According to Financial Times News, hedge funds including Manulife’s CQS, Algebris Funds and Deltroit Asset Management filed a lawsuit in New York on Tuesday alleging that a Selecta debt restructuring violated US antitrust laws. The complaint targets a “co-operation agreement” between majority bondholders including Invesco, Man Group, Strategic Value Partners and Diameter that allegedly excluded minority holders from economic benefits, creating a situation where majority-held bonds trade above 70 cents on the dollar while minority paper trades at half that level. The lawsuit represents the first application of competition law in distressed debt litigation, alleging violations of the Sherman Act and New York’s Donnelly Act. The case involves Swiss vending machine operator Selecta’s recent restructuring of its near €1.5 billion debt stack using Dutch distressed disposal laws. This legal escalation signals a new frontier in creditor disputes.
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The Legal Frontier Shift
This case represents a fundamental shift in distressed securities litigation strategy. Traditionally, creditor disputes have centered on contract law violations or breaches of fiduciary duty within established frameworks like bond indentures. The Sherman Act application here is particularly aggressive because antitrust laws were designed to protect market competition, not resolve intra-class creditor disputes. What makes this strategic pivot noteworthy is that it targets the coordination mechanism itself—the “co-operation agreement”—rather than just the outcome. If successful, this approach could dismantle the very tools that majority creditors use to organize restructuring consortia, potentially making complex debt restructurings more difficult to execute efficiently.
European Restructuring Complexity
The Selecta case highlights the growing sophistication—and potential for abuse—in European restructuring practices. While non-pro rata exchanges have been common in US markets for a decade, their migration to Europe introduces new legal uncertainties. The use of Dutch distressed disposal laws to execute what plaintiffs call a “coercive bond exchange” demonstrates how jurisdictional arbitrage can create outcomes that might not be possible under other legal systems. The restructuring’s complexity—where minority holders faced either subordination or loss of covenant protections—shows how modern financial engineering can effectively bypass traditional creditor protections. This creates a dangerous precedent where sophisticated financial players can use legal technicalities to redistribute value among creditors rather than between creditors and debtors.
Market Implications and Systemic Risks
The broader implications for bond markets are substantial. If co-operation agreements become legally risky, the entire architecture of distressed debt investing could shift. Majority positions might become less valuable if coordination becomes legally perilous, potentially reducing liquidity in troubled credits. Alternatively, we might see more fragmented creditor bases and increased litigation costs baked into restructuring outcomes. The 30+ point valuation gap between majority and minority paper demonstrates how dramatically these tactics can redistribute value. This creates systemic risk by undermining confidence in creditor equality—a foundational principle that supports the pricing and trading of corporate debt instruments across markets.
Legal Hurdles and Realistic Outlook
While the antitrust angle is innovative, the legal hurdles remain substantial. Courts have historically been reluctant to apply competition law to what they view as internal corporate or financial matters. The plaintiffs face the challenge of convincing courts that creditor coordination in a restructuring constitutes anti-competitive behavior in a relevant market, rather than merely aggressive but legitimate financial negotiation. The parallel claim about violating the bond indenture’s 90% approval requirement might prove more legally straightforward. However, even if the antitrust claims fail, the mere filing of such lawsuits could change behavior—majority creditors may become more cautious about exclusionary tactics, and legal costs alone might force more equitable treatment of minority positions in future restructurings.
The Future of Creditor Wars
This case likely represents the beginning of a new phase in distressed debt conflicts rather than a one-off legal experiment. As restructuring techniques become more sophisticated and value extraction more aggressive, minority creditors will continue developing counter-strategies. We can expect to see more creative legal theories tested across jurisdictions, with plaintiffs shopping for favorable venues and laws. The fundamental tension here—between efficient restructuring coordination and creditor equality—will only intensify as debt structures become more complex and creditor bases more fragmented. Regardless of this specific case’s outcome, the genie is out of the bottle: antitrust arguments are now part of the distressed debt playbook, and that changes the game for everyone involved.
