As global economic turmoil pushes more companies to the brink of insolvency, competition is intensifying among distressed-debt investors to safeguard their investments by funding the businesses through bankruptcy, Bloomberg News reported yesterday. In recent months, some of the world’s savviest distressed investors — from Oaktree Capital Management LP to Silver Point Capital LP to Cerberus Capital Management LP — have competed to provide capital to help fund companies during their bankruptcy proceedings through restructuring financing or debtor-in-possession (DIP) loans. And they’re increasingly willing to go to financial extremes to get these deals done. Molycorp Inc. is the latest troubled company to have its creditors battling over DIP debt. Oaktree currently has the senior position in its bankruptcy proceeding with a loan paying 14 percent. But holders of the rare-earths miner’s first-lien bonds, led by JHL Capital Group LLC, are offering a new loan to replace Oaktree’s that would pay just 3 percent. They’re willing to accept such a cheap rate because, in return, they would gain more control of the company as it pursues an asset sale. Read more.
Take an in-depth look at issues related to debtor-in-possession financing with ABI’s Debtor-in-Possession Financing: Funding a Chapter 11 Case.
