RSA-legal-guide">Restructuring Support Agreement Legal Guide: RSA Provisions and Negotiation
A Restructuring Support Agreement represents one of the most important legal documents in modern corporate reorganization practice. These agreements establish binding commitments from key stakeholders to support specific restructuring approaches, providing the certainty needed to proceed with complex Chapter 11 bankruptcy proceedings or out-of-court workouts.
Understanding how restructuring support agreements function helps creditors, debtors, and their advisors negotiate more effectively and avoid common pitfalls. From creditor consent requirements to lockup agreement mechanics, RSAs involve nuanced legal considerations that shape restructuring outcomes.
RSA Element Overview
| RSA Element | Purpose | Key Considerations |
|---|---|---|
| Support Commitment | Lock in stakeholder backing | Scope of voting and support obligations |
| Term Sheet | Define economic terms | Treatment of each creditor class |
| Milestones | Establish timeline | Reasonable vs aggressive deadlines |
| Termination Rights | Protect parties | Fiduciary outs and MAE clauses |
| Lockup Provisions | Prevent trading | Transfer restrictions on claims |
Understanding Restructuring Support Agreements
A restructuring support agreement is a contract among key stakeholders in a financial restructuring that commits each party to support a negotiated restructuring plan through Chapter 11 bankruptcy or out-of-court proceedings. These agreements transform uncertain restructuring prospects into predictable outcomes by securing advance commitments.
The RSA typically involves the debtor company, major creditor groups, and sometimes equity holders agreeing to specific restructuring terms before formal proceedings begin. This advance agreement enables pre-packaged bankruptcy filings that proceed far more quickly than contested cases.
Expert insight: "The restructuring support agreement functions as the constitution for a restructuring transaction. Getting its terms right establishes the framework within which all subsequent negotiations and proceedings occur."
Key Provisions in Restructuring Support Agreements
Support commitment provisions form the core of any RSA, specifying exactly what actions each party agrees to take. Typical commitments include voting in favor of the restructuring plan, not objecting to plan confirmation, not supporting competing proposals, and supporting debtor-in-possession financing.
The attached term sheet describes the economic terms of the proposed restructuring in detail. This document specifies what treatment each creditor class receives, including cash, new debt, equity, or combination.
| Termination Type | Trigger Event | Who Can Exercise |
|---|---|---|
| Material Adverse Change | Significant business deterioration | All parties |
| Milestone Miss | Deadline not met | All parties |
| Fiduciary Out | Board duty conflict | Debtor only |
| Breach | Party fails to perform | Non-breaching party |
Pre-Packaged Bankruptcy and RSAs
Pre-packaged bankruptcy represents the most common context for restructuring support agreements. In these cases, parties negotiate the complete restructuring plan before filing, then use Chapter 11 bankruptcy primarily to bind non-consenting creditors to agreed terms.
The debtor-in-possession continues operating the business during pre-packaged cases while implementing the agreed restructuring. Because major terms are already settled, these cases proceed far more quickly than contested Chapter 11 proceedings.
Time savings from pre-packaged proceedings benefit all parties. Cases that might take two years in contested Chapter 11 can complete in two months when pre-packaged. Reduced professional fees and business disruption benefit recoveries.
Negotiating RSAs
RSA negotiations involve sophisticated parties with competing interests seeking workable compromises. Understanding common negotiating dynamics helps parties achieve better outcomes.
Initial outreach to potential RSA parties typically occurs under confidentiality agreements. The debtor and its advisors approach major creditors to assess their positions and willingness to negotiate before formal processes begin.
Expert insight: "The best RSA negotiations produce agreements that all parties view as fair given their relative positions. Overreaching by any party often backfires when needed cooperation evaporates during implementation."
Legal Considerations and Court Review
Bankruptcy courts review restructuring support agreements when evaluating plan confirmation. Courts ensure RSAs do not unfairly bind parties or improperly constrain debtor decision-making.
Good faith negotiation requirements mean parties must have genuinely negotiated RSA terms at arm's length. Courts scrutinize agreements that appear to have been imposed rather than negotiated.
Fiduciary duty compliance requires that debtor directors and officers properly exercise their duties when entering RSAs. Courts expect boards to have reasonably evaluated the agreement's benefits before committing the company.
Frequently Asked Questions
What is a restructuring support agreement?
A contract committing key stakeholders to support a specific restructuring approach through bankruptcy or out-of-court proceedings.
Who typically signs an RSA?
Signatories usually include the debtor company, major creditor groups, and sometimes equity holders with significant stakes.
Are RSAs legally binding?
Yes—RSAs are enforceable contracts, though they include termination provisions allowing exit under specified circumstances.
What is a lockup agreement in restructuring?
Provisions preventing RSA signatories from transferring their claims except to parties who agree to be bound by RSA terms.
How long do RSA negotiations typically take?
Timeline varies from weeks for straightforward situations to months for complex, contested negotiations.
Can an RSA be terminated?
Yes, under circumstances specified in the agreement such as material adverse changes, missed milestones, fiduciary determinations, or breach.
Updated 2025-01-07