Private Equity May Have a New Card to Play in Debt Deals

Welcome to The Brink. I’m Reshmi Basu, a reporter in New York, where I looked at private equity’s attempt to undermine the cooperation agreements that have become popular among investors. Follow this link to subscribe. Send us feedback and tips at debtnews@bloomberg.net.

In the ongoing standoff over who should be lumbered with the biggest losses when debt needs to be restructured, companies and the private equity firms behind them are coming up with new ways to chip away at creditors’ rights.

In a recent debt deal reached between Warner Bros. Discovery and its lenders, some features of the pacts creditors use to band together to negotiate were prohibited so that creditors could buy new debt issued by the company in the future.

Anti-cooperation pact terms have also made their way into non-disclosure agreements and some corporate lawyers have gone as far as questioning whether cooperation agreements binding creditors together in debt talks run afoul of antitrust rules.

That would be a game changer for creditors, who started joining forces ahead of debt talks to level the playing field after creditor rights were watered down in debt documentation during the era of ultra-low interest rates. The pacts ward off attempts by companies to modify debt obligations before a restructuring can take place through a so-called liability management exercise.