Debtor-Side vs Creditor-Side: Two Different Mandates

Introduction

Every restructuring engagement has two banks, never one. The company in financial distress hires one investment bank as its debtor-side advisor; a creditor group (almost always an ad hoc committee of bondholders or term loan lenders, or the Official Committee of Unsecured Creditors after a filing) hires another bank on the other side. The two sides negotiate against each other, often contentiously, over treatment, recoveries, and the terms of any plan. The same firm almost never advises both sides of the same deal, and the reputation a firm builds on one side shapes which mandates it wins going forward.

This structural division produces two distinct practices. Debtor-side work is process-heavy:

Creditor-side work is diligence-heavy:

The two seats require different skills, attract different bankers, and pay according to different economics. This article covers why the wall exists, what each side actually does, how the fee structures differ, which firms specialize where, and what the choice between debtor and creditor work means for the bankers in each seat.

The debtor-creditor wall is not arbitrary. It exists because the interests of a distressed company and its creditors are fundamentally adverse. The debtor wants to minimize the value transferred to creditors and preserve as much enterprise value as possible for a fresh start. Creditors want to maximize their recovery, often at the expense of the debtor's flexibility or even its survival as an independent entity. A bank advising both sides would face irreconcilable conflicts.

Consider a typical Chapter 11 negotiation. The debtor proposes a plan that allocates $500 million in enterprise value across the capital structure. Unsecured creditors, holding $800 million in claims, argue that the valuation is too low and that they deserve better treatment. The debtor's investment bank builds the valuation analysis supporting the $500 million figure. The creditor committee's investment bank builds an alternative analysis showing $650 million in value. Each bank is advocating for its client. If the same bank advised both, whose analysis would it build? The conflict is structural and unavoidable.

Conflict Wall

The ethical and practical barrier that prevents a restructuring investment bank from advising both the debtor and any creditor group on the same engagement. The wall exists because the interests of debtors (preserving enterprise value, minimizing distributions to creditors) and creditors (maximizing recovery) are fundamentally adverse. Violating the conflict wall would compromise the bank's fiduciary duty to each client and expose it to legal liability.

This conflict extends beyond a single deal. Banks that develop a reputation as debtor-side advisors may find creditors reluctant to hire them, fearing the bank's relationships with corporate management will compromise its advocacy. Banks known for aggressive creditor-side work may find companies unwilling to retain them, concerned the bank will prioritize creditor relationships over the debtor's interests. The market sorts itself, with firms developing reputations and deal flow weighted toward one side or the other.

When a company hires a restructuring investment bank, it is seeking help navigating a crisis. The debtor-side banker becomes the company's primary financial advisor through the restructuring process, coordinating with bankruptcy counsel, turnaround consultants, and management to develop and execute a viable path forward.

The Debtor-Side Workstream

Debtor-side engagements typically begin with triage and diagnosis. The restructuring bank's first task is to understand exactly how distressed the company is: how much liquidity remains, when the cash will run out, what triggered the distress, and which restructuring paths are viable. This diagnostic phase produces the 13-week cash flow model, a weekly direct-method forecast that shows the company's near-term liquidity trajectory and serves as the operational benchmark for the entire engagement.

Once diagnosis is complete, the debtor-side banker evaluates alternatives. The central question is whether the company should pursue an out-of-court restructuring, file Chapter 11, or execute a sale. Each path has different costs, timelines, and stakeholder implications. The debtor-side banker builds the analysis that informs this decision and presents options to the board and management.

If the company chooses to restructure, whether in court or out, the debtor-side banker becomes the architect of the proposed deal. This involves:

The debtor-side banker is proactive: generating proposals, not just reacting to them.

In Chapter 11, the debtor-side workstream expands significantly. The bank helps source and negotiate DIP financing, the post-petition lending that keeps the company operating through bankruptcy. DIP facilities have become increasingly expensive: most proposals in early 2025 carried interest rates above 15%, with some reaching 17.5% PIK plus cash interest. The debtor-side banker negotiates these terms on the company's behalf, balancing the need for liquidity against the cost of capital.

Beyond DIP, the debtor-side banker helps negotiate the plan of reorganization (POR), the document that classifies all claims, specifies how each class will be treated, and becomes the binding contract for emergence. Plan negotiations involve balancing competing interests across creditor classes, and the debtor-side banker builds the valuation analysis that supports the proposed treatment. When the plan reaches the voting stage, the debtor-side bank often helps solicit votes and address creditor objections.

