New Battleground in LMEs: Agent or Majority Lender Action to Defer Repayment

Non-pro-rata liability management exercises (“LMEs”) have been a widely used tool for distressed companies and sponsors, sometimes to attempt to fix a company’s capital structure and sometimes to buy time (and often both). Since 2020, borrowers and majority lender groups have refined LME tactics—from drop-downs and uptiering to double-dips to hybrid pari-plus transactions. While lenders recently have responded with tighter documentation and LME blockers, this continuous evolution—together with the growing number of disputes—demonstrates that LMEs will live on. While minority lenders have sometimes refused to participate in any transactions favoring majority lenders and, instead, expected to exit when their debt matured, there may be a growing risk of non-payment at maturity, as highlighted by recent New York litigation

Payment No Longer Guaranteed after LMEs

Historically, one bedrock principle of lending was that each lender in a syndicated facility was entitled to require payment of principal and interest at maturity. Recent disputes in New York, however, suggest this assumption is now being tested.

Corporate borrowers and sponsors, often aligned with majority lender groups, have begun to push the boundaries of permissible amendment mechanics and enforcement discretion to effectively extend payment deadlines without all lender consent. This approach is in some ways a natural progression from earlier tactics where borrowers skipped interest payments without triggering an event of default. Borrowers are now exploring whether they can use majority-controlled agreements to extend grace periods, provide for PIK interest payments, or obtain forbearance of enforcement to delay scheduled interest payments and/or payments at maturity.

Two ongoing New York cases illustrate how disputes may arise from these strategies.

• In Arena,¹ a minority lender (Arena) alleged that the agent—affiliated with majority lenders—declined to take enforcement action following nonpayment at maturity, effectively extending the maturity without the consent of each affected lender. While the breach of contract claim against the borrower was dismissed, the court entered summary judgment in the minority lender’s favor confirming that minority lender retained the right to enforce a guarantee obligation.² The court emphasized that the loan agreement at issue did not exclusively delegate the lenders’ right to enforce under the guaranty to the agent, and thus payment obligations under the guaranty remained enforceable notwithstanding agent inaction.
• In STG Logistics,³ holdout lenders challenged an amendment and related transactions that, as a single integrated transaction, allegedly eliminated most events of default and allowed unilateral extensions of interest grace periods to maturity—effectively postponing interest payments without each affected lender’s consent. The minority lenders argue that these mechanics operated as a postponement of interest-payment rights violating sacred-rights protections, a claim that survived an initial motion to dismiss.⁴

Although courts have not squarely ruled on whether these maneuvers violate sacred rights, the message is clear: borrowers and majority groups are increasingly willing to test the limits of payment protections, but courts are likely to continue to scrutinize the letter of the contract to determine where agent discretion conflicts with individual enforcement rights.

Why Lenders Should Pay Attention

These disputes strike at a lender’s expectation of being paid in full at maturity. While lenders may have tolerated some flexibility, albeit often reluctantly, around covenant breaches and even short-term interest payment deferrals, repayment at maturity typically has been viewed as an inviolable sacred right absent unanimous lender consent.

These recent tactics, whether by inaction or creative documentation, run counter to historical lender expectations, may enhance borrowers’ coercive leverage in LMEs and expand the toolbox (at least as a threat) for borrowers/sponsors and lender groups, and ultimately may increase lender-on-lender conflict, raising the probability of litigation. The cases also underscore the importance of agent-standard-of-care and exculpation carve-outs, as well as preserving direct guarantor enforcement, when majority coalitions resist remedies.

Practical Considerations for Lenders

In assessing the risk of non-consensual maturity or interest-payment postponement, lenders should review credit agreements with the following in mind:

1. Do sacred rights cover not only formal changes to payment dates and amounts, but also amendments that have the “effect” of delaying or impairing payment, including changes to grace periods, cure periods, or event-of-default definitions and any “pay-if-paid”/PIK toggles that defer cash payments?
2. Are amendments to event-of-default, grace period, or notice provisions (including extending interest grace periods to maturity) “sacred rights” that require all lender consent similar to changes to payment obligations?.
3. Do credit agreements prohibit insertion or expansion of grace periods for principal without unanimous lender consent and provide that non-enforcement or forbearance cannot serve to extend maturity without unanimity?
4. Are collective enforcement provisions narrowly tailored, so that each lender retains direct rights to enforce guaranties and judgments notwithstanding agent inaction, or do the agent and majority lenders retain control over remedies (potentially with carve-outs, such as equitable relief)? And what other limitations exist (e.g., do agent exculpation provisions carve out gross negligence or willful misconduct?
5. Does the credit agreement track drafting approaches emerging in recent transactions that clearly capture grace-period extensions, PIK conversion amendments, dropdown or double-dip and pari plus structures in sacred rights, and require equal-terms participation windows for any pro rata-affecting transaction?

Conclusions

LMEs no longer end with priority fights alone; timely payment itself is now a new battleground, as borrowers and majority groups are empowering inaction or aggressive amendments to pressure holdouts and delay payments in LMEs. Lenders should assume that repayment rights, even those once viewed as indisputably sacred, may be tested. Early engagement with experienced counsel and proactive documentation updates are essential to fully understand all pitfalls, especially in this emerging environment of increased aggressiveness.

¹ Arena Vantage SPV, LLC v. Actionable Process LLC et al. (N.Y. Sup. Ct. Commercial Division, Index No. 654396/2024).

² While the court dismissed the breach of contract claim against the borrower, the other claims including the breach of contract claims against the agent and the guarantor, the good faith and fair dealing claims survived. In August, 2025, the court entered a summary judgment in favor of Arena’s breach of contract claim against the guarantors; various appeals and decisions are pending.

³ Axos Financial, Inc., et al. v. Reception Purchaser, LLC et al. (N.Y. Sup. Ct. Commercial Division, Index No. 650108/2025).

⁴ Shortly after the court denied the motion to dismiss holdout lenders’ declaratory judgment and breach of contract claims, STG Logistics filed for chapter 11 relief in New Jersey on January 12, 2026, with a restructuring support agreement with the majority lenders group.