Investment Fund Activity in Chapter 11
This chapter examines the role hedge funds and private equity funds have come to play in US bankruptcy cases, the variety of investment strategies they deploy in distressed situations, including in connection with pre-negotiated and pre-packaged Chapter 11 cases and various litigation scenarios.
- Conditions leading to increased investment fund participation in US bankruptcy cases
- Overview of notable investment fund strategies
- Recent trends in investment fund tactics and the impact of such funds’ roles in large Chapter 11 cases and distressed situations
Referenced in this article
- James J Mazza and Zahed A Hanseeb, Rights Offerings in Chapter 11 Bankruptcies, Review of Banking & Financial Services (July 2020)
- In re Windstream Holdings, Inc
- In re Peabody Energy Corp
- In re Breitburn Energy Partners LP
- Kenneth Epstein & Eric Fischer, ‘Litigation Funding in Bankruptcy Court: An Essential Tool for Maximizing the Value of the Debtor’s Estate’, 259 New York Law Journal, 50 (2018)
- Laurie DeMarco, Emily Liu & Tim Schmidt-Eisenlohr, ‘Who Owns U.S. CLO Securities? An Update by Tranche, Board of Governors of the Federal Reserve System’, 25 June 2020
- In re Deluxe Entertainment Services Group Inc
- In re Pioneer Energy Services Corp
Hedge fund and private equity fund participation in US bankruptcy cases has proliferated in the past decade. Funds specialising in distressed investments now appear in almost every large Chapter 11 case and often play a significant role in shaping the course and outcome of the case. This trend shows no signs of stopping, particularly in light of the surge in bankruptcy cases resulting from the economic downturn associated with the covid-19 pandemic. Investment funds continue to be a strong force in Chapter 11, as sophisticated investors who are adept at finding creative ways to maximise their returns. This chapter examines some of the investment strategies that funds have deployed in response to current market conditions and the impact of such funds’ roles in large Chapter 11 cases.
The global financial crisis that began in September 2008 precipitated a huge increase in Chapter 11 filings: nearly 20 times more debt was restructured through Chapter 11 in 2008 and 2009 than in the two preceding years. Not only did the total number of bankruptcy filings increase, but the size and complexity of companies seeking bankruptcy protection also grew considerably. Yet this unprecedented upswing occurred at a time when banks and other traditional lenders were themselves struggling with the impacts of the financial crisis (and, later, with the regulatory repercussions that significantly scaled back their ability to invest in distressed situations). Non-traditional lenders, such as investment funds – both private equity and hedge funds – stepped into the resulting funding gap and will likely continue to do so in light of the increase in Chapter 11 filings in the midst of the economic downturn resulting from the covid-19 pandemic. Unlike traditional banks, investment funds are subject to significantly less regulatory oversight and reporting obligations. This gives them significantly greater flexibility in their investment strategies, which, in the economic downturn, meant that they had a greater appetite for and ability to invest in distressed situations.
In the decade since the onset of the 2008 financial crisis, investment funds have played diverse and varied roles in Chapter 11 cases. They:
- invest in every level of a debtor’s capital structure;
- provide financing to fund the case and to fund operations post-emergence;
- purchase assets through section 363 sale and Chapter 11 plan processes;
- engage in constructive negotiations with debtors to implement fully-consensual restructurings in record time; and
- may stake out positions that require them to employ a full range of litigation tactics.
Of these myriad approaches, two overarching strategies stand out. First, investment funds are increasingly the primary financing source for distressed companies, providing debtor-in-possession (DIP) financing to fund Chapter 11 cases and exit financing to fund operations post-bankruptcy. Investing new capital in a distressed company in this manner can yield substantial returns for a fund over a relatively short period of time, since the interest, fees and premiums that are earned on such investments tend to be significant. Moreover, by providing such financing, funds gain substantial leverage and control over the company’s direction.
Second, investment funds increasingly invest throughout the capital structure of distressed companies. In many cases, the presence of well-heeled, sophisticated investment funds facilitates a quick and cost-efficient restructuring, avoiding a prolonged Chapter 11 case and the resulting administrative expenses – most notably professional fees – and delays that can materially impair the company’s ability to successfully reorganise and the fund’s ultimate returns. As a consequence, there has been a noticeable increase in ‘pre-arranged’ and ‘pre-packaged’ Chapter 11 cases. In these instances, the terms of a Chapter 11 plan are fully negotiated before the case begins with an agreement among the company and its key creditor constituencies – typically, one or more ad hoc groups of investors holding majorities of the company’s funded indebtedness – including the group believed to hold the fulcrum security. The company then enters Chapter 11 to implement the negotiated deal in the shortest possible time frame. Pre-packaged Chapter 11 cases can often be completed in 30 to 45 days, sometimes even less. Indeed, debtors in recent pre-packaged Chapter 11 cases filed in the Southern District of New York and the Southern District of Texas were able to obtain confirmation of their plans of reorganisation in less than a single day.
