(HedgeCo.Net) Hedge funds are taking an un-usual route: leveraging antitrust legislation in debt-distress scenarios, signalling a new frontier in creditor strategy. Financial Times
The story
A lawsuit filed in New York sees several hedge funds arguing that certain heavy-handed restructuring deals constitute anticompetitive behaviour—essentially claiming that distressed debt «deals» which disadvantage particular classes of creditors may run afoul of antitrust law. Financial Times
Why this is notable
- Traditionally, distressed-debt investing (buying undervalued bonds of stressed companies) is treated as creditor activism or deep value investing. But invoking antitrust law is novel.
- It reflects growing tensions: hedge funds as creditors may feel that certain restructuring frameworks or dominant players in the debtor’s capital structure have undue leverage or influence, disadvantaging other stakeholders.
- This approach suggests hedge funds are evolving from passive credit buyers to active strategic litigants/arbiters.
Implications for the industry
- Restructurings may become more contested, as funds bring in legal tactics beyond bankruptcy law into competition/antitrust law.
- Debtors and restructuring advisors may need to anticipate more complex litigation risk from creditor-constituencies.
- Other hedge funds may take note; we could see increased use of legal/strategic frameworks around distressed investing.
- For managers and allocators: risk profiles of distressed-debt strategies may become more volatile (legal suits, longer time horizons, regulatory scrutiny).
What to watch
- Whether any of these antitrust claims succeed — success could set precedent and change how restructurings are executed.
- How widespread this tactic becomes — will many hedge funds adopt similar claims?
- How regulators respond: if antitrust law is meaningfully applied to distressed-debt playbooks, we may see new guidance.
- For distressed-debt investors, closer attention to legal risks, timeline delays, and cost of litigation will become part of due diligence.
In short: hedge funds are evolving not just in investment style but in legal posture — the battlefield of distressed credit is expanding into antitrust territory.