Hedge Funds Find It’s Hit First or Get Hurt in Distressed Fights

First it was “drop downs.” Then came “priming.” Now, hedge fund titans have a new weapon of choice in the distressed debt battleground.

Sometimes referred to as “non-pro rata uptiering,” companies facing financial trouble including Rackspace Technology Inc. and Apex Tool Group are inking restructuring deals that provide select creditors with better terms on debt swaps than others.

It’s the latest in a wave of maneuvers — often masked by banal legalistic terminology — that distressed funds and others managing billions of dollars are deploying to clean up at their rivals’ expense. The new deals are typically structured as below-par ...