skills/distressed-recovery-waterfall/references/claims-priority-collateral.md

# Claims, Priority, Collateral, and Legal Flags

## Table Of Contents

- Claim taxonomy
- Priority map
- Legal entity and structural subordination
- Collateral pools
- Secured versus unsecured portions
- Intercreditor issues
- LME and covenant flags
- Legal-review flags
- Industry-specific claims
- Claim table template

## Claim taxonomy

Build a claims register before building the recovery table.

### Funded debt

For each instrument, capture:

- Instrument name.
- Issuer or borrower.
- Guarantors.
- Principal amount.
- Accrued interest.
- PIK interest.
- Default interest.
- Fees.
- OID.
- Make-whole or call premium.
- Maturity.
- Coupon.
- Floating-rate benchmark and spread.
- Secured or unsecured status.
- Lien priority.
- Collateral pool.
- Structural seniority or subordination.
- Intercreditor agreement.
- Consent threshold.
- Trading price.
- Known holder groups.

### Non-funded claims

Include:

- DIP claims.
- Adequate-protection claims.
- Administrative claims.
- Professional fees.
- Priority taxes.
- Wage and employee claims.
- Pension and retiree obligations.
- Environmental claims.
- Critical vendor claims.
- Accounts payable.
- Customer deposits.
- Warranty claims.
- Lease obligations and rejection damages.
- Litigation claims.
- Derivatives and hedge claims.
- Letters of credit.
- Surety bonds.
- Guarantees.
- Intercompany claims.
- Preferred equity liquidation preferences.
- Convertible securities.
- Warrants and options.
- Common equity.

### Claim status

Classify each claim:

- Allowed.
- Scheduled.
- Estimated.
- Disputed.
- Contingent.
- Unliquidated.
- Subject to objection.
- Counsel review required.

If a disputed claim could move the fulcrum, sensitize it.

## Priority map

Do not rely only on labels. Determine effective priority from collateral, guarantees, legal entity, intercreditor terms, and law.

Common ordering:

1. Superpriority DIP and court-approved priming claims.
2. Administrative and priority claims.
3. ABL or first-out facilities against working-capital collateral.
4. First-lien secured debt by collateral pool.
5. Pari passu secured debt.
6. Second-lien secured debt.
7. Unsecured deficiency claims and senior unsecured debt.
8. General unsecured claims.
9. Subordinated debt.
10. Preferred equity.
11. Common equity.

Modify for jurisdiction, collateral pools, structural subordination, and plan settlements.

## Legal entity and structural subordination

Always check:

- Which entity owns the assets.
- Which entity owes the debt.
- Which entities guarantee the debt.
- Which entities provide collateral.
- Whether debt is at HoldCo, OpCo, intermediate holding company, issuer, or subsidiary.
- Whether subsidiaries are non-guarantors or foreign.
- Whether cash is trapped.
- Whether there are intercompany claims.
- Whether unrestricted subsidiaries hold valuable assets.

Structural subordination can cause a nominally senior HoldCo claim to recover after OpCo creditors.

## Collateral pools

Separate value by collateral pool when material:

- ABL collateral: A/R, inventory, cash, borrowing-base assets.
- Term-loan collateral: PP&E, IP, equity pledges, residual assets.
- Real estate.
- Equipment, aircraft, vessels, fleet, receivables, or securitized assets.
- Foreign subsidiary equity or assets.
- Unencumbered assets.
- Avoidance actions, tax refunds, litigation proceeds, insurance proceeds.

Do not allocate one global EV pool if collateral proceeds are legally or economically ring-fenced.

## Secured versus unsecured portions

For an undersecured secured claim, distinguish:

- Secured claim value: supported by collateral value.
- Deficiency claim: remaining claim that may share with unsecured claims depending on documents and law.

Do not say a creditor is fully secured unless collateral value covers the claim and relevant priority issues are addressed.

## Intercreditor issues

Flag for counsel review:

- Standstill provisions.
- Payment blockage.
- Turnover.
- Enforcement control.
- Collateral release mechanics.
- Purchase option or buyout rights.
- Credit-bid rights.
- DIP consent rights.
- Adequate-protection proceeds.
- Waterfall for collateral proceeds.
- Voting restrictions.
- Subordination language.
- First-lien and second-lien rights in insolvency.

## LME and covenant flags

For liability-management transactions, identify:

- Debt capacity baskets.
- Ratio debt capacity.
- Incremental debt capacity.
- General debt baskets.
- Permitted liens.
- Asset-sale and investment baskets.
- Restricted payment capacity.
- Unrestricted subsidiary capacity.
- Non-loan-party debt capacity.
- Collateral release provisions.
- Sacred rights.
- Pro rata sharing provisions.
- Majority lender amendment powers.
- Open-market purchase language.
- Sponsor affiliate lender rules.
- J.Crew blockers or anti-dropdown provisions.
- Serta or anti-uptier protections.
- Double-dip or pari-plus capacity.

Do not conclude that an LME is permitted. State whether the available information suggests capacity or risk and flag counsel review.

## Legal-review flags

Always flag these for counsel:

- Make-whole entitlement.
- Default interest entitlement.
- Postpetition interest.
- Adequate protection.
- Priming lien standard.
- Lien perfection.
- Fraudulent transfer.
- Preference risk.
- Equitable subordination.
- Recharacterization.
- Substantive consolidation.
- Structural subordination.
- Third-party releases.
- Non-consensual releases.
- Classification and gerrymandering.
- Unfair discrimination.
- Absolute priority.
- Fair-and-equitable treatment.
- Best-interests test.
- Credit-bid rights.
- 363 sale free-and-clear issues.
- Plan feasibility.
- Cross-border recognition.

## Industry-specific claims

Prompt for special claims by industry:

- Retail: leases, gift cards, customer deposits, inventory liquidation, vendor reclamation.
- Healthcare: Medicare/Medicaid, provider agreements, malpractice, regulatory approvals.
- Energy and mining: plugging, abandonment, environmental, royalty, commodity hedges.
- Airlines: aircraft leases, loyalty programs, labor, slots, gates.
- Shipping: vessel mortgages, charters, maritime liens.
- Real estate: mortgages, ground leases, tax liens, mechanic liens.
- Telecom: spectrum licenses, customer contracts, vendor financing.
- Industrials: environmental, pensions, union contracts, equipment liens.
- Financial institutions: regulatory capital, depositor or policyholder priority, statutory regimes.

## Claim table template

| Priority | Class | Claim | Status | Issuer/borrower | Guarantors | Collateral | Lien | Counsel flags | Notes |
|---:|---|---:|---|---|---|---|---|---|---|