
Supreme Court Case Has Bankruptcy World on Edge - JumpCrisscross
http://www.nytimes.com/2016/12/06/business/dealbook/supreme-court-case-has-bankruptcy-world-on-edge.html?em_pos=small&emc=edit_dk_20161206&nl=dealbook&nl_art=5&nlid=65508833&ref=headline&te=1&_r=0
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emn13
What's particularly nasty about this practice (though legal, I'd guess), is
that as far as I can tell after a quick read, parties such as Sun Capital here
intentionally manipulate the creditor pecking order. During a deal, they
arrange a large _secured_ loan that is large enough to push unsecured
creditors down the ranking, but small enough so they're in limited risk. In
theory, the board could reject that deal, but often they don't (and e.g.
unsecured creditors such as employees don't get a vote) - afterall, it's
hopeless for stockholders anyhow, and they might as well take the small chance
of success with no downside... except to others. The other creditors get
shafted.

Pretty nasty practice. Legalized robbery, by the looks of it. Unlike some
creative destruction practices, I can't see any upside to this either - it's
just a clever way to split risks from rewards.

IANAL, and I do not doubt the above analysis is leaky; nor do I see how this
affects the case. Hopefully I'm not totally off base with my interpretation
;-).

