Control Through Observer Rights and a CRO

Abstract

Two of the weapons in the arsenal of a second lien, mezzanine, or other leveraged lender are observer rights and the ability to mandate that a borrower engage a chief restructuring officer (CRO). This article examines each of those rights and suggests reasonable limitations on them, reflecting a balance between the legitimate interests of borrower and lender. In situations in which a borrower is highly levered and has limited financing options, it may be forced to accept whatever terms a lender demands, but this article assumes the parties have relatively equal bargaining power.