Project Eastgate — Liability Management Exercise
A 2-hour Liability Management / Restructuring case study with a complete model answer
Modeled After
Evercore
Pre-petition creditor negotiation materials: restructuring and exit-financing term sheets with open terms left bracketed, an illustrative sources and uses shown with pro forma capitalization on the same page, a treatment-of-claims matrix, and the business plan re-run on a downside case
Structure and exhibit set are modeled after Evercore. The company, the financials and every figure in this case are entirely our own.
The Situation
Eastgate Retail Holdings, Inc.
Eastgate Retail Holdings, Inc.
- Sector
- Specialty retail — home textiles, decorative accessories and seasonal decor, sold through 612 leased Hearthway stores and an owned two-node distribution network
- Size
- Geography
- United States; headquartered in Westerville, Ohio, with stores in 41 states and owned distribution centers in Kestermere, Ohio and Lanmore, Texas
- Ownership
- Situation
The Prompt
You are the financial advisor to Eastgate Retail Holdings, Inc. The company cannot refinance its first lien term loan, its asset-based revolver springs 91 days ahead of that maturity, and an ad hoc group holding a majority of the term loan has delivered a counterproposal.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 120 minutes.
PART 1
Business plan under both cases
PART 2
Thirteen-week cash flow and availability
PART 3
Current capitalization, covenants and consent arithmetic
PART 4
Both term sheets, priced
PART 5
Sources and uses, and pro forma capitalization
PART 6
Treatment of claims
PART 7
Recovery analysis at a range of enterprise values
PART 8
Liquidation analysis and the best-interests test
PART 9
Solvency and coverage
PART 10
The deck and the memorandum
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck, Excel model and memo are in the solution set below.
- 01
Read the documents before you build anything
- 02
Screen the holder register
- 03
Build the liquidity runway first, not the capital structure
- 04
Price both structures the same way
- 05
Sensitize recoveries rather than concluding a value
- 06
Put a floor under it
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Springing maturity
A facility whose stated maturity accelerates automatically if a more junior or longer-dated instrument is still outstanding a set number of days before its own maturity. It converts a distant problem into an immediate one and it is usually the first thing to go wrong in a maturity wall, because it moves without anybody doing anything.
Borrowing base and springing fixed charge coverage
An asset-based revolver lends against a formula on eligible receivables and inventory rather than against earnings, and the line cap is the lesser of commitments and that formula. Most such facilities have no financial maintenance covenant until excess availability falls below a threshold, at which point a coverage test springs into existence and cash dominion begins. The practical effect is that availability, not cash, is the variable to watch, because it moves with the borrowing base and the drawn balance at the same time.
Required lenders versus affected lenders
A credit agreement grades its amendments. Ordinary waivers need a majority. Changes to principal, interest rate or a payment date need the consent of each lender they affect. Releasing all or substantially all of the collateral usually needs everybody. Whether lien subordination sits in the majority bucket or has a blocker in front of it is the single most consequential drafting question in a modern liability management exercise.
Exit consents and Trust Indenture Act §316(b)
Section 316(b) provides that a holder's right to receive payment of principal and interest on or after the due date may not be impaired without that holder's consent, so payment terms cannot be amended below unanimity. Covenants are not protected. An exchange offer can therefore be paired with a majority consent that strips the covenants, the cross-default and the guarantees out of whatever does not participate, leaving a stub with no protections. Following the Second Circuit's 2017 decision in Marblegate, §316(b) protects the formal legal right to payment rather than the practical ability to recover.
Debtor-in-possession priming and the DIP-to-exit conversion
A facility that primes existing liens requires a court finding under §364(d) that the primed lenders are adequately protected, which in practice means the existing first lien is the only realistic source of the money. A facility drafted to convert into exit financing at emergence, rather than to be repaid, avoids having to raise the same money twice and is the ordinary structure where the same lenders are also taking the equity.
The best-interests test
Under §1129(a)(7), a holder of an impaired claim that votes against a plan must still receive at least what it would receive in a chapter 7 liquidation. It is the reason a liquidation analysis exists at all, and it binds on the worst combination of assumptions rather than on the central one — which is what makes it worth testing at the corners of a range rather than only at the midpoint.
