Jilted Investors Find Hope Challenging Lien-Altering Debt Deals

Secured lenders whose liens are diminished through a creative but controversial way of raising money for distressed corporate borrowers may glean hope from a string of court rulings that have come down on the side of spurned investors.

At issue is a form of debt management in which a distressed company, seeking new funds to avoid bankruptcy, enters into a transaction with a bare majority of its lenders that places their debt above that held by a minority of institutions left out of the negotiations without their consent.

Such “uptier” or “priming” transactions have generated hostility among some financial creditors ...