Developing Robust Relevant Alternative Analysis

The recent Hurricane Energy Restructuring Plan judgment emphasises the importance of the Relevant Alternative analysis for Restructuring Plans. The cross-class cram down function of Restructuring Plans, together with the possibility to apply to exclude a class from voting where the court is satisfied that none of the members of the class has a genuine economic interest means that robust Relevant Alternative analysis is fundamental to a successful plan.

In this context, we set out the key issues to consider when formulating Relevant Alternative analysis, selected learning points from recent judgments, and a summary of the skills and experience of FTI Consulting experts.

What Is the Relevant Alternative?

In a Restructuring Plan, consideration must be given to the Relevant Alternative, which is whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned. The Restructuring Plan’s Relevant Alternative is conceptually similar to the comparator in a Scheme of Arrangement (“Scheme”).

The Relevant Alternative may often be an insolvency scenario, although this should not be a default assumption.

Why Is It Important?

Two key concepts in the Restructuring Plan are genuine economic interest and cross-class cram down. These concepts result in the Restructuring Plan’s Relevant Alternative potentially being crucial as they could see classes of debt or equity either:

not invited to vote on the plan (if deemed to not have a genuine economic interest); or
compromised even if the class votes against the plan (under the “no worse off” test).