Debtor-Side Fee Structure

Debtor-side mandates typically command larger fees than creditor-side work. The standard structure includes a monthly retainer (often $150,000 to $250,000 per month for top restructuring firms), plus a success fee tied to emergence or transaction completion. Success fees are usually calculated as a percentage of pre-petition debt outstanding or as a flat amount negotiated based on deal complexity. On major cases, total debtor-side advisory fees can reach $20 million to $50 million or more.

The fee premium reflects the debtor-side banker's central role in the process. The debtor-side advisor is almost always paid, because the company retains the bank before distress becomes acute and the bank's fees become administrative expenses in any bankruptcy. Creditor-side advisors face more collection risk, particularly if the restructuring fails or recoveries are minimal.

When a creditor group hires a restructuring investment bank, the mandate is different. The creditor-side advisor does not control the process or the company's operations. Instead, the bank's job is to maximize recovery for its clients by challenging the debtor's assumptions, building independent analysis, and negotiating for better treatment.

Who Hires Creditor-Side Advisors

Creditor-side mandates come from three sources: ad hoc committees, the Official Committee of Unsecured Creditors, and single large holders. The most common is an ad hoc committee of bondholders or term loan lenders, a self-organized group of large holders who band together to negotiate collectively with the debtor. Ad hoc groups typically form when distress becomes apparent, and they retain both legal counsel and a financial advisor to represent their interests.

Ad Hoc Committee

A self-organized group of creditors (usually bondholders or term loan lenders) that forms voluntarily to negotiate collectively with a distressed debtor. Unlike the Official Committee of Unsecured Creditors appointed by the U.S. Trustee in Chapter 11, an ad hoc committee is informal, can form before bankruptcy, and represents only its members rather than all creditors in a class. Ad hoc groups typically retain their own counsel and financial advisor, with costs often reimbursed by the debtor as part of any restructuring agreement.

In Chapter 11, the U.S. Trustee appoints an Official Committee of Unsecured Creditors (UCC) to represent the interests of general unsecured claimants. The UCC also retains counsel and a financial advisor, creating another creditor-side mandate. The UCC has formal standing to object to the debtor's motions, challenge the plan, and conduct independent investigation. Its financial advisor builds the independent recovery analysis that often becomes the basis for plan negotiation.

Single large holders, such as distressed credit funds that have accumulated significant positions, may also retain their own advisors. These engagements are less common but can be significant when a single fund holds a blocking position or the fulcrum security.

The Creditor-Side Workstream

Creditor-side diligence centers on skepticism. The debtor's projections are self-serving by definition: management has every incentive to paint an optimistic picture that justifies lower creditor recoveries. The creditor-side banker stress-tests revenue assumptions, questions margin trajectories, analyzes working capital dynamics, and models downside scenarios. The goal is to determine whether the debtor's valuation is reasonable or whether creditors are being shortchanged.

This diligence produces an independent recovery analysis. Where the debtor might value the company at $500 million, the creditor-side analysis might show $650 million or more under reasonable assumptions. The gap between the two valuations becomes the negotiating space. Creditor-side bankers use their analysis to argue for better treatment: higher recovery rates, more equity in the reorganized company, or enhanced deal terms.

Beyond diligence, creditor-side advisors help their clients navigate the restructuring process. This includes advising on whether to participate in exchange offers or liability management transactions, evaluating DIP financing terms, analyzing plan treatment, and deciding whether to vote for or against the proposed plan. In contested situations, the creditor-side bank may help develop legal arguments to challenge the debtor's plan, though the actual litigation is handled by counsel.

Creditor-Side Fee Structure

Creditor-side fees are typically lower than debtor-side fees on a per-engagement basis. Monthly retainers range from $75,000 to $150,000, with success fees that are smaller and often tied to recovery improvements rather than absolute deal size. However, creditor-side work generates higher volume: Houlihan Lokey advised on 88 global distressed debt and bankruptcy advisory deals in 2024, nearly 50% more than the next-largest competitor, with creditor-side mandates representing a significant share.

The economics favor debtor-side on any single deal, but creditor-side generates more total deal flow. Banks that excel at creditor-side work, like Houlihan Lokey, build fee revenue through volume rather than individual deal size.

One of the most important practical differences between debtor and creditor work involves information access and trading restrictions. These dynamics shape how each side operates and create strategic considerations that every restructuring banker must understand.

