Creative Liquidity Strategies to Address Liability and Exposure

As the economic dislocation associated with COVID-19 continues, business owners — including private equity owners — look to turn their challenges into opportunities. Creative strategies can allow companies to maximize liquid assets and minimize exposure to management, making everyone well positioned for the road ahead and protected from unanticipated disappointments.

As government support and lender accommodations erode, many companies are implementing or evaluating the possibility of asset dropdown transactions, which can enhance liquidity. Best practices can defend these transactions against negatively affected creditors when properly structured. As private equity firms and business owners execute more aggressive structures, they must remain attuned to potential liabilities, including failure to protect or pay over taxes and claims or failure to properly manage the business.

In this article, Sidley lawyers discuss some of the tools in the shed that can help owners protect their businesses and themselves.