On the opposite end of the spectrum, investment funds may choose to invest in more junior levels of a company’s capital structure or seek to exploit what they perceive to be a flaw in the company’s loan agreements or indentures. These more speculative investments are popular in slower restructuring markets where distressed investment opportunities are diminished and returns are harder to come by. Generally speaking, realising a return on these types of more speculative investments often requires funds to employ litigation tactics. These tactics can be aimed at proving an entitlement vis-à-vis other creditors in the capital structure or as leverage to obtain outsized recoveries as part of an overall settlement divorced from economic entitlement. While difficult to prove empirically, anecdotally, this practice increases the frequency of restructuring litigation and drives up the overall cost of a restructuring.
Separately, the prevalence of collateralised loan obligation funds (CLOs) has had a direct impact on several recent large restructurings. While CLOs generally acquire senior secured positions in capital structures of distressed companies, they have recently begun to play a larger and more active role in restructurings and are subject to unique constraints and incentives that may shape outcomes for all participants in unexpected ways. As a result, market participants have begun to develop creative strategies to accommodate CLOs’ specific needs and obtain their support for restructuring transactions.
What follows is a look at some of the more recent tactics employed by, and the unique characteristics of, investment funds in large Chapter 11 cases.
Recent developments and trends
Backstopped rights offerings
A fertile ground for generating returns is to offer to backstop new money investments, whether in the form of debt – eg, DIP and exit financing – or equity. The latter often takes the form of a rights offering, where existing investors are provided an opportunity to invest in the equity of a company about to emerge from Chapter 11, often at a discount (sometimes a substantial one) to the company’s Chapter 11 plan value.
Rights offerings are attractive to companies in Chapter 11 that are otherwise capital-constrained because they offer companies access to equity capital without substantial cost. This is due, in part, to the fact that many such offerings are exempt from registration with the US Securities and Exchange Commission if certain requirements are met. Moreover, rights offerings are highly flexible financing structures that permit parties to customise both the terms and conditions of the equity issuance as well as the terms of the offering (including the allocation of the right to participate) to best serve the needs of the company or the specific circumstances of the company’s Chapter 11 case. As a result, rights can be a valuable form of currency when negotiating creditor recoveries under a proposed plan. For these reasons, rights offerings are exceedingly popular. Between 2016 and 2019, more than US$13.5 billion was raised by distressed companies through rights offerings in large Chapter 11 cases.
In addition to providing a company with much-needed equity capital, rights offerings are attractive to creditors. A key reason is that rights are usually offered at a significant discount to the assumed value of the reorganised company to encourage participation; while the exact percentage can vary widely from case to case, recent offerings typically utilize a discount of 10 to 25 per cent to plan value and, in some cases, such discounts are in excess of 30 per cent and as high as 80 per cent. That means investors can often acquire a more significant stake in the reorganised company at an implied ‘in the money’ valuation. These rights offerings further favour funds with capital to invest, given the dilution that typically occurs in a rights offering. Thus, participation is critical to protecting plan recoveries, with those that participate benefitting at the expense of those that do not.
Investors can further enhance the investment opportunity afforded by a rights offering by agreeing to ‘backstop’ the offering, which means committing to purchase their pro rata shares along with any unsubscribed shares. This guarantee of the offering’s success is of enormous value to the company. As a result, acting as a backstop party can prove very lucrative. Backstop parties typically earn fees of between 3 and 9 per cent (averaging approximately 7 per cent) of the total offering in exchange for their commitments, which can be paid in cash or additional shares. Backstop parties may also obtain a preferred, or over-allotment, of rights to ensure a minimum participation above their pro rata allocation. In practice, these mechanisms provide backstop parties with enhanced economics that increase the return on their pre-existing investment in the company. These mechanisms also allow the backstop parties an opportunity to increase their ownership stake and, alongside this, their voice in the governance of the reorganised company.
Given the substantial value at stake in a backstopped rights offering and the potential for overreach, these arrangements are often subject to challenge. Challenges are often levelled at the reasonableness of the backstop fees, though this can be difficult to establish since the market for these fees varies widely. Other challenges take issue with the need and size of the preferred, or over-allotment of, shares reserved for the backstop parties. Still, other challenges have been made to the seemingly disparate treatment offered to the backstop parties as compared to similarly-situated creditors in the same class. The terms of such backstopped rights offerings increasingly generate litigation.