Section 502(b)(6) and lease rejection damages
A landlord's claim for future rent is capped at the greater of one year of rent and fifteen percent of the rent reserved for the remaining term, not to exceed three years. For a retailer with hundreds of leases the cap is usually the largest single adjustment in the liquidation analysis, and it is what makes a leased footprint restructurable rather than an insurmountable unsecured claim.
Troubled debt restructuring for the debtor
ASC 470-60 still governs debtor accounting; ASU 2022-02 eliminated the analogous creditor guidance and did not touch it. A gain is recognized only where total future undiscounted cash payments under the new terms fall below the carrying amount of the old debt — so an amend-and-extend that raises the coupon and lengthens the tenor frequently produces no gain at all, even though the debt was restructured at a discount to market.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck, Excel model and memo, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Capital structure and maturity wall analysis
- —Thirteen-week cash flow and borrowing base availability
- —Restructuring and DIP-to-exit term sheets
- —Illustrative sources & uses and pro-forma capitalization
- —Treatment of claims and recovery analysis
- —Liquidation waterfall and the best-interests test
Answer Deck
Full model answer, banker-formatted
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model, the memo and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Memo (PDF) and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Eastgate — Liability Management Exercise
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Why is there no valuation in a case about a company's capital structure?
Because the restructuring materials this case is modeled on do not contain one. When the going-concern premise is in doubt, the number a discounted cash flow or a comparable-company set is built to estimate stops being the operative question; what matters is what the collateral is, who has a lien on it, and what each class is legally entitled to. Enterprise value still appears, but as a stated range across which recoveries are sensitized, with the advisor expressing no view on which point in the range is correct.
Should the deck show finished terms or leave brackets in?
Leave the brackets in. The open commercial points are the negotiation, and a page with no brackets is a page that has conceded everything. The real documents in this archetype carry bracketed pricing, bracketed tenors and bracketed milestones, alongside a header stamp saying the document is preliminary and subject to modification.
How much of the 120 minutes should go on the workbook?
Most of it. The modeling here is heavy — a weekly forecast, two sources and uses, two pro forma capitalizations, two recovery waterfalls and a liquidation analysis — and the template's own cover prints the measured scope and a suggested build order. The balance goes on reading the documents, screening the holder register and forming the recommendation. The deck is expected to be a skeleton of headline pages; if you are formatting at the end, the time went to the wrong place.
The two proposals are not directly comparable. How do I present them side by side?
Force them onto one basis and say what the basis is. Strike every leverage multiple on the same earnings figure, run both recovery analyses across the same range of enterprise values, and price both structures through a sources and uses that balances. Differences that survive that treatment are real differences; differences that do not survive it were artifacts of presentation.
Is it acceptable to recommend the counterparty's proposal over my own client's?
It is acceptable and sometimes required. The advisor's job is to tell the client what the evidence supports, and a proposal that leaves the company insolvent and its new lenders exposed is not made better by being the client's. The stronger answer names the weakness in whichever proposal it recommends as well, because the group's advisors will run the same analysis and it is better to raise a problem than to be shown one.
How much bankruptcy law do I actually need?
Enough to state a small number of claims exactly rather than a large number approximately. Consent thresholds and what each unlocks; the limit of Trust Indenture Act §316(b) and how an exit consent works around it; §364(d) priming and adequate protection; the §1129(a)(7) best-interests test; and the §502(b)(6) cap. A wrong legal claim in a creditor negotiation is more damaging than a missing one, so anything you cannot state cleanly should be left out.
About This Liability Management / Restructuring Case Study
Liability Management / Restructuring case study for investment banking interviews. 120-minute format covering capital structure and maturity wall analysis, thirteen-week cash flow and borrowing base availability, restructuring and dip-to-exit term sheets. Includes the full prompt, a model answer deck, a tied-out Excel model, a written memo and an audio walkthrough.
This case study sits in Investment Banking, under Restructuring & Special Situations. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
120-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Memo
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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