Windstream Holdings, Inc.’s (“Windstream”) chapter 11 bankruptcy filing following its contentious litigation with Aurelius Capital Management LP (“Aurelius”) has rekindled market participants’ concerns over the effects of so-called “net short debt activism” – the efforts of creditors who, despite holding a borrower’s debt, seem motivated to push the borrower into distress over covenant or other defaults. Bloomberg’s Matt Levine succinctly summarized these concerns in a recent column, writing that net short debt activism is “the idea that someone who is betting against a company will acquire some of its debt and use that position to call defaults, make trouble, and generally try to drive an otherwise healthy company into bankruptcy over a minor technical default. It seems bad.”
June 11, 2019
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