In the Peabody Energy case, for example, the bankruptcy court confirmed a plan that contemplated a US$750 million backstopped rights offering of preferred equity to all eligible holders and a US$750 million private placement of such equity that was offered only to the backstop parties, over the objection of certain non-participating creditors who argued that the plan discriminated unfairly against creditors that were not backstop parties. The court found that the fees and premiums provided to the backstop parties – including the separate private placement as well as the allocation mechanisms therein – were permissible because they were not on account of the backstop parties’ prepetition debt holdings, but were in exchange for their post-petition backstop commitments. Therefore, section 1123 of the Bankruptcy Code was satisfied because all similarly-situated creditors were treated equally as they were given the opportunity to participate in the rights offering.
Furthermore, a recent decision in the Breitburn Energy bankruptcy cases confirms that for purposes of section 1123, the opportunity to participate itself provides cognisable value, regardless of whether a particular creditors ultimately chooses to participate. In that case, the debtors’ plan provided that the sole source of recovery for a particular class of creditors was the opportunity to participate in a US$775 million rights offering. Parties that elected not to participate would receive nothing. At confirmation, the court overruled the objection of a creditor who had chosen not to participate in the rights offering and argued that it was not receiving a similar recovery as other similarly-situated creditors who had chosen to participate. As part of a lengthy confirmation ruling, the bankruptcy court concluded that this plan treatment was permissible, because ‘section 1123(a)(4) requires equality of treatment, not equality of result. It is satisfied if claimants in the same class have the same opportunity for recovery’.
The creative structuring of backstop commitments and rights offering allocations that heavily favour the company’s largest stakeholders – who are the parties most likely to provide a backstop commitment – is a trend that is likely to continue.
The increasing use of bankruptcy litigation trusts that are formed under a Chapter 11 plan to pursue litigation post-bankruptcy has provided investment funds with an additional source of recovery and an opportunity to deploy capital.
Post-confirmation litigation trusts are commonly used when debtors have significant litigation claims against third parties, the resolution of which is not required for the company to emerge from Chapter 11. In these cases, the debtor will bequeath the right to pursue these claims to a newly-formed litigation trust and will typically seed the trust with some amount of initial funding. Interests in the trust will then be distributed pro rata to particular creditor groups (typically, junior classes) as part or as all of their recovery on account of their prepetition claims. Those interests, which often are freely transferable, entitle the holders to receive their pro rata share of any value that is ultimately obtained through prosecution of these claims.
The preservation of causes of action through litigation trusts is increasingly popular. In large part, this is because the creation of a litigation trust enables a debtor to emerge promptly from Chapter 11, notwithstanding one or more large unresolved litigation claims. Litigation trusts can also be advantageous for creditors that perceive value in the litigation claims and are willing to incur the risks and delays associated with litigation. Traditionally, junior creditors have been more likely to accept those risks in order to obtain a potentially larger overall recovery. Increasingly, however, investment funds have shown both a willingness to receive a stake in a litigation trust as part of their overall recovery under the plan and to finance the underlying litigation.
The Paragon Offshore bankruptcy cases provide an example. There, the debtors possessed litigation claims against its former parent company, Noble Corporation, which represented a major potential source of recovery for creditors. Initially, the debtors had proposed a Chapter 11 plan premised on settling these claims. This plan eventually gave way to one that preserved those claims for creditors and placed them into a litigation trust. Notably, the interests in that litigation trust were granted not just to junior creditors of the company, but also to secured creditors. In fact, the trust interest proved to be a valuable medium through which to resolve disputes between the secured and unsecured creditors.
The increasing use of litigation trusts in bankruptcies has afforded investment funds with other investment opportunities as well – specifically, in the area of financing. Typically, the debtors’ plan will seed a litigation trust with an initial cash amount when it is formed, after which the trust is responsible for its funding needs. Increasingly, however, parties have started to experiment with alternative funding structures, including funding from third parties.
One recent case concerns a litigation trust that was established in the 2009 mega-bankruptcy filing of General Motors to prosecute certain avoidance actions relating to the company’s prepetition term loan. The initial funding for that trust proved insufficient given the size and scope of the litigation, which led the trust administrator to conduct a competitive marketing process to obtain additional funding. Through this process, the trust received two funding proposals:
- an investment fund proposed to loan US$15 million to the trust in exchange for up to 4.75 per cent of the eventual proceeds of the litigation; and
- the company’s DIP lenders proposed to loan US$15 million to the trust in exchange for 30 per cent of the eventual proceeds of the litigation as part of a larger settlement.
The trust chose (ii), notwithstanding the apparently higher cost of the loan, because of the benefits to unsecured creditors resulting from the overall settlement. This decision was approved by the bankruptcy court and affirmed on appeal over the objection of the proposed third-party investor.
