Explain what a liability management exercise (LME) such as a drop-down financing is, and why lender cooperation agreements have become common in response.

In an LME, a borrower uses flexibility in existing credit documents to raise or restructure debt in ways that disadvantage some existing lenders. In a drop-down, the company moves valuable assets into an unrestricted subsidiary outside the collateral group and raises new debt against them (the J.Crew playbook); in an uptier, a majority lender group amends the docs to prime the minority with new super-senior debt (Serta). Both exploit covenant loopholes — baskets, unrestricted-subsidiary definitions, amendment thresholds. Consequences: collateral leakage, intercreditor litigation, and deep distrust. Lenders now respond with cooperation agreements — pacts among a critical mass of lenders not to participate in non-pro-rata transactions without the group, removing the borrower's ability to play lenders against each other. In European docs, tighter blockers (J.Crew/Chewy/Serta protections) are increasingly negotiated. For a restructuring advisor the lesson is: read the docs before assuming pro-rata treatment, and assess LME risk as part of any creditor strategy.