“You sold the debt to Oaktree?”

July 15, 2025

And That’s How My LME Failed and I Was Replaced as Lemonade Stand CEO for a Booth Grad Named Logan.

Note: This is an alternative version of the original fictional story here on a Liability Management Exercise for a lemonade stand: https://www.linkedin.com/pulse/when-life-gives-you-lemons-leverage-them-restructure-debt-alex-fabry-oh1ic

Right before the Liability Management Exercise—the slick legal move that was supposed to save my business—I had one thing going for me: Cousin Susie.

She had fronted me $400,000 ten years earlier. No bank would lend to me back then, but Susie did. Interest-only. Handshake deal. Family-first.

I grew rapidly during the pandemic. Now I was coming back to reality but fixed costs were high. Operating leverage is working against us in this environment

Now the business was struggling. Revenues down. Debt piling up. My plan?

Liability Management Exercise. IP dropdown for max aggressive leverage. Force the bank to come to the table, screw over my friends, and leave Cousin Susie relatively unscathed.

Then Susie calls me the day after we effectuate the IP transaction.

She didn’t flinch. Just sipped her sparkling water, crossed her arms, and said:

“I told you not to do that dividend recap.”

Susie Saw It Coming

Susie isn’t really my cousin – she is my grandmas cousin. But she’s also a structured credit wizard.

Reads distressed debt filings for fun. Reads Howard Marks memos the way most people read cookbooks. She allegedly one time beat Charlie Munger in Bridge.

She lives and breathes high yield credit. Seen a dozen implosions up close. And she spotted mine a mile away.

She had warned me—repeatedly—not to do dividend recaps during COVID.

But legally, she couldn’t interfere.

So she did something smarter. She wrote a letter.

The Letter to Oaktree

“Dear Mr. Marks,

“My cousin runs an overleveraged lemonade business. I think he might be planning a textbook liability management exercise to protect his assets and impair his lenders. I hold the senior secured note. Would you like to own it instead?

Warm regards, Susie Fabry”

Two weeks later, she sold the debt for 88 cents on the dollar. No drama. Just a clean wire and an Oaktree thank-you note signed in cursive.

Unaware of this debt transaction. I (via Tripp) drop the IP to the Delaware sub. Then Cousin Susie calls me the next day:

“Sweetheart, I know you are thinking about an IP dropdown. That’s textbook asset shielding. You were going to torch your friends. I don’t want to be apart of that”

“I pitched it as a pre-packaged control deal. They loved it.”

“But you’re my cousin?!?!?” I plead

“And you’re my counterparty.”

“I love you,” she told me. “But I don’t love covenant-lite debt in a consumer beverage downturn.”

Then she hung up, mailed over the paperwork, laughing because I now have the fight of my life coming up with Oaktree.

The operating company is without IP. Oaktree is the lead debt holder. And they are looking to operate, according to Susie.

Talk about a turn of events.

How Some Investors Use Debt to Take Over Companies

Here’s something most people don’t realize:

Some of the most powerful investors don’t buy companies by purchasing stock — they buy debt.

Firms like Oaktree Capital, Apollo, and Elliott Management specialize in distressed debt investing. That means they look for companies in trouble—usually weighed down by too much leverage, declining performance, or looming covenant violations—and they buy that company’s loans or bonds at a steep discount.

Why?

Because debt sits above equity in the capital structure. If the company can’t pay its bills and has to restructure (either privately or through bankruptcy), those debt holders get first dibs on the assets. And if you own enough of the debt, you can often say:

“Forget the founder. We’re in charge now.”

This is sometimes called a “loan-to-own” strategy. You’re not investing to help the company succeed—you’re betting you’ll end up owning it after the dust settles.

Firms like Apollo, Elliott, and Oaktree has built a quiet (and sometimes loud) empire of control equity stakes—often without ever writing a traditional equity check.

In other words: Not all takeovers look like takeovers.

Sometimes, they start with a discounted loan… …and end with a new CEO.

In this case, Oaktree was trying to takeover my lemonade stand. They saw a dislocation in the market and wanted a platform to build from. They mostly wanted the IP: they could afford as many Lemo-5000 machines as they wanted. But “Lemonade guy of STL” ? – that had long term value to drive juicy unit economics.

But now the IP was parked inside Lemon IP HoldCo LLC—a Delaware shell with no employees, no operations, and nothing but a name.

And they just scheduled a meeting with us.

Tripp Tranchewell vs. The Professionals

My lawyer, Tripp, was ready. We had our slides. We had our shell entity (Lemon IP HoldCo LLC). We thought we were the smart ones.

Then the Oaktree team showed up with:

6 professionals
3 copies of my credit agreement (highlighted)
1 former DOJ restructuring advisor “just observing”
And a junior analyst who’d memorized page 43 better than I had my wedding vows

Tripp opened confidently:

“Per clause 6.7(e)(ii), we believe we’re well within our rights—”

The Oaktree attorney cut in:

“That clause is inoperative following springing maturity. See page 43, subsection D.”

Tripp blinked.

“Uh… does anyone have a charger?”

They gave us 15 minutes to “regroup.” Tripp used it to Google “springing maturity.”

The Aftermath

Oaktree triggered a technical default
Converted the debt into equity
Took 92% of the business
Installed a 30-year-old Booth grad named Logan as CEO
Gave me a non-voting “Brand Founder” board seat that came with a tote bag and $1,000 in annual product credits

Susie? She got her money back. Used it to buy NVIDIA stock and an espresso machine. She now refers to her decision as “preemptive self-care.”

The Marks Memo

Later, I found out Howard loved the story.

He even mentioned it in an internal memo:

“This is the kind of distressed opportunity we look for: A founder with vision, leverage, and no adult supervision. A product people love. A balance sheet begging for a recap.”

— Howard Marks, “Thoughts on Citrus and Control” (April 2023)

The Matt Levine Moment

A few weeks later, Matt Levine covered the whole saga in his Money Stuff newsletter.

Here’s what he wrote:

“In what may be the most ambitious liability management exercise ever attempted by a business with one location, two employees, and a lemonade-only product line, the founder tried to engineer a J. Crew-style IP drop into a Delaware shell.”

“Oaktree bought the debt and took control within weeks. Cousin Susie, who originated the loan, reportedly exited for 88 cents on the dollar and an Oaktree tote bag. A happy ending for her.”

“As for the founder, he now retains observer rights and has been dubbed by one attorney ‘a poor man’s Clearlake.’”

I laughed. Then I cried. Then I updated my LinkedIn to say: “Board Observer”

What I Learned

Liquidity buys time. Capital structure buys control. You can survive a cash crunch—but if someone else owns your debt, they own your destiny.
Dividend recaps aren’t free money—they’re leverage wrapped in optimism. If you’re pulling cash out of a business that’s not yet bulletproof, you’re gambling with future trust.
The documents always matter. That 47-page credit agreement you skimmed? Someone at Oaktree memorized it—and they’re coming.
Liability management is not a game. It’s a knife fight with footnotes. Moving IP into a shell company sounds clever—until your lenders bring six lawyers and a valuation expert.
If your cousin worked at Drexel, reads distressed filings for fun, and once debated Munger over coffee—maybe don’t assume she’s a passive lender. Turns out, she was underwriting you the whole time.

Final Thought

I thought I was saving the business. And myself.

I listened to a slick lawyer. I should have listened to my conscience

But Susie saved herself first. And Oaktree? They were just doing their job.

They beat me at my own game