How creditors get paid
By SuperdayReps · Wharton MBA · ex-Greenhill · investment banking interview coaching
6 min read · updated October 7, 2026
The waterfall decides how much value each class is owed. This lesson is about what that value actually arrives as. A creditor that was owed $100M rarely gets a $100M check. It gets a package: perhaps some cash, some new debt, some shares in the company that used to owe it money. How the package is built decides who owns the company afterwards and what each creditor's recovery is really worth.
The three currencies
A plan pays creditors in some mix of three things:
- Cash, from the company's balance sheet, new financing or asset sales.
- Take-back debt: new loans or bonds issued by the reorganized company to its old creditors, instead of cash.
- New equity: shares in the reorganized company. Old equity is usually cancelled, and the new shares go to creditors.
The mix is not a free choice. The reorganized company can only carry as much debt as its cash flows support, because the plan must be feasible. That caps the take-back debt, and any cash that new exit debt would fund. Value beyond what can be paid in available cash and supportable debt has to be paid in equity. So in practice senior creditors take the cash and the new debt, and the fulcrum class takes the equity in a debt-for-equity swap.
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Frequently asked
- What do creditors receive in a restructuring?
- Some mix of cash, new debt of the reorganized company (often called take-back debt) and new equity. Senior creditors usually get cash and new debt, because the reorganized company can only carry so much debt. The fulcrum class usually gets most of the new equity, so it becomes the owner.
- How is a creditor's recovery measured?
- As the value of everything it receives, divided by its allowed claim. New debt is usually counted at face value and new equity at the plan's equity value, which is plan value minus the exit debt. A class owed $600M that receives equity worth $360M at plan value has a 60% recovery.
- What is a rights offering in a restructuring?
- An offer to creditors, usually the fulcrum class, to buy new equity in the reorganized company for cash, at a discount to plan equity value. It raises new money for the company. Large holders often backstop it, agreeing to buy any shares not taken up in return for a fee, usually paid in extra shares.
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