When cash gets tight, the instinct is to think about leverage: what can we threaten, what can we withhold, who blinks first. In practice, distressed companies rarely have much leverage — and the ones that negotiate successfully with their creditors are not the ones with the strongest position, but the ones with the best preparation. Preparation is the one advantage a debtor can build unilaterally, before the first call is made.
Know what your contracts actually say
Before speaking to any creditor, know your legal position with that creditor — not roughly, but precisely. Which events of default have occurred or are about to? Are there cross-default clauses that let one creditor's action trigger everyone else's rights? Who holds security, over what, and is it validly created? What termination rights, information rights and acceleration rights exist, and which have already been waived or lost through past conduct?
Boards are routinely surprised by their own contracts. A loan agreement signed in better times contains covenants nobody has looked at since. A supply contract everyone considers untouchable turns out to be terminable on short notice. You cannot negotiate around rights you do not know exist — and the creditor's lawyers will know them.
Know who ranks where
Creditors do not behave according to the size of their claims. They behave according to their ranking. A fully secured lender can afford patience; an unsecured trade creditor watching its exposure grow cannot. Employee claims enjoy statutory privileges in insolvency; a shareholder loan may effectively rank at the very back.
Map your creditors accordingly: secured, privileged, unsecured, subordinated — and, cutting across that, strategic or replaceable. This map explains behaviour you would otherwise find irrational, and it tells you what each creditor's real alternative to a deal looks like. A creditor who would recover little in a bankruptcy has every reason to support a credible plan. Making that arithmetic visible — carefully, and honestly — is often the most persuasive thing a debtor can do.
Build the record before the first call
Nothing destroys a negotiation faster than numbers that change. Before you approach anyone, assemble the documentary record: current financial statements, a short-term rolling liquidity plan, a clear statement of what caused the crisis, and the restructuring measures already taken or committed. If the numbers are not reliable yet, fix that first. Asking creditors for concessions on the basis of figures you have to correct three weeks later costs you the only currency you have — credibility.
The record also matters defensively. If the restructuring fails, everything the board said and showed to creditors will be re-read in a harsher light. A record that was accurate at the time it was given is protection; an optimistic one is exposure.
A credible plan, and one version of the truth
Creditors do not grant concessions to companies; they grant them to plans. The plan does not need to be elaborate, but it must answer three questions convincingly: why the crisis happened, why it will not simply continue, and what exactly you are asking each creditor to do. A request for a standstill "while we work things out" is not a plan. A request for a defined contribution toward a defined outcome is.
Then hold to one version of the truth. Creditors talk to each other — banks, credit insurers and large suppliers more than most debtors imagine. If one creditor learns that another was told a different story or quietly offered better treatment, the negotiation is usually over, and so is the trust needed for any future one. Consistent information, given to all key creditors on the same basis, is not just good ethics; it is negotiation strategy.
Sequence deliberately, document everything
Decide whom to approach first — usually the creditor whose cooperation makes the others possible — and what you need from each before moving to the next. Confirm every understanding in writing while it is fresh; a concession that lives only in a phone call has a way of shrinking later. And keep your own notes of every conversation.
None of this requires leverage. It requires work done early, before the pressure peaks and the options narrow. How a specific negotiation should be structured depends on the facts — the creditor landscape, the security positions, the cash runway. If you are heading into conversations like these, we are happy to help you prepare them.