF is a near-term, weekly direct-method cash flow forecast that tracks expected receipts and disbursements line by line, giving advisors and stakeholders visibility into the company's liquidity trajectory. It serves multiple purposes: showing whether the company can survive a particular timeline, identifying when the cash will run out, demonstrating to potential DIP lenders that the company can service post-petition obligations, and forming the operational benchmark against which the restructuring is run. A 2024 industry survey by Proskauer found that 46% of major restructurings explicitly required delivery of a 13-week forecast as a covenant condition.

13-Week Cash Flow (TWCF)

A weekly direct-method cash flow forecast spanning roughly the next quarter, used in distressed situations to track liquidity, support DIP financing requests, and serve as the operational benchmark for the restructuring. The TWCF differs from a typical financial forecast because it is built bottom-up from actual expected payments and receipts (vendor payments, customer collections, payroll, interest, professional fees) rather than derived from accounting projections.

Out-of-Court vs Chapter 11 vs Sale

Once the diagnosis is complete, the restructuring banker faces the central strategic decision: should the company attempt an out-of-court restructuring, file Chapter 11, or pursue a sale? Out-of-court is preferred when there is time and liquidity, when the capital structure is concentrated enough that creditor consent is achievable, and when the company has reasons to avoid the cost and stigma of bankruptcy. Direct costs of Chapter 11 average roughly 6.5% of total assets, and cases typically run more than two years. Chapter 11 becomes preferable when the capital structure is too dispersed for consent (publicly traded bonds with thousands of holders), when non-financial liabilities (mass torts, environmental, pension) need to be addressed through court-supervised mechanisms, or when the company needs the automatic stay to halt litigation or contract terminations. A sale (in or out of court) becomes the answer when the company has no viable standalone restructuring path and value is best captured through transfer of assets to a stronger owner.

Most restructurings begin with out-of-court tools and many end there. The shift over 2020-2025 toward liability management transactions (LMTs) reshaped what "out of court" actually means, and the December 2024 Serta Simmons Fifth Circuit ruling reset the rules going forward.

The Out-of-Court Toolkit

The traditional out-of-court toolkit covers a spectrum of escalating intensity. The lightest touches are amendments and waivers, where the borrower negotiates targeted relief from specific covenants in exchange for a fee or other consideration. Forbearance agreements come next: the lender contractually agrees not to enforce a default for a specified period in exchange for additional borrower obligations. Consent solicitations let issuers amend public bond indentures by obtaining the required-holder vote, useful for relaxing covenants or expanding debt capacity. Distressed exchange offers (DEOs) let companies replace existing debt with new debt or equity at a discount, captured outside of bankruptcy. Debt-for-equity swaps in extreme cases convert lender claims into ownership of the company, typically at the cost of significant or complete shareholder dilution.

Liability Management Transactions

LMTs took over the out-of-court conversation starting around 2020. Two structures dominate: uptier exchanges and drop-down financings. In an uptier, the borrower partners with a majority creditor coalition to amend the credit agreement and issue new senior-secured debt that effectively primes the existing first-lien debt held by non-participating lenders. Participating creditors typically receive better treatment, while excluded creditors are subordinated. In a drop-down (the J.Crew "trapdoor"), the borrower transfers valuable assets to an unrestricted subsidiary outside the lender collateral pool, then uses those assets to raise new debt outside the existing lender group. The double-dip variant goes a step further: a financing subsidiary borrows new money guaranteed by the existing credit group, giving the new lenders both a direct claim against the financing sub and an indirect claim through the guarantee, "double-dipping" in any future bankruptcy waterfall.

Liability Management Transaction (LMT)

A non-pro-rata transaction in which a distressed borrower works with a majority creditor coalition to issue new debt that effectively primes or exits the collateral position of non-participating creditors. The two principal structures are uptier exchanges (where new senior debt primes existing first-lien debt held by excluded creditors) and drop-down financings (where collateral is moved outside the credit group via unrestricted subsidiaries). LMTs became the dominant out-of-court restructuring tool from 2020 through 2025.

