Step Brothers

In the 2008 comedy Step Brothers, Dale and Brennan are two forty-year-old men forced to share a bedroom when their parents marry. They hate each other, discover they are exactly alike, form an improbable alliance, blow everything up, and ultimately conclude the world works better when they cooperate. The parents spend the film trying to manage the chaos their blended household has created, desperate to keep the peace as their finances and sanity deteriorate.

If you work in asset-based lending, you have lived this movie. The step brothers are the turnaround consulting community and the appraisal and liquidation firms. The parents are the lenders, usually sponsor-focused, who need both disciplines but have not mastered keeping them in productive tension. Like the film, the comedy is wearing thin. The bill is coming.

The World Before the Blended Family

There was a time when the distressed company playbook was straightforward. A company reported an over-advance in a borrowing base certificate. The lender called the appraiser, who valued the collateral and handed off to the liquidation group. The liquidation ran, the lender recovered, and the company was gone, but the timeline was controlled and the process was designed to maximize recovery because nobody waited around hoping things would improve. This system had real virtues: it was fast, disciplined, and focused on the lender's primary obligation, recovering capital rather than nursing a broken business through extended rehabilitation at the collateral's expense. But that speed came at a cost the model rarely priced explicitly.

There was often no meaningful process for a distressed sale, limited opportunity to capture a going-concern premium from a strategic buyer, little room for management to refinance the lender out at par, and no time for a seasonal recovery or an orderly wind-down that might outperform an immediate liquidation. The company was dead the moment the lender decided it was dead. That call was sometimes exactly right and sometimes precluded a better outcome nobody had time to explore. For a long time, in a less competitive market, lenders made that call with minimal reputational or financial consequence for what it left on the table.

Enter the Step Brother

Lenders, particularly those calling on private equity sponsors, became acutely aware that a liquidation was not just a credit decision but a relationship decision. Into this environment stepped the turnaround consulting community, at exactly the right moment. If the lender was no longer prepared to liquidate on an expedited timeline, someone needed to manage the situation, install controls, assess the business, and pursue a sale or turnaround that could lead to a refinancing. Turnaround consultants became the answer to a question the market was increasingly asking: is there anything we can do before we have to liquidate?

The turnaround consultant did not displace the appraiser. But the consultant changed the flow of information and, with it, the balance of influence in the lender's day-to-day decision-making, a shift the industry is only beginning to price.

Dale and Brennan Share a Room

Here is where it gets complicated. Turnaround consultants and appraisal/liquidation firms are not enemies; on the contrary, they work together constantly. A turnaround consultant managing a distressed situation needs an appraiser to value the assets, set a liquidation baseline for negotiations, and be ready to execute if a turnaround effort fails or a sale falls through. An appraisal firm benefits from having a turnaround professional manage the business while the liquidation is planned, helping keep the lights on and the inventory from walking out the back door.

It is worth being honest about the incentives underneath that cooperation, because they cut in different directions. Turnaround firms are typically compensated on a time basis, which can, but does not always, create a pull toward preserving optionality and keeping a process alive longer than the facts justify. Liquidation firms are compensated for executing a disposition, which can create the opposite pull, toward calling the moment sooner rather than later. Neither incentive disqualifies the professional; both are compatible with excellent, good-faith work. But neither should be left unmanaged; managing that tension is the lender's job, not the professionals'.

The cooperation is real. But so is the competition – not for clients, but for influence over the situation. A turnaround consultant embedded inside the company, running the thirteen-week cash flow and talking to management daily, becomes the lender's primary source of financial information, carrying real weight. But the consultant does not control the timeline – the lender does, through funding, waivers, forbearance, and the decision to exercise remedies. Management, the board, the sponsor, counsel, and sometimes the court shape the timing too.

Whoever defines the milestones, controls the funding, and determines the consequences of a missed milestone holds disproportionate influence over the outcome. Too often, that role defaults to whoever is easiest to let run the process, not whoever the lender deliberately put in charge.

This is partly because lenders want it that way. A turnaround engagement provides the lender with decision support and a documented record of good-faith efforts to preserve value before resorting to liquidation. Because sponsor and family-owned business relationships are closely guarded, a turnaround engagement can become a form of institutional protection as well as a genuine recovery strategy, and those two things are not always the same.

