What Restructuring Bankers Do

Introduction

At 11 PM on a Sunday in midtown Manhattan, a restructuring banker is sitting in a conference room with a distressed company's CFO, its chief restructuring officer, and three lawyers from Kirkland & Ellis. The petition will be filed at 12:01 AM. Around the table are five binders: the voluntary petition, the first-day declaration sworn by the CFO, the cash management motion, the wages motion, and the interim DIP motion that will be argued in court on Tuesday morning.

The banker has spent the last six weeks driving the financial work that made tonight possible: a 13-week cash flow that landed the company on exactly the day it had to file, a DIP shopping process that produced two competing term sheets, a capital structure waterfall that maps every dollar of pre-petition debt against the assets securing it, and a recovery analysis that the creditor groups will tear apart by Wednesday.

The lawyer hands over the cash management exhibit one more time. The CFO signs the declaration. The petition goes on the docket at 12:00:14 AM. The work that put the binders in that room, and the months behind it, is the subject of this article and of the rest of this guide.

Restructuring investment banking is the practice that helps companies in financial distress, and the creditors owed money to them, navigate the choices between four restructuring paths:

It is one of the most technical, legally entangled, and counter-cyclically essential disciplines in finance. The 2025 tape made the point clearly: total commercial Chapter 11 filings finished the year at 7,940, a 1% increase over 2024's 7,893, while the more sensitive subchapter V small-business indicator rose 11% to 2,446 from 2,202. Big-case activity accelerated into 2026, with February 2026 alone producing 814 commercial Chapter 11 filings, a 67% year-over-year jump (some of which reflected large multi-debtor filings).

Unlike sector groups, restructuring is a single-domain practice that spans every industry. An RX banker at PJT Partners, Houlihan Lokey, or Evercore works on retail bankruptcies one quarter and pharmaceutical distress the next, applying the same frameworks (the 13-week cash flow, the recovery waterfall, the fulcrum security) across vastly different fact patterns.

The work splits sharply between debtor-side and creditor-side mandates, runs on a specific set of analytical deliverables, and lives inside a tight ecosystem of bankruptcy counsel, turnaround consultants, and distressed credit funds. The rest of this article walks through each of those dimensions.

The most important structural feature of restructuring is the wall between debtor-side and creditor-side advisory. In any meaningful distressed engagement, the company hires one bank, and a creditor group (typically an ad hoc committee of bondholders or term loan lenders) hires another. They negotiate against each other on treatment, recoveries, and plan terms. A restructuring bank almost never advises both sides of the same situation, and the reputation a firm builds on one side shapes the mandates it wins on the other.

Debtor-Side Advisory

The advisory mandate where an investment bank is retained by the company in financial distress (the "debtor"). Debtor-side work is process-heavy: diagnosing the liquidity crisis, building the 13-week cash flow model, evaluating restructuring alternatives, designing the proposed capital structure, marketing the plan to creditors, and shepherding the company through court if it files Chapter 11. Debtor-side mandates typically command large flat or success-based fees and require continuous coordination with the company's bankruptcy counsel and turnaround consultant.

Debtor-Side: Build the Plan, Source the Liquidity, Drive the Process

Debtor-side mandates begin with triage. The first task is to understand how bad the situation is, how much cash runway exists, and which restructuring paths are viable. This diagnostic phase produces a 13-week cash flow model, a weekly direct-method forecast that tracks expected receipts and disbursements line by line.

Once the diagnosis is complete, the banker evaluates alternatives across three paths:

If the company files, the banker sources and negotiates debtor-in-possession (DIP) financing, the post-petition lending that keeps the lights on through bankruptcy. DIP economics in the 2024-2025 tape were aggressive. Ligado Networks, which filed in January 2025, secured an approximately $939 million DIP (about $442 million of new money plus a roughly $497 million roll-up of pre-petition claims) carrying 17.5% PIK or 15.5% cash interest, a 5% commitment fee, a 3% unused fee, and a 12.5% backstop fee, with total fees on the order of 20% of the facility per Debtwire. Spirit Airlines' second filing in August 2025 was supported by a $475 million new-money DIP from existing senior secured noteholders, with a roll-up that converted a portion of their PIK Toggle Senior Secured Notes due 2030 into post-petition claims (96% of those notes were tendered). Sourcing facilities like these, negotiating terms, and shepherding court approval on a compressed timeline is core debtor-side work.

