The Keys Change Hands. You Do Not.

Advice for CEOs when lenders take over

The Keys Change Hands. You Do Not.

You take the call standing up, in the corridor outside the finance floor, because you assume it will be short.

It is.

Your deal partner tells you the fund has decided against putting more money in. The lenders will take the equity instead. He uses the word orderly twice, and you notice it the second time. He tells you nothing changes operationally. Somewhere in the middle of this he stops being a person you can call.

Here is what happens next, so you are not waiting for it. You keep your job. And about four months in you find yourself holding a decision worth eleven million dollars with nobody to take it to, because the man who used to decide things has moved to another portfolio and the people who replaced him are not certain they are meant to.

That is the part nobody warns you about. Not the loss. The vacancy.

What just happened

The sponsor wrote its equity to zero and gave ownership to the lenders in exchange for cutting the debt. Done as a foreclosure, it takes days and never sees a courtroom. Value slid down the capital structure until it hit somebody still owed money, and stopped.

The industry calls this handing over the keys. Good phrase for the sponsor. Poor one for you, because it pictures an empty house.

You are still in the house.

The numbers

Private credit foreclosures ran about 2.7 billion dollars in 2023. Then 10.7 billion in 2024. In 2025 they cleared 24 billion, and 2026 is running ahead of that, according to Lincoln International.

Nine times bigger in two years.

None of which tells you whether you keep your job. I went looking for that number and it does not exist. Every serious study of management turnover in distress is built on court filings, because that is the only place anyone is compelled to write it down. Out-of-court foreclosures produce none. Lincoln can count the dollars because lenders report their marks.

Nobody counts the people.

There is a better source anyway, sitting in public. Proskauer wrote a piece on these deals for an audience of private credit lenders. Buried in it is a warning about you. At the point of a negotiated restructuring, they tell their clients, there may be very few incentives left to retain and motivate management. The equity awards have little or no value. The performance goals will not be met. And the deal itself can trigger change-of-control payments and severance rights that push executives toward the door.

Read that again as the man being described.

Their advice is that the lenders rebuild management’s package. So your position is understood by the people across the table. It is fixable. And it does not get fixed unless somebody puts it on an agenda.

Nobody is going to do that for you.

The first week

The advisors arrive before the swap does. Four or five sets of them, expensive and calm, carrying the same laptop bag. This is the window where what you do still changes the outcome. Six things.

Ask who pays each advisor. There is a lender-side advisor, a company-side advisor, the sponsor’s banker and two sets of lawyers. One of them works for the entity you run. None works for you. Ask it out loud in the first meeting. People answer honestly, because the fee letters exist and everybody knows it.

Get your own lawyer. Not the company’s, not the sponsor’s. Somebody whose only job is your contract, your indemnity and your exposure. It costs a few thousand dollars. Chief executives skip it out of embarrassment and think about it for years afterwards.

Find out who is buying the D&O run-off. When the sponsor goes, the directors’ cover it arranged can lapse, and somebody has to buy the tail. That gets decided in a week when nobody is thinking about you. Get the answer in writing, with the number of years on it.

Understand that your duty has moved. Delaware holds that the subject of a director’s fiduciary duty shifts at insolvency itself, and creditors of an insolvent company can then bring derivative claims. The UK test bites earlier, once directors know or ought to know the company is insolvent or heading there. Either way, decisions taken in this window get read later by people looking for a claim. Write the minutes as though a hostile lawyer will go through them line by line in three years.

One will.

Stop producing optimistic cases. Your forecast has stopped being a management tool. It is a negotiating document now, and every party in the room will use it against a different party. Produce one base case, write the assumptions underneath it, and defend it. A chief executive who shows a stretch case during a restructuring loses his credibility once and does not get it back.

Fix your own incentives before you sign anything. Your management incentive plan sat below the debt. It was struck at a value the business no longer has, and it was worth nothing for months before anybody told you. Your leverage peaks the day before closing and is gone the day after.

I am not a lawyer and the duty rules turn on jurisdiction. The fourth one needs a real opinion on a real company, this week.

Your chair

Nothing happens to your chair. Your chair leaves, because your chair worked for the fund.

The chair is usually the deal partner and the non-executives are fund people. When the fund walks away from the equity its employees walk out with it. No vote, no conversation. Your board is not reconstituted. It is evacuated, in an afternoon, by email.

What comes back is a profession you may not have met. In 2004, 3.7 per cent of Chapter 11 companies had a specially appointed independent director. By 2019 it was 48.3 per cent, roughly half at private equity controlled companies, with a small group holding a median of thirteen such directorships apiece. They are former restructuring lawyers and distressed traders. They are very good at running a process and being defensible three years later.

Ask your new chair what his last three roles were. You will learn what kind of year you are about to have.

The objection

Sometimes none of this applies. Blackstone, Apollo and KKR took ownership of Medallia this year in a transition designed to be uneventful, and credit funds have no bench of operators and a strong preference for the person who already knows where the cash sits.

So the handover is often gentle. It also means the risk arrives slowly, while everyone is being polite to you.

After

Your owner is not built to be an owner. A credit fund underwrites. It does not operate. No operating partners, no hundred-day plan, no thesis beyond getting back to par. The meetings get shorter and the questions thinner, and you will read that as approval. It is nobody being there.

The clock breaks too. A sponsor had a fund life and a deadline you could plan around. Lenders hold the asset at a mark. They can sit on you for six years or sell you in six months, and the call gets made by a portfolio manager balancing a book you will never see.

So ask them, in writing, what they want this company to be worth and by when. Most will not answer. The one who does has handed you the only strategy document you are going to get.

The keys change hands. You do not.

Sources: Lincoln International foreclosure data via Debtwire/ION Analytics, June 2026; Octus, 2026 Distressed Outlook, January 2026; Bloomberg, “Private Creditors Are Taking The Keys to More Failing Companies,” March 2026; Proskauer Rose, “Trends in Private Credit Restructuring: Out of Court Change of Control Transactions”; BTI 2014 LLC v Sequana S.A. [2022] UKSC 25; Gheewalla and Quadrant Structured Products v. Vertin (Delaware); Ellias, Kamar and Kastiel, “The Rise of Bankruptcy Directors,” via the Harvard Law School Forum on Corporate Governance.