Why do you always need a credible 'Plan B', and how does the threat of insolvency strengthen a consensual restructuring?
A core Restructuring interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A consensual out-of-court deal needs every key creditor to agree, which gives hold-outs leverage. A credible Plan B — a formal process like StaRUG, Schutzschirm, or insolvency that can bind dissenters via cram-down — changes the negotiation: stakeholders compare the consensual offer not to the status quo but to their likely recovery in that formal alternative. If a hold-out's recovery in insolvency is clearly worse, the threat is what makes them accept the consensual deal. So advisers prepare the formal route in parallel (the dual-track logic), credibly: model the insolvency recovery, line up DIP/financing, and be genuinely ready to file. The discipline is that the threat only works if it's real — a bluff that everyone knows you won't execute gives away the leverage.
WHAT INTERVIEWERS LISTEN FOR
- ✓Consensual deals give hold-outs leverage
- ✓Plan B (StaRUG/insolvency) can cram down dissenters
- ✓Stakeholders compare offer to formal-process recovery
- ✓Threat must be credible and genuinely prepared
COMMON MISTAKES
- ✗Negotiating with no fallback
- ✗Bluffing an insolvency threat you can't execute
- ✗Not modeling the alternative recovery
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