European Liability Management: Without a Selecta Blocker, Intercreditor Distressed Disposals Can Undercut Your Sacred Rights
Alastair Gillespie, J.D. - Senior Covenant Analyst, Covenant Review
14 August 2025
Insights into European liability management and creditor rights, including:
- Distressed Disposal Provisions: Understand how standard intercreditor agreement clauses enable powerful liability management transactions.
- Minority Creditor Risks: Learn how majority creditor groups can implement restructurings that undermine sacred rights and exclude minorities.
- Mechanics of Enforcement: Explore the process of releasing security and liabilities, and the role of non-cash consideration in distressed disposals.
- Selecta Case Example: Review the implications of the Selecta transaction and how ad hoc creditor groups benefit from non-pro rata outcomes.
- Evolving Creditor Protections: Discover proposals for a “Selecta blocker” to strengthen safeguards and ensure fair treatment for all creditors.
The Bottom Line™️
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Recently, the distressed disposals provisions of the intercreditor agreement were used to implement Selecta’s liability management transactions, inviting closer scrutiny of this market standard contractual intercreditor mechanic.
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This report outlines distressed disposal mechanics in English-law leveraged intercreditor agreements, explaining what they do, and how they can be used to implement liability management transactions.
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Distressed disposals can implement liability management transactions directed by an instructing group typically representing over 50% of the total senior secured liabilities – this has the potential to subvert sacred rights and to exclude minority creditors.
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Introduction
Recent events in Selecta’s liability management transactions remind us that “Distressed Disposals” are one of the most powerful tools in European liability management. Distressed disposal provisions are traditional and entirely standard in English-law leveraged intercreditor agreements, and serve the legitimate purpose of allowing the sale of the borrower group free and clear of existing liabilities and security after a distress event (such as an acceleration of liabilities). The decision to take enforcement action, including executing a distressed disposal is made at the direction of an “instructing group” of creditors. However, as the Selecta minority has just discovered, distressed disposals can also be used to implement a non-pro rata LMT, wiping out junior classes, equitizing debt, extending maturities, and uptiering the majority – all at a lower majority consent threshold than would otherwise be required for a consensual deal. Arguably, the distressed disposal LMT (sometimes called an “ICA drag”) does an end run around “sacred rights” set out
in Amendments provisions of underlying debt. Don’t take our word for it – this recent journal article by a restructuring professional praises its utility to implement A&Es and holistic restructurings, involving less time and less public scrutiny than a court-led restructuring process.
in Amendments provisions of underlying debt. Don’t take our word for it – this recent journal article by a restructuring professional praises its utility to implement A&Es and holistic restructurings, involving less time and less public scrutiny than a court-led restructuring process.
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