Strings Attached to Bankruptcy Loans Persist, Irking Creditors

Bankruptcy lenders are dangling conditions to their loans to distressed businesses, intervening in reorganization in order to maximize their leverage in Chapter 11 cases.

Lenders adding terms to debtor-in-possession (DIP) loans—such as a promise to wrap up bankruptcy by a certain amount of time and setting who-gets-paid-first priority—has always existed. But data shows the practice has accelerated in recent years and fights over such loans have continued during the pandemic as the number of bankruptcies spiked.

Teligent Inc., Rockall Energy Holdings, and Latam Airlines Group are among the bankrupt companies whose reorganization plan has drawn unsecured creditors’ ire.

Such terms ...