hard · Corporate Credit Analysis

Under the 'J.Crew' maneuver or similar 'drop-down' liability management exercises, what is the primary mechanism by which existing creditors are disadvantaged?

1. Increasing the interest rate on new debt tranches beyond MFN protection levels.
2. The mandatory conversion of senior debt into junior equity upon a covenant breach.
3. Transfer of valuable assets to an unrestricted subsidiary to back new senior debt.
4. Direct contractual subordination of existing first-lien claims via a majority vote.

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