Beyond financing, the banker drives negotiation of the plan of reorganization (POR), the document that classifies all claims, specifies treatment, and becomes the binding contract for emergence. The negotiation balances senior secured creditors (who want full recovery on collateral), unsecured creditors (who want value below the senior layer), and pre-petition equity (usually wiped out, though sometimes arguing for a stub recovery under the new value exception). The banker builds the valuation analysis, calculates recoveries by class, and works with counsel to structure a plan that clears the cramdown bar under Section 1129(b).

Creditor-Side: Stress-Test the Story, Run the Numbers, Maximize Recovery

When a bank is retained by:

the job is to maximize recovery for those clients. The creditor-side banker does not control operations or the restructuring path. The role is to stress-test the debtor's projections, build independent recovery analyses, negotiate for better treatment, and (when the deal goes adversarial) develop the analytical case behind objections to the plan.

Creditor-Side Advisory

The advisory mandate where an investment bank is retained by a group of creditors (bondholders, term loan lenders, or trade creditors) owed money by a distressed company. Creditor-side work is diligence-heavy: analyzing the debtor's business plan and projections, building independent valuation and recovery models, negotiating treatment improvements, and developing arguments to challenge the debtor's proposed plan when needed. Houlihan Lokey has led the creditor-side market by deal volume for over a decade.

Creditor-side diligence runs on skepticism. Management projections are self-serving by definition, and the banker's job is to find the weak assumptions: aggressive revenue ramps, optimistic margin recovery, working capital tailwinds that the historical data does not support. The independent recovery analysis that comes out of that work is often the most consequential document in the case. If unsecured creditors are recovering 30 cents on the dollar under the debtor's valuation and 45 cents under the committee's, the 15-cent gap is the negotiating space.

In liability management transactions, creditor-side work has become its own specialty. The 2020-2025 era produced an explosion of uptier exchanges and drop-down financings, structures where a majority creditor coalition works with the borrower to issue new senior debt that primes the existing debt held by non-participating lenders. The Fifth Circuit's December 2024 ruling in Serta Simmons, which found that Serta's 2020 uptier did not constitute an "open market purchase" as defined in the credit agreement, reset the legal foundation for non-pro-rata uptiers. Creditor-side banks now advise holders on whether to participate in an LMT, whether to fight it through cooperation agreements and litigation, and how to position credit-agreement language to block future LMTs before they happen.

Fee economics differ. Debtor mandates pay larger flat fees plus emergence success fees that, on flagship cases, can total tens of millions of dollars. Creditor mandates typically pay monthly retainers plus smaller transaction fees, with per-deal economics lower but volume meaningfully higher. Houlihan Lokey ranked first in the LSEG global distressed debt and bankruptcy advisory league table for 2024 with 88 deals, nearly 50% above the next-closest competitor and the eleventh consecutive year the firm has held the top spot.

Restructuring bankers produce a specific set of deliverables that look different from M&A or capital markets work. Three core models recur across nearly every engagement: the 13-week cash flow, the recovery waterfall, and the plan valuation. Each serves a distinct purpose, and the analyst who is on a debtor-side mandate this quarter is likely on a creditor-side recovery analysis next quarter.

The 13-Week Cash Flow

The 13-week is a direct-method forecast built from the ground up: customer collections, vendor payments, payroll, rent, interest, professional fees, and every other contractual cash movement the company will face over the next quarter. Unlike a typical financial model derived from accounting projections, it is built from actual expected cash flows pulled from the company's AP and AR aging, payroll runs, and known contractual obligations. Weekly variance analysis, bridging actuals to forecast, becomes the reporting cadence for the entire engagement.

The 13-week serves multiple audiences. For the debtor, it demonstrates to potential DIP lenders that the company can service post-petition obligations. For creditors and the court, it provides visibility into whether the company can survive the timeline required to confirm a plan. For the banker, it is the operational benchmark against which the case is run. In modern DIP agreements, weekly delivery of a 13-week forecast is almost universally required as a reporting covenant, with significant variances triggering lender consultation rights or default mechanics.

The Recovery Waterfall

The recovery waterfall is the analytical foundation of every distressed valuation. It allocates available enterprise value across the capital structure in legal priority order: administrative expenses and DIP financing first, then secured creditors up to the value of their collateral, then general unsecured creditors, then subordinated debt, and finally equity (usually wiped out when the company is meaningfully insolvent).

The point at which cumulative claims exceed enterprise value is the fulcrum security: the class that "breaks" the waterfall and is most likely to receive the equity in the reorganized company. Distressed credit funds spend significant analytical effort identifying the fulcrum and accumulating positions in it, since the holders typically become the new owners post-emergence. Building the waterfall requires valuing the company under both going-concern and liquidation premises, mapping the full capital structure including lien priorities and intercreditor agreements, and calculating what each class recovers across a range of valuation scenarios. The gap between the debtor's recovery analysis and the creditors' recovery analysis is the negotiating space.

