What challenges can arise from a "holdout" creditor during restructuring?

In the context of restructuring, a "holdout" creditor can significantly complicate the process because they may refuse to accept the proposed terms of the restructuring plan. This behavior can manifest as an unwillingness to agree to the modifications of debt or other financial arrangements that the majority of creditors have accepted.

A holdout creditor’s reluctance to participate can lead to delays in the restructuring process, potentially causing increased costs or even pushing the company into more severe financial distress if an agreement cannot be reached. Their refusal also poses legal and practical challenges, as the restructuring plan may require approval from a certain percentage of creditors, and holdout creditors can jeopardize achieving those necessary thresholds. This phenomenon can create a scenario where a minority of creditors can hold significant power, impacting the overall restructuring efforts and outcomes.

By contrast, the other options—facilitating agreement among creditors or automatically joining restructuring plans—do not encapsulate the nature of a holdout creditor's behavior. They highlight scenarios that are not typical of a holdout situation, as these creditors are distinctly characterized by their refusal to participate rather than their compliance or cooperative behavior.