The two sides operate under opposite information regimes:

The practical implication is that creditor-side diligence often proceeds in two phases. In the first phase, the advisor analyzes public information and builds preliminary recovery estimates while clients remain unrestricted. In the second phase, once clients decide to engage in serious negotiations, they go restricted and the advisor gains access to more detailed information. Managing this transition is a key part of creditor-side advisory.

Cleansing and the End of the Restricted Period

The restricted period eventually has to end, either because a deal is announced or because the parties cleanse. Cleansing is the process of publicly disclosing the material non-public information the creditors received, typically through an 8-K filed by the company at the agreed cleansing date. Once the information is public, the holders are free to trade again.

Creditor-side bankers spend significant time at the boundary of cleansing: drafting the cleansing presentation, agreeing scope with the debtor's counsel, and timing the release so that hedge fund clients can resume trading without giving up the analytical edge they built during the restricted phase. A poorly-managed cleansing can lock holders out of the market for weeks longer than necessary, which is why this work is one of the few areas where creditor-side execution is judged on speed as much as on substance.

The major restructuring banks take both debtor and creditor mandates, but each has developed a reputation and deal mix weighted toward one side or the other. Understanding these specializations matters for recruiting, interviewing, and career planning.

PJT Partners has built its reputation on large, high-profile debtor-side mandates. The firm advised on some of the most significant restructurings of the past decade and commands premium fees for flagship cases. PJT's debtor-side focus attracts bankers interested in process-heavy, structurally creative work with direct management access.

Houlihan Lokey is the volume leader in restructuring, with nearly 1,000 creditor-side transactions on its record. In 2024, the firm closed 115 engagements involving more than $300 billion of debt by mid-November. Houlihan's creditor-side strength makes it the go-to advisor for ad hoc committees and UCCs, and the firm's deal flow is unmatched. The bank also takes debtor mandates (including Columbia Property Trust, Babel Finance, and Dynata in recent years), but its creditor-side reputation remains dominant.

Evercore has built a balanced practice with a slight debtor lean, particularly strong in sponsor restructurings where private equity portfolio companies need to restructure. Evercore's broader strategic advisory platform creates cross-selling opportunities between M&A and restructuring.

Lazard leans debtor-side with particular strength in retail restructurings and international situations. The firm's global platform and historical sovereign advisory work create differentiation in cross-border cases.

Switching Sides Across Deals

Even within firms that lean one direction, individual senior bankers often run debtor-side work on one engagement and creditor-side work on another, sometimes simultaneously, with separate teams behind ethical walls. Houlihan's debtor-side mandates on Babel Finance and Dynata in 2024-2025 sat alongside creditor-side roles on Lumen, McDermott, Endo, and dozens more. PJT, despite its debtor-side reputation, runs ad hoc creditor mandates regularly (the firm advised the ad hoc first lien lender group on Dynata's prepackaged plan in 2024). What rarely happens is the same firm advising both sides of the same situation; what often happens is the same firm advising the debtor on one case and a creditor coalition on the next, with the lead bankers and supporting analysts swapped out at the boundary.

The debtor/creditor divide has real implications for career development and exit opportunities. Each side develops different skills and leads to different post-banking paths.

Each side develops a distinct skillset and exit profile:

For interviews, the debtor/creditor question comes up frequently. Candidates should understand the differences, articulate a preference if asked, and connect that preference to their longer-term goals. A candidate interested in distressed investing might emphasize creditor-side interest. A candidate interested in process management and corporate advisory might emphasize debtor-side appeal. Both answers are valid; what matters is demonstrating understanding of the distinction.

Although debtor and creditor advisors represent adverse interests, they interact constantly throughout a restructuring:

The negotiation can be collegial or contentious depending on the case dynamics.

In practice, restructuring is a small community. The same bankers face off across the table on different deals, sometimes switching sides as their firms' mandates change. Reputations matter: bankers who negotiate in bad faith, withhold information inappropriately, or play games with process develop reputations that follow them. The best restructuring bankers earn respect from both sides through rigorous analysis, honest dealing, and effective advocacy.

The debtor/creditor divide is the organizing principle of restructuring investment banking. Understanding which side you are on, what your responsibilities are, and how the other side operates is essential for anyone entering the practice. The two mandates require different skills, generate different economics, and lead to different career outcomes, but both are essential to the restructuring ecosystem.