In Six Flags Inc.’s bankruptcy case last fall, a hedge fund that owned senior bonds negotiated the theme-park company’s reorganization plan, then dumped lower-ranking bonds it figured would lose value under the deal.
Other creditors cried foul. The hedge fund had used knowledge learned during its negotiations to gain an unfair edge, they suggested, accusing the fund of a “hijacking of the reorganization process.”
So it goes in the rough-and-tumble new world of bankruptcy court. The bankruptcy process was created decades ago as a way to give ailing businesses a chance to heal and creditors a shot at repayment. Hedge funds and other big investors have transformed it into something else: a money-making venue where, after buying up distressed companies’ debt at a deep discount, they can ply their sophisticated trading techniques in quest of profits. The “bankruptcy exchange,” some call it.
Full Story: Debt Traders Draw Fire From Bankruptcy Judges – WSJ.com
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