Bankruptcy Debt Restructuring

Pre-Packaged Chapter 11 Lockup Agreement

Audited by Cole Barrett • Topic: Bankruptcy Debt Restructuring
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Cole Barrett's Reality Check

The Unvarnished Bottom Line

"When a company files a standard bankruptcy, you have months of court battles. When they file a 'pre-pack,' the deal is already done before they walk through the courthouse doors. The company and the hedge funds have already signed a lockup agreement that cancels common stock and hands the business to the bondholders. Buying a stock that announces a pre-pack is buying a dead asset."

Interactive Simulator: Test the Math

Interactive Simulator: Compounding Fee & Tax Drag

Portfolio Balance ($) $100,000
Annual Expense / Tax Drag Rate (%) 0.75%
Direct Annual Deduction
$750.00 / yr
Siphoned directly from capital
25-Year Compound Loss
$94,200
Lost growth potential

Real-World Example: Scenario Breakdown

Examining the real numbers for: Holding common shares in an over-leveraged energy producer that signs a Restructuring Support Agreement with 75% of bondholders

Execution Metric Senior Secured Lockup Signatory Speculative Retail Equity Buyer
Fee / Rate Institutional restructuring fee $0 commission
Spread / Buffer Held senior debt; signed the pre-packaged lockup agreement agreeing to cancel debt in exchange for 98% of reorganized equity Bought common stock at $0.50 after the bankruptcy filing, expecting a long court battle and meme rally
Execution / Status Pre-pack confirmed in bankruptcy court in 35 days; emerged as a majority equity owner in a debt-free company Pre-pack agreement went straight to the judge; lockup votes met statutory majorities on day one
Total Cost / Result Secured reorganized equity through a pre-negotiated restructuring lockup Suffered immediate 100% loss under a pre-packaged bankruptcy confirmation

How Brokers Weaponize This Term

If a distressed company announces it has signed a 'Restructuring Support Agreement' (RSA) or 'Pre-Packaged Plan of Reorganization', immediately check the treatment of common equity. If the RSA states common shares will be cancelled, sell immediately—the deal is already locked.

Broker Evaluation Matrix

Cole Approves

Interactive Brokers: Provides institutional fixed-income screening, tracking Chapter 11 filings and Restructuring Support Agreements (RSAs) in real time.

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Cole Flags / Avoids

Gamified Retail Trading Apps: Allows retail users to trade common shares of bankrupt companies without displaying warnings that a confirmed pre-pack will wipe out the stock.

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Frequently Asked Questions

How fast does a pre-packaged Chapter 11 bankruptcy proceed?

A pre-pack can clear bankruptcy court in as little as 30 to 60 days, compared to standard Chapter 11 proceedings that often drag on for 18 to 36 months.

What is the difference between a 'pre-pack' and a 'pre-arranged' bankruptcy?

In a pre-pack, votes on the restructuring plan are formally solicited and counted *before* filing bankruptcy. In a pre-arranged bankruptcy, the framework is agreed upon via an RSA, but formal voting occurs *after* filing.