Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Out of the money definition

What does Out of the money mean? In restructuring and insolvency practice, “out of the money” describes a stakeholder (typically a class of creditors or shareholders) that, on a realistic valuation and applying the statutory priority/waterfall, has no economic interest because senior claims exhaust the enterprise value—so it would receive no distribution in the relevant alternative (e.g., administration or liquidation). For example, if secured debt exceeds the company’s value, unsecured creditors and equity are out of the money. The phrase is not defined in legislation or case law; it is a descriptive market and judicial shorthand used across England & Wales, Scotland, Northern Ireland and Ireland, with...

Determining the Value Break: Valuation, Waterfall Priority and Negotiating Power in UK Corporate Restructurings

Published by a LexisNexis Restructuring & Insolvency expert

Practice notes

Where does the value break?

Early in restructuring talks, the parties commission valuations of the business to identify where the value breaks (see Practice Note: Types of valuation for R&I lawyers). That valuation shows:

which tranche(s) of debt is impaired
which creditors are plainly Out of the money and therefore have no place at the restructuring table
which creditors sit close to the break and may contest the valuation
the probable division between Equity and debt instruments in the company after the restructuring
who will be asked to inject further funds in return for a post-restructuring stake
which creditors may wish to Buy Out the senior creditors to avoid enforcement and the resulting impairment of their debt

Creditors in the tranche at the value break will generally expect a larger slice of equity in the restructured entity, compensating their impairment and encouraging them to back a restructuring agreement (see Precedent: Restructuring Agreement). The valuation ultimately decides which creditors retain a post-restructuring interest and the proportions they hold...

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Web page updated on 21/05/2026

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