Consensual vs Non-Consensual LMTs: The 2024-2025 Shift

Introduction

The most consequential post-Serta development in the LMT market is the structural shift from non-consensual to consensual transactions. Pre-Serta uptiers (Serta itself, Boardriders, TriMark, Murray Energy, the early-2020s wave) typically organized a defined participating coalition holding more than 50% of the affected tranche, executed the exchange on a non-pro-rata basis with the coalition only, and left non-participating creditors structurally subordinated. The Fifth Circuit's December 2024 ruling that this structure violated the credit agreement's pro-rata sharing requirements accelerated a market shift that had already been underway: post-2024 LMTs increasingly offer participation to all affected creditors rather than only a defined coalition, with the dominant 2025 variant being the "tiered exchange" that operates within a single class but produces materially different economic outcomes for steering-group members versus the rest of the holder base.

The shift to consensual LMT structures reduces legal risk but does not eliminate the asymmetric outcomes that produced "creditor-on-creditor violence" framing. A consensual structure is technically open to all creditors but the economic terms typically favor the steering group meaningfully, with smaller creditors facing offers that are economically unfavorable but technically participatory. The result is structurally similar asymmetric outcomes through different legal architecture: instead of explicit non-pro-rata exchange that excludes minority creditors, the consensual structure offers all creditors participation but on terms that materially advantage the steering group.

This article walks through the consensual versus non-consensual distinction, the tiered exchange that emerged as the dominant 2025 structure, the major precedents, the alternative consensual variants, and the question of whether "consensual" actually produces fair outcomes for smaller creditors.

The term "consensual" in modern LMT discourse has a specific and somewhat narrow meaning. A consensual LMT is one in which all affected creditors are offered the opportunity to participate in the new priming debt or super-priority tranche, rather than being explicitly excluded by the structural design. The exchange is voluntary at the individual creditor level: each creditor can elect to participate or not, with non-participation typically meaning the creditor stays in its original position rather than being primed.

Consensual LMT (or "Pro-Rata-Within-the-Tier" Structure)

An LMT structure in which the participating new priming or super-priority debt tranche is offered to all affected creditors in the existing tranche on the same nominal terms, rather than being limited to a defined participating coalition. The exchange is voluntary at the individual creditor level, with non-participating creditors retaining their original position. Consensual LMTs typically involve broader creditor outreach than non-consensual structures, longer solicitation periods, and structural mechanics (Dutch Auction modifications, extend-exchange structures) designed to produce economically uniform offers. The structure addresses the Serta open-market-purchase issue by making the offer technically pro-rata within the tier, while still producing asymmetric outcomes through tiered economic terms that favor steering-group participants over smaller creditors.

The crucial distinction is between Serta-era non-consensual structures (where the participating coalition was defined ex ante and other creditors were excluded by design) and post-Serta consensual structures (where all creditors are nominally offered participation but the economic terms favor the steering group). Both produce asymmetric outcomes, but the consensual structure addresses the legal vulnerability that the Fifth Circuit identified in Serta.

The "tiered exchange" emerged in 2025 as the dominant consensual LMT structure. The mechanic: the borrower offers all creditors in the affected tranche the opportunity to exchange their existing debt for new super-priority debt, but the exchange terms are tiered with steering-group participants receiving superior economics and other holders receiving inferior economics. The structure is technically pro-rata within the tier (all holders get the same nominal exchange right) but non-pro-rata in economic outcome (the steering group's terms are materially better).

The tiered exchange addresses the Serta open-market-purchase legal issue because the offer is genuinely open to all holders in the affected tranche; non-participation is the holder's individual choice rather than a structural exclusion. The ION Analytics ("Creditors adapt to maturing LME market") and CreditSights coverage of 2025 LMT activity documents the tiered exchange as the dominant structure, with the structure producing pro-rata participation rights but non-pro-rata economic outcomes.

The economic gap between the two participating tiers, on a per-dollar-of-par basis, is what makes the structure non-pro-rata in substance even when it is pro-rata in form.

The first equation isolates the spread between the two tiers; the second translates the steering-group bundle into total realized value once the new senior tranche's recovery is known. Smaller holders who lack the leverage to negotiate into the steering tier accept the open-offer ratio and forgo the fee and equity components.

Several 2025 transactions established the tiered exchange as the modal LMT format across industry verticals: Saks Global (retail capital structure refinancing), Tropicana (consumer bondholder steering group), Oregon Tool (industrials), Newfold Digital (technology), and Thrive Pet Healthcare (services). In each case, the steering group extracted superior exchange ratios, backstop fees, and new-money allocations while the open-offer tier received economically inferior but technically participatory terms. ION Analytics projects continued tiered exchange activity through 2026 as additional credits face refinancing pressure under post-Serta documentation.

Beyond the tiered exchange, three other consensual structures have emerged:

Credit agreements with Mitel-style explicit private-purchase exceptions also remain available pathways for genuinely non-pro-rata exchanges.

Three structural drivers produced the move toward consensual LMTs:

1. Legal risk after Serta. The Fifth Circuit's December 2024 ruling exposed any non-consensual uptier under Serta-style "open market purchase" language to litigation, indemnity excision, and appellate reversal. 2. Creditor cooperation agreements. More than 10 co-ops organized in the first half of 2024 alone, and a co-op holding 50%+ of a tranche makes any participating coalition that excludes them structurally non-viable. 3. Documentation evolution. Newer credit agreements (2023-2025 vintage) increasingly include J.Crew Blockers, Serta-style pro-rata treatment requirements, anti-cooperation language, and explicit pro-rata sharing provisions that close the open-market-purchase loophole, often leaving consensual structures as the only viable path.

A consensual LMT typically runs on a longer timeline than a non-consensual one. The borrower's RX bank wall-crosses anchor holders (30-50% of the tranche) for 4-6 weeks to lock in steering-group terms and backstop commitments, then launches a public solicitation with explicit tiered economics that all holders can elect into during a 20-30 day open-offer period, with simultaneous closing across the steering tier, open-offer tier, and (subordinated) holdouts. The longer timeline reduces legal risk relative to non-consensual structures (the offer is genuinely open to all) and gives co-op members an individual exit option that pre-Serta structures did not.

Two emerging legal pressures complicate the picture. The September 2025 ConvergeOne ruling allowed minority lenders to challenge an exclusive backstop on equal-treatment grounds, opening the question of whether bankruptcy courts will apply equal-treatment scrutiny aggressively enough to threaten the steering-tier-versus-open-tier economics of consensual exchanges. Separately, anti-cooperation language is migrating beyond distressed leveraged loans into routine indentures, including Warner Bros. Discovery's Q3 2025 consent solicitation (executed shortly after WBD was cut to junk by S&P in May 2025 and by Moody's in June 2025), which sparked debate because it preemptively neutralized creditor coordination in a non-distressed context. The combined trajectory suggests the legal envelope around consensual LMTs is still moving and could tighten if equal-treatment doctrines harden in plan confirmation.

The tiered exchange has become the modal LMT format and is likely to dominate 2026 activity as more credits face refinancing pressure under newer documentation. Whether the consensual-but-tiered model survives long-term will depend on how aggressively equal-treatment doctrines tighten in plan confirmation and how the litigation tails from Serta, Wesco/Incora, and ConvergeOne resolve.