Restructuring Support Agreement: What It Is and How It Works

RSA Components Overview

What Is a Restructuring Support Agreement

A restructuring support agreement is a contract among key stakeholders in a financial restructuring that commits each party to support a negotiated restructuring plan. The RSA typically involves the company, its major creditors, and sometimes its equity holders agreeing to specific restructuring terms before formal proceedings begin.

The RSA serves multiple critical functions in the restructuring process that benefit all parties. It provides certainty to the company that its restructuring plan has sufficient support to succeed. It assures creditors that other key stakeholders are committed to the same approach.

Expert insight: "The restructuring support agreement often represents the most negotiated document in corporate reorganization. Getting the RSA terms right establishes the foundation for everything that follows."

Key Provisions in Restructuring Support Agreements

Support commitment provisions form the core of any RSA and define what parties agree to do. These sections specify exactly what actions each party agrees to take in support of the restructuring. Typical commitments include voting in favor of the restructuring plan, not objecting to plan confirmation, and not supporting competing proposals.

The term sheet or term outline attached to most RSAs describes the economic terms of the proposed restructuring in detail. This document specifies what treatment each creditor class will receive, including whether they receive cash, new debt, equity, or some combination.

Milestone provisions establish the timeline for restructuring completion with specific dates. Common milestones include filing date for bankruptcy cases, plan confirmation date, and emergence date.

Negotiating Restructuring Support Agreements

Initial outreach to potential RSA parties typically occurs under confidentiality agreements protecting sensitive information. The company and its advisors approach major creditors to assess their restructuring positions and willingness to negotiate.

Ad hoc creditor groups often form to negotiate collectively with the company for efficiency. Creditors with similar positions and interests coordinate their negotiating positions to increase leverage.

Economic terms negotiations focus on how value will be distributed among stakeholder classes fairly. Senior creditors typically seek to maximize their recovery before junior classes receive anything.

Frequently Asked Questions

What is a restructuring support agreement?
An RSA is a contract committing key stakeholders to support a specific restructuring approach, providing certainty for detailed planning to proceed.

Who typically signs an RSA?
Signatories usually include the company, major creditor groups, and sometimes equity holders who will play significant roles in the restructuring.

Are RSAs legally binding?
Yes—RSAs are enforceable contracts, though they typically include termination provisions allowing exit under specified circumstances.

How long do RSA negotiations take?
Timeline varies significantly based on complexity, from weeks for straightforward situations to months for contested negotiations.

Can parties terminate an RSA?
Yes, under circumstances specified in the agreement such as material adverse changes, missed milestones, or breach by other parties.

What happens after an RSA is signed?
Parties proceed to implement the restructuring through the agreed mechanism, whether out-of-court transaction or bankruptcy proceeding.