The Serta Ruling and Its Aftermath

In December 2024, the U.S. Court of Appeals for the Fifth Circuit reversed the 2023 bankruptcy court confirmation of Serta Simmons's Chapter 11 plan, ruling that the 2020 uptier exchange did not constitute an "open market purchase" as defined in the credit agreement. The decision reset the legal foundation for non-pro-rata uptiers. Borrowers and lenders are now drafting around the ruling: post-Serta LMTs increasingly include broad creditor participation options to avoid the "non-pro-rata" challenge, and credit agreements are being amended to include explicit anti-LMT provisions ("Serta blockers" and "J.Crew blockers"). On the creditor side, cooperation agreements have surged in popularity. These agreements bind groups of creditors to act collectively, holding sufficient blocking stakes that no LMT can be implemented without their consent. The 2024-2025 LMT tape reflects this shift toward more consensual structures, even as deal volume continues to set records.

When out-of-court paths fail or are not viable, companies file for Chapter 11 reorganization under the U.S. Bankruptcy Code. Chapter 11 is the world's most developed corporate reorganization regime and the centerpiece of the restructuring banker's toolkit.

Pre-Filing Through Petition: RSAs, DIPs, First-Day Motions

Most modern Chapter 11 cases are not "free-fall" filings. The strongest cases enter court with a pre-negotiated restructuring support agreement (RSA) signed by major creditor classes, a committed debtor-in-possession (DIP) financing facility ready for first-day approval, and a tightly drafted plan that can be confirmed within months rather than years. The RSA captures the deal terms that all major stakeholders have agreed to support, providing a roadmap from filing to emergence. The DIP financing keeps the lights on through the case, funding ongoing operations and professional fees. First-day motions, filed simultaneously with the petition, ask the court for emergency relief on critical issues: continuing employee wages, paying critical vendors, maintaining bank accounts, using cash collateral, and approving DIP financing on an interim basis. The first-day hearing typically happens within 24 to 48 hours of the filing.

Debtor-in-Possession (DIP) Financing

Post-petition financing extended to a Chapter 11 debtor that allows the company to continue operating during bankruptcy. DIP loans typically include superpriority administrative expense status (paid before all other unsecured claims) and priming liens (which sit senior to pre-petition liens on the same collateral) granted by the bankruptcy court. DIP financing is approved by the court at a first-day hearing on an interim basis and a final hearing typically held within 30 to 45 days.

The Plan, the Vote, and the Cramdown

Chapter 11 culminates in the confirmation of a Plan of Reorganization (POR). The plan classifies all claims and equity interests into separate classes (secured creditors, general unsecured creditors, subordinated bondholders, equity holders) and specifies how each class will be treated post-confirmation. The disclosure statement, approved by the court before voting begins, gives creditors the "adequate information" they need to vote. A class is deemed to accept the plan if more than half in number and at least two-thirds in dollar amount of the voting claims approve. Even if a class votes against the plan, the court can still confirm under the cramdown provisions of Section 1129(b), provided the plan is "fair and equitable" and does not "discriminate unfairly." The fair-and-equitable standard incorporates the absolute priority rule: junior classes cannot retain value while senior classes are not paid in full, with limited exceptions like the "new value" doctrine.

Cramdown

The bankruptcy court's confirmation of a Chapter 11 plan over the dissent of one or more classes of creditors. To cram down a plan, the proponent must show that the plan is "fair and equitable" with respect to each non-accepting class, which for unsecured classes means satisfying the absolute priority rule (no junior class retains value if a senior class is impaired). Cramdown is the mechanism that prevents a small holdout class from blocking an otherwise consensual plan.

Emergence and Fresh Start

Once the plan is confirmed and the conditions to effectiveness are satisfied, the reorganized company emerges from bankruptcy. Most emerging debtors are required to apply fresh-start reporting under ASC 852, which resets the company's balance sheet to fair value as of the emergence date. Fresh-start reporting applies when the reorganization value of the assets is less than the total of all post-petition liabilities and allowed claims, and when pre-petition equity holders receive less than 50% of the new voting stock, both of which are typically satisfied in any meaningful Chapter 11. The result is a new accounting basis, with assets stepped up or down to fair value, intangibles re-recognized, and goodwill recalculated as the difference between reorganization value and the fair value of identifiable net assets.

Many Chapter 11 cases conclude not with a standalone reorganization but with a sale. Even where a sale is not the ultimate path, distressed valuation underpins every aspect of the restructuring conversation, from negotiating treatment to determining recoveries.