The Parents Are Running Out of Money

Time is not neutral in a distressed credit. Properly managed runway can preserve real value, including a going-concern sale, a refinancing, or a seasonal recovery that a hasty liquidation would have foreclosed. Unmanaged runway can just as easily consume the lender's recovery. The difference is rarely luck; it is whether the runway was priced and governed as a deliberate decision or granted by default because nobody had a mechanism to say no.

Collateral deteriorates in ways borrowing base reporting does not always capture in real time. A collateral pool with an estimated appraised aggregate recovery value in January can be worth meaningfully less by June, not because anything dramatic happened, but because time passed. Meanwhile, fees are accruing, liquidity is being consumed, and borrowing base availability may be eroding. By the time a sale process fails, and the lender authorizes a liquidation, the recovery achievable twelve months earlier has quietly diminished.

The appraiser arrives to run a process on assets worth materially less than when the engagement started. No single decision looked unreasonable in isolation; each extension preserved some optionality and avoided an immediate confrontation. Taken together, however, those decisions produced a materially worse recovery. Many appraisal and liquidation professionals have seen this pattern recur, but they are in a difficult position: they need referral relationships with turnaround firms and the lender relationships that cooperation brings. Raising the issue too aggressively can strain the relationships on which future collaboration depends.

Lenders, for their part, are caught between two legitimate pressures: sponsor relationships that reward patience, and credit discipline that demands urgency. Too often, they resolve that tension by defaulting to patience without pricing what it costs. That response is understandable, but it is not always right. This is a discipline the industry too often lacks: not complicated to describe, even if hard to execute. Every extension of runway is an investment decision, and it should be underwritten like one.

Before authorizing a turnaround engagement or marketing process, the lender should establish a liquidation baseline and approve additional time only when the expected benefit exceeds the fully loaded cost of delay, measured against that baseline. The fully loaded cost should include operating cash burn, professional fees, expected collateral erosion, incremental wind-down costs, and the execution risk created by delay. When the expected benefit no longer exceeds that cost, or the company stops tracking toward its milestones, the lender should be prepared to implement the liquidation the baseline was built to support. None of this argues against turnaround engagements; a capable one does far more than buy time while fees accrue. A strong restructuring professional improves cash forecasting, validates borrowing base reporting and separately tests real collectability and salability rather than relying on contractual eligibility alone, protects customer and vendor relationships, preserves books and records, and prepares an executable wind-down plan.

The value of a turnaround engagement should not be measured only by whether it avoids liquidation, but by whether it leaves the lender better positioned if that is where the case ends up.

Even when the turnaround does not succeed, that work can materially improve the recovery in the liquidation that follows. That points to the single highest-leverage change lenders can make: the turnaround plan and the liquidation plan should be built at the same time, not in sequence. Liquidation readiness should begin on day one of a workout, not after the sale process or refinancing has failed. The turnaround professional should be charged with implementing and monitoring measures designed to protect collateral value and reporting, on a fixed schedule, whether the company is meeting the milestones set at the outset.

Neither discipline should be waiting in the wings for the other to fail. Both should be working the file from day one.

Catalina Wine Mixer

Step Brothers ends with Dale and Brennan finally growing up - not by abandoning who they are, but by learning to deploy their talents without destroying everything around them. The Catalina Wine Mixer works because both of them showed up and did their job.

The ABL industry's version of that ending is available, but it requires a shift in how lenders frame the problem. The conflict is not between turnaround and liquidation – both are necessary, legitimate recovery disciplines, and the industry is better for each. The problem arises when additional runway becomes the default rather than a priced decision. What the industry needs is not lenders who pick a side, but lenders who refuse to delegate ownership of the recovery strategy to either discipline: establishing the liquidation baseline, pricing the fully loaded cost of runway, defining measurable milestones and decision gates before an engagement begins, and enforcing the consequences when milestones are missed, regardless of the sponsor or the relationship implications.

Right now, too many lenders are letting Dale and Brennan run the bedroom on their own schedule while the fully loaded cost of that runway quietly accrues against the recovery. The fix is not to send either of them home; it is for the parents to set the rules of the house again and actually enforce them. Too often, the resulting recovery shortfalls are the product of a governance gap, not a villain, and that gap will not stay quiet much longer.

The bill is coming. The question is who priced it, and who picks it up.

This article was first published on ABL Advisor: https://www.abladvisor.com/articles/43916/step-brothers