Hedge Funds Elbow Aside Creditors in Fast-Tracked Bankruptcies
- Providers use DIP funds to gain control of busted companies
- Other creditors left in the dark about restructuring plans
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Lenders to deeply distressed companies are calling the shots in big corporate bankruptcies so far in advance that some cases are practically over before they get started.
Investment firms and hedge funds are increasingly engineering bankruptcy loans and side deals to take control of Chapter 11 reorganizations from the outset. They’re putting up desperately needed funds to keep the targets in business -- but often only after crafting terms that lock in rich rewards for themselves while potentially locking out rivals and lower-ranking creditors. The trend is sure to speed up cases, but it also forces judges to make quick decisions that may shortchange some valid claims.