Fighting over scraps

Tue May 29, 2007



With distressed returns tougher, the battle gets rougher

By Carolyn Sargent

Hedge funds are known for their sharp elbows, but as today’s bankruptcy battles get more contentious, the sparring is leading to a lot more bruised flesh.

Take the situation of J.L. French Automotive Castings, an auto-parts supplier that emerged from bankruptcy protection in June 2006 but sought to renegotiate its loan covenants this year. Efforts to turn a profit – while putting the company on a path to growth – landed hedge funds on opposite sides of the battlefield.

One group of funds, led by Victor Khosla’s Strategic Value Partners (SVP), Trust Company of the West (TCW) and Wayzata Investment Partners, holds significant stock in the newly reorganized company and sought to renegotiate the loan covenants and invest more equity to provide the company with additional working capital. Meanwhile, a second group of funds and other...

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