In this episode of the Unordinary Course podcast, Gary Holtzer, partner in Weil’s Restructuring Department, joins host Lee Pacchia, managing director at strategic communications and advisory firm ICR, to discuss the Firm’s innovative “Stapled Exchange” transaction pioneered to restructure debt for retailer Fossil Group. Gary explains how the structure was developed, the challenges it was designed to solve and what makes it an important new tool for companies, lenders and investors seeking to address financial distress outside of chapter 11.
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Frequently Asked Questions
What is a Stapled Exchange?
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The Stapled Exchange pairs a U.S. registered exchange offer with a U.K. Part 26A Restructuring Plan as a backstop. If enough holders tender voluntarily, the exchange closes without court involvement. If not, the U.K. plan binds holdouts (including those who did not participate) after sanction by the English High Court. The result is a structure that can achieve the certainty of a court-confirmed process without a chapter 11 filing.
How does a Stapled Exchange differ from a traditional out-of-court exchange or LME?
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The central problem with a conventional exchange offer on U.S. notes is the Trust Indenture Act, which prevents you from cramming down payment or maturity terms on non-consenting holders. You need effectively unanimous participation, which is rarely achievable. The Stapled Exchange sidesteps that constraint by using the U.K. plan to bind holdouts, with chapter 15 recognition making those terms enforceable in the U.S.
Why use a U.K. restructuring plan rather than U.S. bankruptcy?
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Chapter 11 is a complex process not designed well to adjust one tranche of debt. It triggers exchange delistings, forces you to address the entire capital structure, and introduces business disruption at exactly the wrong moment. The U.K. plan lets you target a specific creditor class surgically, preserve equity, and keep the company publicly listed throughout the process.
What made Fossil Group the right candidate for this structure?
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Two features of Fossil’s debt made conventional solutions unworkable. The notes were subject to the TIA, ruling out a binding out-of-court exchange. And roughly 40% were retail “baby bonds” ($25-denomination instruments held across approximately 1,500 accounts), making individual outreach to achieve required thresholds impractical. Chapter 11 would have triggered a Nasdaq delisting mid-turnaround and risked achieving the voting requirement of a majority in number of voting holders to accept the exchange (not required in the U.K.). The Stapled Exchange addressed the debt without touching the rest of the capital structure or the listing.
Can other companies use the Stapled Exchange?
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Yes. Fossil is the first publicly listed U.S. company to use it, but the structure has broad applicability. A variant called the Stapled Scheme Exchange substitutes a U.K. Scheme of Arrangement for the Part 26A plan. Both are well-suited to any situation where a company needs to address a discrete debt maturity without triggering a full restructuring.