In April 2019, Burk Management, L.L.C. ("Burk"), a Delaware limited liability company, acquired all of the stock of Cervantes Corporation (Cervantes), a Delaware Corporation, together with all of its subsidiaries. As part of the financing to complete Burk's acquisition of Cervantes, Cervantes issued a number of debt instruments.

Senior-most in its capital structure is a senior secured facility consisting of a $3,850 million term loan facility ("Term Loans"), pursuant to a Credit Agreement dated as of April 9, 2019 (the "Credit Agreement"), among, Cervantes, Bank of America ("BofA") as administrative agent for the lenders, and the various lenders to whom BofA sold participation shares in the loans (the "Lenders"). The Credit Agreement obligations are secured by a first lien on substantially all of the assets of Cervantes.

In addition to the Term Loans, the Credit Agreement also provides for an "expansion" feature which allows Cervantes to issue up to $650 million in additional term loans (the "Other Term Loans"). None of the existing lenders have committed to purchase any Other Term Loans, and Cervantes would have to persuade investors to purchase them. These Other Term Loans may be issued on either the same terms as the Term Loans under the Credit Agreement or on such other alternative terms as BofA should deem satisfactory.

Immediately after incurring the Credit Agreement indebtedness, Cervantes issued several classes of notes. Senior among these note issues are $1,650 million principal value of 10.50% Senior Cash Notes due 2029 and $600 million principal value of 10.50% Senior Payment-Option Notes due 2029 (collectively the "Senior Notes"). The Senior Cash Notes require cash payment of interest on an annual basis. The Senior Payment-Option Notes allow the annual interest payments to be paid-in-kind with additional Senior Payment-Option Notes. The Senior Notes rank pari passu to the Credit Agreement indebtedness but are unsecured.

Cervantes also issued $875 million principal value of 12.375% Senior Subordinated Notes due 2029, which are subordinated in right of payment to the Senior Notes and the Credit Agreement indebtedness. Like the Senior Cash Notes, the Senior Subordinated Notes require annual cash payment of interest and are unsecured. Both the Credit Agreement and the trust indentures governing the various notes contain negative covenants regarding the use of funds for the early redemption or refinancing of indebtedness.

At present the market price for the notes is substantially below their face amounts. For the Senior Cash Notes, it is approximately 11% of the face amount, for the Senior Payment-Option Notes, it is approximately 13% of the face amount, and for the Senior Subordinated Notes, it is approximately 12% of the face amount.

Cervantes is contemplating a debt refinancing. Noteholders would be invited to participate as lenders under a new $500 million term lending facility. The term lending facility would consist of loans under the Other Term Loans expansion feature of the Credit Agreement, and it would be secured by a second lien on substantially all of the assets of Cervantes. Instead of funding these term loans with cash, the participating noteholders would fund their obligations under the new term loans with the delivery of existing notes, with priority given to commitments funded with certain classes of notes. In order of priority, for each $1,000 in term loan commitment, note holders would deliver notes according to the following schedule:

1. Holders of Senior Subordinated Notes would deliver $7,000 in principal value of Senior Subordinated Notes, up to an aggregate value of all term loan commitments funded by Senior Subordinated Notes of $125 million;

2. Holders of Senior Cash Notes would deliver $6,000 in principal value of Senior Cash Notes, up to an aggregate value of all term loan commitments funded by Senior Cash Notes equal to the difference between $400 million and the aggregate value of term loan commitments accepted from holders of the Senior Subordinated Notes; and

3. Holders of Senior Payment-Option Notes would deliver $6,000 in principal value of Senior Payment-Option Notes, up to an aggregate value of the lesser of (a) $100 million and (b) the difference between $500 million and the aggregate value of term loan commitments accepted from holders of the Senior Subordinated Notes and Senior Cash Notes combined.

The offer is proposed to be issued on May 3, 2022 and to expire on May 10, 2022 unless extended by Cervantes.

The Senior Cash Notes and the Senior Payment-Option Notes were issued pursuant to an indenture between Cervantes, as issuer, and Wilmington Trust Company, as indenture trustee (the "Trustee"). The Indenture is governed by Delaware law. Among the Indenture's provisions are the following:

Section 409. Securities Issuance. a. The Issuer shall not, and shall not permit any of the Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) or issue any shares of stock.

b. The limitations set forth in Section 409(a) hereof shall not apply to any loans borrowed by the Issuer or the Subsidiaries as Indebtedness under the Credit Agreement up to an aggregate principal amount of $4,500 million at any one time outstanding. . . .

Section 412. Permitted Liens. The Issuer shall not directly or indirectly, create, incur or suffer to exist any Lien on any asset or property of the Issuer or any Subsidiary of the Issuer securing Indebtedness unless the Senior Notes are equally and ratably secured with (or on a senior basis to, in the case of obligations subordinated in right of payment to the Senior Notes) the obligations so secured until such time as such obligations are no longer secured by a Lien. The preceding sentence shall not require the Issuer or any Subsidiary to secure the Senior Notes if the Lien consists of a Permitted Lien. "Permitted Lien" means, with respect to any Person, liens securing an aggregate principal amount of senior indebtedness not to exceed the aggregate amount of debt permitted to be incurred pursuant to Section 409(b).

Section 501. Events of Default. "Event of Default", wherever used herein means any one of the following events: . . .

a. The Issuer defaults in the payment of interest on any Senior Note when the same becomes due and payable and such default continues for a period of 30 days;

b. The Issuer defaults in the payment of the principal of any Senior Note when the same becomes due and payable at maturity, upon redemption, or otherwise;

c. The Issuer defaults in the performance, or the breach, of any covenant or warranty of the Issuer in this Indenture, and the continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Issuer by the Trustee or to the Issuer and the Trustee by the Holders of at least 10% in principal amount of the Senior Notes outstanding, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; . . . .

Answer each of the following questions:

I(a). 5 Points

From Cervantes's perspective, what is the financial logic of the proposed transaction? Demonstrate mathematically how it will alter Cervantes's capital structure if it succeeds.

I(b). 10 Points

As a practical matter, what might prevent the plan from succeeding? Imagine you have been asked by Cervantes for legal advice as to what strategy it might use to overcome the potential obstacle to the plan's success. What advice do you give?

I(c). 15 Points

Imagine Cervantes has asked you for legal advice with respect to the proposed transaction. Based on the information supplied in the fact pattern, what legal issues might be raised by parties dissatisfied with the plan? How should Cervantes deal with those issues?