OID, LMEs, and Bankruptcy: A Primer
Mark Lightner, Esq. - Head of Special Situations Legal Research, CreditSights
11 February 2026
- How exchange offers and debt restructurings could create unexpected claims issues in bankruptcy.
- Which court precedents shape creditor recoveries when distressed companies pursue out-of-court workouts.
- What pending litigation may reveal about allowability questions affecting modern liability management transactions.
- Why secured creditors might have different treatment options compared to unsecured stakeholders.
- Where bankruptcy risk intersects with exchange economics and relative creditor positioning strategies.
Executive Summary
Pending litigation could reshape how bankruptcy courts treat certain exchange offer structures. This analysis examines discount components arising from distressed debt restructuring transactions.
Market participants show heightened interest given recent restructuring activity and valuation impacts. Creditor dynamics and recovery expectations may shift depending on judicial interpretation.
This primer explores foundational concepts using a question-and-answer framework throughout. Courts have developed nuanced approaches when evaluating interest treatment in bankruptcy proceedings.
Circuit court precedents established frameworks that distinguish between different exchange transaction types. However, carryover obligations from original instruments may still face potential disallowance challenges.
A recent Texas case presents novel questions about principal amount changes. Additionally, secured creditor positions may offer alternative pathways for recovering disputed amounts.