Restructuring bankers do not work in isolation. Every action is filtered through coordination with lawyers, consultants, and funds.

Bankruptcy counsel. The debtor's RX banker works hand-in-hand with counsel, typically Kirkland & Ellis, Weil Gotshal, Latham & Watkins, Davis Polk, or Akin Gump. Counsel handles legal filings, court appearances, and documentation. The banker handles financial analysis, stakeholder negotiations, and marketing. The banker is not giving legal advice, and the lawyer is not building the 13-week. On major cases the relationship is daily and intensive, with the banker and lead partner co-authoring the strategic playbook.

Turnaround consultants. Many distressed companies engage Alvarez & Marsal, AlixPartners, FTI Consulting, or Riveron for interim management, operational restructuring, and credibility with stakeholders. The consultant may step in as interim CEO, CFO, or Chief Restructuring Officer (CRO), freeing the banker to focus on the financial restructuring rather than day-to-day operations.

Distressed credit funds. Apollo, Oaktree, Centerbridge, Anchorage, GoldenTree, Silver Point, and Elliott buy distressed debt at a discount, accumulate positions in the fulcrum security, and often become the new equity owners post-emergence. They are counterparties in negotiations, but also potential sources of DIP financing, stalking horse bids in 363 sales, and eventual employers. Many RX bankers exit to one of these funds after a few years on the desk.

Creditor committees. In Chapter 11, the U.S. Trustee typically appoints an Official Committee of Unsecured Creditors (UCC) to represent general unsecured claimants. The UCC retains its own counsel and a creditor-side RX bank as financial advisor, with standing to object to the debtor's motions, conduct independent investigation under Bankruptcy Rule 2004, and challenge the plan. Ad hoc creditor groups (formed voluntarily by large holders) play a similar role without the formal committee structure but often hold bigger concentrated positions in the fulcrum.

Restructuring operates under a different set of dynamics than traditional M&A or coverage advisory. The differences shape everything from the daily work to the career arc, and we expand on them in the dedicated comparison article. The headline contrasts:

1. Adversarial nature of the work. In M&A, the banker and client are aligned around closing a deal at the best price. In restructuring, the debtor-side banker is negotiating against creditor groups who want better treatment, and the creditor-side banker is challenging the debtor's projections in real time. The same deal carries two advisory mandates pulling in opposite directions. 2. Depth of legal integration. The Bankruptcy Code, court precedent, and judge-specific practice (Houston versus Delaware versus SDNY) shape what is possible in any given case. A restructuring banker is not a lawyer but needs to know which structures the court will tolerate, where the cramdown bar sits for a given creditor class, and how to draft a term sheet that survives counsel review. The legal mechanics run throughout the Chapter 11 section of this guide. 3. A different analytical toolkit. M&A bankers build DCF models, trading comps, and transaction comps to triangulate a price. Restructuring bankers build 13-week cash flows, recovery waterfalls, and debt capacity analyses to determine how much debt the company can support post-emergence and what each creditor class actually recovers.

A restructuring engagement follows a distinct arc, though the timeline varies depending on whether the path is out-of-court or Chapter 11.

Total timelines range from weeks (a prepackaged bankruptcy with a pre-negotiated plan and a one-day confirmation hearing) to multiple years (a contested free-fall case with litigation over plan terms, mass tort liabilities, or fraud claims).

The skillset sits at the intersection of three competencies. The analytical work is more specialized than M&A: bankers need to read credit agreements and intercreditor agreements, understand lien priority rules and DIP mechanics, and apply the absolute priority rule and cramdown standards. The negotiation is more adversarial: debtor-side bankers face off against creditor committees, and creditor-side bankers challenge management's projections live on calls. The client relationship is more intense: distressed companies are in crisis, and the banker is often the most important outside advisor in the room.

Career paths reflect those traits. Analysts and associates develop deep expertise in a narrow domain, which translates into strong exit opportunities at distressed credit funds, special situations PE, and in-house turnaround roles. Traditional private equity is harder to access from RX than from M&A; candidates who want generalist PE exits sometimes lateral to M&A coverage during their first or second associate year.

Restructuring is one of the most intellectually demanding and counter-cyclically stable disciplines in banking. A banker who masters the 13-week cash flow, the recovery waterfall, and the plan-of-reorganization process has a skillset that stays relevant regardless of where the economy sits in the cycle. When times turn, the Sunday-night midtown conference room with petition binders and the CFO's signed declaration becomes a familiar place.