Section 363 Sales and the Stalking Horse

When the highest-value path forward is a sale rather than a reorganization, the debtor runs a Section 363 sale process inside Chapter 11. The seller typically signs a "stalking horse" bidder before filing or shortly after, locking in a floor price and a set of terms against which other bidders must compete. In exchange, the stalking horse receives bid protections: a breakup fee (typically 1-3% of the purchase price), expense reimbursement, and minimum bid increment requirements. After court approval of the bid procedures, the debtor markets the assets, qualifies bidders, and runs a public auction. Secured creditors may participate by "credit bidding" their debt against their collateral under Section 363(k), often a powerful tool when secured debt exceeds enterprise value. The court approves the winning bid at a sale hearing, and assets transfer free and clear of most liens, claims, and interests under Section 363(f).

Stalking Horse Bidder

A buyer that signs a binding asset purchase agreement with a debtor before or shortly after the Chapter 11 filing, establishing a floor price and a set of terms for a Section 363 sale auction. The stalking horse bidder typically receives bid protections (a breakup fee of 1-3% of the purchase price and reasonable expense reimbursement) approved by the bankruptcy court at the bid procedures hearing, in exchange for taking the risk that competing bidders will outbid them at the auction.

The Recovery Waterfall and the Fulcrum Security

The analytical foundation of every distressed engagement is the recovery waterfall, a model that allocates available enterprise value across the capital structure in legal priority order. Secured creditors receive proceeds first, up to the value of their collateral. Administrative expenses and DIP financing come next. General unsecured creditors share the remaining value pro rata. Subordinated debt receives whatever is left. Equity is wiped out first when the company is meaningfully insolvent. The point in the capital structure at which the cumulative claims exceed the company's enterprise value is called the fulcrum security: the security that "breaks" the waterfall and is most likely to receive equity in the reorganized company. Distressed credit funds spend significant analytical effort identifying the fulcrum and accumulating positions in it, since the holders of the fulcrum become the new owners post-emergence.

Fulcrum Security

The most senior class of debt in a distressed company's capital structure that is impaired (not paid in full) and therefore most likely to receive equity in the reorganized company. The fulcrum sits at the "value break" point where cumulative claims exceed enterprise value. Distressed funds target the fulcrum security because controlling it usually translates into post-reorganization equity ownership and influence over the plan of reorganization.

2025 was a watershed year for restructuring activity. Total Chapter 11 filings reached a decade high, several landmark cases closed, and the legal foundation of the LMT era was reset by the courts. The 2026 outlook calls for continued elevated default activity even as macro conditions have stabilized.

A Decade-High Year for Chapter 11 Filings

Total commercial Chapter 11 filings reached 7,940 in 2025, the highest annual count in a decade, with subchapter V small-business elections rising 11% to 2,446. Beneath the headline number, the picture is nuanced: large filings (companies with assets or liabilities over $1 billion) actually fell to 31 in 2025 from 42 in 2024, and filings over $100 million fell to 129 from 144. In other words, distress in 2025 was broader and shallower than in 2024, with more small and mid-cap filings rather than mega-cases. Loan default rates ran around 4.3% in 2025, with S&P projecting U.S. speculative-grade corporate default rates could hit 4.25% by mid-2026. The federal government shutdown of October-November 2025 disrupted some courts and filings, contributing to a backlog that pushed activity into early 2026.

Notable Cases: First Brands, Rite Aid, Joann, Forever 21

The defining 2025 case was First Brands Group, the global aftermarket auto parts manufacturer (FRAM, Raybestos, Autolite, Cardone) that filed in late September with approximately $9.3 billion in total obligations amid allegations of fabricated invoices and double-pledged receivables. The company secured a $4.4 billion DIP facility (including $1.1 billion of new money plus a $3.3 billion roll-up of pre-petition debt), one of the largest DIP packages of the year. Rite Aid filed for Chapter 11 a second time in May 2025, having emerged from its first filing only seven months earlier, and ultimately wound down most of its remaining store base. Forever 21 filed in March and closed all 354 of its U.S. locations. Joann filed for the second time in January 2025 (a "Chapter 22") less than a year after its first emergence, and all 800 of its remaining stores closed by May. Each of these cases anchored a sector narrative: First Brands for private-credit lending and supply-chain fraud risk, Rite Aid for retail pharmacy disruption, Forever 21 and Joann for the continued unwinding of mall-based specialty retail.

