A situation in which junior classes of creditors impose a cram-down on senior classes of creditors during a bankruptcy or reorganization. In a cram-up a company facing bankruptcy cannot force creditors to accept compromises to their claims outside of the courtroom, but the creditors themselves can agree to the terms. If enough junior class creditors agree to the terms set forth by a company seeking refinancing, they can force holdouts to be bound to the agreement, therefore cramming the refinancing up. Senior classes of creditors would therefore be forced to accept the terms, even if they are not as good as the original deal.


There are two primary cram-up methods: reinstatement and indubitable equivalent. In a reinstatement cram-up, the maturity of debt is kept at the pre-bankruptcy level, debt collection is decelerated and the debt is "cured." Lenders are compensated for damages, but the terms of the debt are kept the same. An indubitable equivalent, which is more commonly used, involves paying a stream of cash payments to creditors equal to the amount due. While this is happening, creditors maintain their liens, which can make it difficult for a post-restructuring company to maintain the funds necessary for working capital.

  1. Reorganization

    A process designed to revive a financially troubled or bankrupt firm. A reorganization ...
  2. Cram-Down Deal

    1. A situation in which a creditor is forced to accept undesirable terms imposed ...
  3. Secured Creditor

    Any creditor or lender that takes collateral for the extension of credit, loan ...
  4. Creditor

    An entity (person or institution) that extends credit by giving another entity ...
  5. Absolute Priority

    A rule that stipulates the order of payment - creditors before shareholders ...
  6. Bankruptcy

    A legal proceeding involving a person or business that is unable to repay outstanding ...
  7. Distress Cost

    Costs that a firm in financial distress faces beyond the cost of doing business.
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  10. Official Committee Of Equity Security ...

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