No sacred right, no remedy: the creditor-side playbook in 2026

The sacred rule of restructuring, that everyone in the same class gets the same pro rata treatment, effectively broke in Europe last year. The surprise is who broke it. It was not a sponsor. It was the creditors.

That was the scene-setter from Ash Tehrani, Senior Counsel at Akin in London, on this week's Knowledge Series episode. Ash came to private practice after 15 years at J.P. Morgan, most recently as head legal counsel to the firm's distressed and event-driven credit fund, and the conversation drew on all three of his seats: law firm, trading desk, and fund. Everything below is his read of the market, and it is worth your time.

From fire brigade to fire code

Three years ago, a liability management exercise hit the tape and creditors spent a fortnight forming a group to react to it. Now the group, the co-op agreement, the independent director, and often a fully priced new money term sheet all exist before there is even a default. The first 30 days have gone from fire brigade to fire code: go restricted early, sign the co-op in week one while everyone still likes each other, read the documents in the right order, put governance and the 13-week cash flow in place, and scope litigation counsel. Not because you want to sue, but because people negotiate differently with someone who visibly could.

Note the reading order. The covenants tell you what a company can do. The amendment section tells you what can be done to you. Ash's advice is to start there, then build a capacity model in actual currency, then get the holder list arithmetic straight, because the thresholds decide everything that follows.

What held, and what gave way

The protections that actually held under pressure share one feature: bright lines about who has to sign. Precisely drafted sacred rights actually protected lenders. Payments for consent clauses, where they still exist, work as drafted. The LMA architecture proved robust: pro rata sharing and transfer restrictions are the reason US-style loan uptiers never landed in Europe in the same way. And consent thresholds worked as venue pickers, forcing deals into processes where minorities had real leverage.

What gave way is the longer list. The same economics produced opposite results in two cases decided the same day, purely on drafting. A majority manufactured a two-thirds vote by issuing new notes to friends, and the court's advice to the minority was to look to the counsel who drafted the documents. Blockers were amended away by the majorities they were meant to restrain, in one case immediately before the transaction they existed to prevent. Ash cited analysis finding material defects in 71 percent of last year's European high yield blockers, and only a handful of European loans closed the gap that routes value through non-guarantor subsidiaries and joint ventures. And genuinely tight covenants made no difference where the deal ran through the intercreditor's release mechanics instead.

The pattern: anything that relied on characterization, materiality, or the majority's goodwill gave way. Anything that turned on a signature count held.

The one fix

Asked what he would redraft in the standard package, Ash did not pick a covenant. He picked the amendment section: link every blocker and protection you care about to the sacred rights list, so they cannot be removed at the whim of a majority. Nearly every major loss of this cycle came through the consent and release provisions, not through a covenant. His summary line deserves to be pinned above every documentation desk: no sacred right, no remedy.

The corollary is about diligence. Creditors audit capacity obsessively, every basket, every add-back, and almost nobody audits consent. That is insuring the car and leaving the keys in the door. Here are the questions that matter: what can a bare majority sign away, what can the instructing group tell the security agent to release, can my blocker be deleted by the people it restrains, and can someone build a pledge above me.

The cross-border dimension

For anyone holding cross-border exposure, the divergence between markets is not cosmetic. The ordinary amendment majority is two thirds under LMA paper against 50.1 percent in the US. European transfer restrictions let borrowers control who can even build a position. The English intercreditor, with its distressed disposal and release powers, functions like an out-of-court Section 363 without the judge or the valuation hearing. And mixed stacks import American case law wholesale through New York law bonds, so a European group can find US-style tools sitting inside its own capital structure.

On forum: if you are senior secured, in the money, and writing the new money, Chapter 11 remains the nicer hotel. If you are a minority or a dissenter, London is your forum, and the fairness review now has real teeth. Overlay the governing law rule, because English law debt wants an English process, and that principle is 136 years old and still bosses the market around.

Where it goes from here

Ash's three-year view is neither a creditor golden age nor a return to sponsor coercion. The aggression has changed hands and moved inside the creditor family, fights over who holds the pen rather than sponsor-versus-lender set pieces. Co-ops face antitrust challenges that have not yet been decided, but if a court finds against the current form, the market will redraft around the ruling rather than abandon the tool. LMEs, in his view, are not a dirty word. They are a way of buying time, and the discipline lies in knowing, before you need to, exactly what can be done to you without your signature.

The full conversation, including the audience Q&A on whether blockers are pointless (they are not, but you have to grade them) and whether private credit is genuinely safer, is available on the replay.

[Watch the replay]

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