The Purdue Pharma Decision and the Next Cycle

In June 2024, the Supreme Court ruled 5-4 in Harrington v. Purdue Pharma that bankruptcy courts cannot approve nonconsensual third-party releases as part of a Chapter 11 plan. The decision invalidated a key feature of mass-tort settlement plans (the Sackler family's payment in exchange for a release from opioid claims) and forced the parties back to mediation. The implications extend well beyond Purdue: future mass-tort restructurings (such as Texas Two-Step divisional-merger filings by Johnson & Johnson and 3M) cannot rely on the same release mechanics, reshaping the strategic calculus for liability-driven Chapter 11 cases. Going into 2026, RX bankers are watching three storylines: continued elevated default rates as the high-yield maturity wall approaches, the post-Serta evolution of LMT structures, and how the post-Purdue mass-tort restructuring playbook will be rebuilt.

Restructuring offers a distinct lifestyle, technical skillset, and exit path inside investment banking. Candidates choose RX over an industry coverage group or M&A team in exchange for deep technical specialization, strong creditor and sponsor exposure, and a different career trajectory.

Recruiting, Hours, and Compensation

RX recruiting follows the same broad investment banking timeline, but the major firms (PJT, Houlihan Lokey, Evercore, Lazard, Moelis) recruit candidates directly into their restructuring groups rather than through general IB programs. Houlihan Lokey runs the largest restructuring analyst class on the Street; PJT and Evercore are smaller and more selective. Hours are comparable to or slightly worse than M&A at peer banks, with the same intensity-driven calendar but shorter average deal cycles producing more frequent fire drills. Compensation tracks the rest of investment banking at the analyst level (approximately $100-130k base plus bonus running 50-100% of base), but elite boutique RX groups frequently pay 20-40% premiums over bulge brackets at every level. PJT Partners' total comp by the third associate year averages approximately $445,000; Lazard director compensation averaged approximately $842,000 in the most recent reporting cycle.

The RX Interview

The restructuring interview is heavily technical relative to standard M&A interviews. The single most-asked question is "walk me through Chapter 11," which expects a structured answer covering pre-filing, the petition, first-day motions, DIP financing, the plan, the vote, confirmation, and emergence. The second most common is "walk me through a recovery waterfall," which expects the candidate to lay out the priority order of claims and explain how to identify the fulcrum security. Expect questions on DIP roll-ups, priming liens, absolute priority and cramdown, fresh-start accounting, LMT mechanics (uptiers, drop-downs), and recent cases. Behavioral questions focus on intellectual interest in distressed situations, comfort with adversarial dynamics, and tolerance for the irregular hours of a distressed engagement. Expect the firm-specific question "why Houlihan over PJT" (or similar) and be ready to discuss two recent bankruptcy cases in detail.

This guide is built for three audiences. Candidates preparing for restructuring interviews at PJT, Houlihan Lokey, Evercore, Lazard, Moelis, or any of the smaller RX shops should treat the guide as a structured curriculum, working through diagnosis, out-of-court tools, LMTs, Chapter 11, distressed M&A, and the careers and interviewing section in roughly that order. Practicing M&A coverage bankers can use the guide as a reference when their team partners with RX on a distressed mandate, dipping into specific articles (DIP financing, recovery waterfalls, the fulcrum security, the Serta ruling) on demand. Distressed credit and special-situations investors can use the guide to understand the banker side of the engagements they are constantly negotiating against.

Throughout the guide, every article is written from the IBD restructuring banker seat, with bankruptcy lawyers (Kirkland, Weil, Davis Polk, Latham), turnaround consultants (A&M, AlixPartners, FTI), and distressed credit funds (Apollo, Oaktree, Centerbridge, Elliott) treated as essential context and counterparties rather than as the focus of the work. The market intelligence section captures the 2025 backdrop and 2026 outlook and gets refreshed annually, so the guide stays current as deal tape, regulatory developments, and market dynamics evolve.

Restructuring is one of the most technical and counter-cyclically essential disciplines in finance. A reader who works through the full guide should be able to walk into an RX interview, sit in on a restructuring kickoff, or read a Chapter 11 disclosure statement with a clear understanding of who is doing what, why, and what each role contributes to the case.