Some bankrupt companies are turning to a strategy to help them restructure their debt without losing the attractive terms on legacy loans as interest rates rise, often to lenders’ chagrin, WSJ Pro Bankruptcy reported. Outpost Pines, a property owner on New York’s Fire Island that sought protection from creditors in February, is asking a bankruptcy judge to approve a plan for it to keep 3% interest on mortgage debt it took out in 2015 so it can avoid paying a 16% default rate on the loan. Others, such as the owners of a 50-story Holiday Inn in Manhattan’s Financial District and of a 41-unit apartment building in New Jersey, in recent months also have sought to keep their legacy rates in bankruptcy. Businesses regularly file for chapter 11 protection to lessen their debt load, usually by retiring old loans and making new ones. As interest rates have climbed, more businesses in financial distress are looking for ways to retain legacy borrowing rates put in place well before the Federal Reserve raised its benchmark rate to between 5% and 5.25%, a 16-year high. The Fed on Wednesday announced a quarter-percentage-point rate increase to reach that level, marking the central bank’s 10th consecutive rate rise aimed at battling inflation.
