The rise of fights among creditors is ultimately a zero-sum game that only benefits lawyers, according to Craig Bergstrom, the chief investment officer of Corbin Capital, which manages around $8.5 billion.
(Bloomberg) — The rise of fights among creditors is ultimately a zero-sum game that only benefits lawyers, according to Craig Bergstrom, the chief investment officer of Corbin Capital, which manages around $8.5 billion.
“We worry about it a fair amount,” he said on the May 5 episode of Bloomberg Intelligence’s FICC Focus State of Distressed Debt podcast, referring to the rise of creditor fights. “It’s pretty long-term stupid for everybody except the lawyers.”
Companies have increasingly sought creative ways to raise cash and stave off bankruptcy in recent years. Some of those last-ditch financing deals have included maneuvers such as moving intellectual property out of existing debt holders’ reach, or pushing other creditors down in the repayment line.
Stream the episode here: State of Distressed Debt
Those deals often lead to litigation, and they’ve become so pervasive that it’s difficult for investors to ensure they won’t become ensnared in one. The rise of such fights is not only a disservice to the broader investment community, but it doesn’t even seem to benefit individual investors, according to Bergstrom.
“We’ll literally see the same firms that we think highly of on the right side of it one day, and then a month later on the wrong side of it in a different cap stack,” he said.
The uptick in such disputes is in part a result of debt contracts that can be easily exploited, according to Bergstrom. “It’s an unfortunate byproduct of too-loose” contracts, he said.
“This won’t happen overnight, but I’m hopeful that we’ll see tighter documentation,” he said. “I’m not going to hold my breath for that, but one can hope.”
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