The Strategic Use of Side Agreements in Clearlake's Newfold Restructuring: A Blueprint for Private Equity Turnarounds?

In the high-stakes world of private equity-led turnarounds, debt restructuring is both an art and a science. Clearlake Capital Group's efforts to stabilize its portfolio company, Newfold Digital, offer a compelling case study in how side agreements, strategic lender management, and a recalibrated approach to creditor relations can shape the success of a financial overhaul. As Newfold navigates a $100 million debt restructuring plan, a Bloomberg Law report highlights how the role of these tools in balancing short-term liquidity needs with long-term viability has become a focal point for investors and creditors alike.

The Mechanics of Newfold's Restructuring

Newfold's debt restructuring hinges on a dual strategy: a debt exchange to reshape its capital structure and the pursuit of side agreements with lenders outside the original negotiations. These side pacts aim to broaden creditor support, ensuring a smoother path for the restructuring without the friction often seen in contested Chapter 11 filings. The Bloomberg Law report describes Clearlake leveraging these agreements to secure commitments from additional debtholders, who will receive favorable terms in exchange for flexibility in repayment priorities. This approach reflects a broader 2025 trend in which companies increasingly favor out-of-court restructurings to avoid the reputational and operational costs of bankruptcy.

A critical component of this strategy is the use of disqualified lender (DQ) lists. By excluding adversarial or opportunistic creditors from participating in the restructuring, Clearlake aims to protect sensitive information and prevent hostile entities from gaining leverage. Fitch Ratings has flagged related risks in its coverage, noting the company's fragile cash flows, while a 9fin analysis points out that this tactic-though controversial-has become a staple in private equity circles, particularly after Clearlake's acquisition of MV Credit, which bolstered its credit capabilities and positioned it to manage volatile markets more effectively.

The Charm Offensive: Rebuilding Creditor Trust

Clearlake's recent efforts to mend relationships with lenders underscore the importance of trust in restructuring success. After a series of contentious restructurings that drew criticism, the firm has adopted a more conciliatory tone, engaging in direct dialogue with creditors to address concerns about past practices. That charm offensive includes transparent communication about Newfold's financial challenges and a willingness to adjust terms to align with creditor interests. Such gestures are not merely symbolic; they signal a strategic shift toward collaboration, which is essential in an environment where even well-structured plans can falter without broad support.

Broader Trends and Risks

The 2025 restructuring landscape is shaped by macroeconomic headwinds, including high interest rates, slow GDP growth, and inflation above central bank targets-conditions highlighted in Deloitte's 2025 outlook. These factors have constrained capital markets, forcing companies like Newfold to rely on creative financing solutions. Fitch Ratings' recent downgrade of Newfold's issuer debt rating to 'CCC+' highlights the fragility of its financial position, noting that weak free cash flow generation in 2024 and 2025 could hinder its ability to reduce debt. However, the firm's access to Clearlake's broader credit infrastructure-such as its newly acquired MV Credit platform-provides a buffer against these risks.

Implications for Investors

For investors, Newfold's restructuring illustrates both the potential and the pitfalls of private equity-led turnarounds. The use of side agreements and DQ lists can accelerate restructuring timelines and reduce uncertainty, but they also raise ethical questions about transparency and fairness. Meanwhile, Clearlake's charm offensive suggests that adaptability in creditor relations is becoming a competitive advantage in an era of financial volatility.

However, the success of Newfold's plan will ultimately depend on its ability to execute. Fitch's negative outlook serves as a cautionary note: even the most strategically designed restructurings can fail if operational performance does not improve. Investors must weigh Clearlake's track record, the strength of its credit capabilities, and the broader economic environment when assessing the likelihood of a successful turnaround.

Conclusion

Clearlake's Newfold restructuring is a microcosm of the evolving strategies in private equity. By combining innovative financial tools like side agreements with a renewed focus on creditor collaboration, Clearlake is testing the boundaries of what is possible in a challenging market. Yet, as Fitch and Deloitte's 2025 outlook suggest, the path to stability remains fraught with risks. For investors, the key takeaway is clear: in the world of turnarounds, strategy must be paired with execution, and trust-once broken-can be the hardest asset to rebuild.