The Rise of Creditor-on-Creditor Violence Illustration by Chester Holme “Fighting to the death” in the world of distressed debt. By Christine Idzelis May 30, 2018 AddThis Sharing Buttons Share to TwitterShare to FacebookShare to More A paucity of distressed-debt opportunities is sharpening the elbows of creditors. Investors have been battling over a relatively small pool of companies in financial distress, wrestling for gains in the second-longest bull market ever in the U.S. With fewer bankruptcies, attorneys and financial advisers have more time to spend on each restructuring deal — which has given rise to an increasingly litigious environment. “Because it’s harder to find good investment opportunities, I think investors have pushed the legal side of things further than ever before,” says David Tawil, president of hedge fund Maglan Capital. “Creditors saw a lot of low-hanging fruit in other cycles, where they wouldn’t necessarily push so hard — or they weren’t as meticulous — when it came to pressing every legal point.” The Hovnanian Enterprises lawsuit underscores how contentious creditor battles can become, with hedge fund firm Solus Alternative Asset Management suing the homebuilder and Blackstone Group’s debt business, GSO Capital Partners, over a “manufactured default” involving credit-default swaps. Investors worry about the use of CDSs beyond the originally intended use as an insurance against default. At the Milken Institute Global Conference that ran into early May, the rhetoric was that “this is not cool,” says Tawil. Even GSO — which benefited as a CDS holder when Hovnanian skipped an interest payment and then turned to the firm for financing — is now offering to help the market formulate rules around doing this, he says. “We believe this transaction — which provides critical financial support to Hovnanian and its more than 1,900 employees — is fully compliant with the long-standing rules of this market,” a spokesperson for GSO said in an emailed statement. “As we have previously stated, we stand ready to work with the CFTC, ISDA, and other market participants to make appropriate changes to the standard CDS contract going forward.” The U.S. Commodity Futures Trading Commission and the International Swaps and Derivatives Association issued statements in April about their concern that manufactured events could damage the CDS market, where investors bet on the ability of companies to meet their obligations to creditors. Until the market resolves the issue of whether CDSs may be used to manufacture a default, Oaktree Capital Management won’t sell single-name CDSs, according to Rajath Shourie, co-portfolio manager of Oaktree’s distressed-debt strategy. “It’s a sucker’s game,” he says. “There’s no way to protect yourself.” https://www.institutionalinvestor.c...tor-on-creditor-violence#.Ww8I6xms8AA.twitter
https://www.bloomberg.com/news/arti...e-next-company-with-head-scratching-cds-trade This is another one that's being investigated by the CFTC and is most likely going to end up in courts as well. What ESL has done is even more unscrupulous.