Debt default activism
Investment funds may seek to generate returns by investing in a company’s capital structure with the intention of exploiting perceived flaws in, or arguable breaches of, the company’s credit documentation. Particularly when paired with the use of credit derivatives, this strategy has received a lot of attention recently and has led some market participants to develop innovative provisions to protect themselves.
The case of Windstream Holdings, Inc is instructive. In October 2017, Aurelius Capital Master, Ltd directed the trustee under Windstream’s senior unsecured notes to file suit against Windstream alleging that a transaction undertaken in 2015 violated certain covenants in the bond indenture – in other words, that Windstream had, unbeknownst to Windstream and its other investors, been in default under the indenture for more than two years. In February 2019, after a bench trial, the court ruled in favour of Aurelius and awarded a judgment of more than US$300 million, prompting Windstream to file for bankruptcy shortly thereafter. Aurelius was reported to have profited from a position in credit-default swaps (CDS) that entitled Aurelius to payment if Windstream defaulted on its debt.
The potential for CDS to create incentives for investment funds to assert debatable defaults, and to obstruct or refuse to participate in restructuring negotiations that might avoid a default, has prompted some companies to negotiate for novel protections in their credit documents. For example, in May 2019 and January 2020 Charter Communications and ADT Inc, respectively, issued bonds under indentures that included a contractual ‘statute of limitations’ limiting the period during which bondholders can declare a default to a specified time period after the underlying action is reported publicly or to bondholders. In June 2019, Sirius Computer Solutions issued bonds that prohibited holders who are ‘net short’ from voting on holder actions. While these innovations, if widely adopted, may limit the type of debt default activism pursued in Windstream, opportunities to generate returns through creative and aggressive litigation tactics will undoubtedly persist.
Participation of collateralised loan obligation funds in restructurings
The market for CLOs in the United States has grown significantly in recent years, with CLOs holding as much as US$617 billion in bank debt as of 2018, and CLOs have correspondingly come to play a greater role in restructurings. But CLOs face certain restrictions and incentives that differ from those facing hedge funds and private equity funds and, as a result, their increasing role poses unique issues in the restructuring process.
CLOs raise capital from investors to acquire a portfolio investments consisting primarily of senior secured loans issued by below-investment grade borrowers. To mitigate risk to investors, CLO fund documents include restrictions on the types of investments that can he held in the portfolio. For example, a CLO typically includes restrictions on acquiring CCC or Caa-rated debt in excess of a specified percentage cap of the aggregate portfolio. Other common restrictions include limitations on a CLO’s exposure to second lien or unsecured loans and prohibitions on investing in equity securities. Further, most CLOs have tax structures that effectively limit their ability to originate loans and instead require them to purchase assets in secondary market transactions.
These restrictions may make it difficult for CLOs to participate in new-money investments, such as rights offerings, in connection with restructuring transactions, putting them at risk of dilution by hedge funds and private equity funds that are able to make such investments. CLOs also have incentives to prefer restructurings where their debt is not converted to equity, which may limit the amount of deleveraging that can be achieved in the restructuring. From a distressed borrower’s perspective, the presence of CLOs in its capital structure may therefore affect the restructuring options available to it.
For example, in the case of Deluxe Entertainment, CLOs holding the company’s prepetition debt were initially willing to participate in an out-of-court restructuring or 24-hour pre-packaged Chapter 11 plan, which would have included at least US$25 million in incremental financing. However, as the consensual plan progressed, the debtor’s term loan credit rating was downgraded to CCC- and certain CLO funds were no longer willing or able to provide the incremental financing due to restrictions on their investments in CCC-rated debt. As a result, Deluxe was unable to obtain sufficient financing to complete the restructuring out of court and was instead forced to undertake a longer and more expensive in-court restructuring process.
As another example, the Chapter 11 plan of Acosta Inc entirely eliminated the debtors’ funded debt in exchange for equity and provided prepetition creditors with the right to participate in a US$250 million equity rights offering. Because equity interests are not considered eligible collateral obligations for CLOs, many CLOs were unable to participate in Acosta’s equity rights offering and may have been forced to sell their positions rather than accept equity in exchange for their debt.
In response to the CLO-specific restrictions and limitations, companies and CLOs have worked to implement creative and flexible workout structures. For example, Pioneer Energy Services’ unsecured bondholders, some of whom were CLOs, exchanged their debt for convertible notes, rather than equity, in the company’s restructuring. The CLOs were able to invest in the notes and obtain potential equity upside, while the convertible notes were structured to be mandatorily convertible in a variety of circumstances to give Pioneer flexibility to deleverage in the future. Some CLOs may also be permitted to make, or have made, exceptions to their investment guidelines to allow direct lending as protective investments to preserve existing portfolio investments that were not expected to default when acquired. As the role of CLOs in restructurings continues to expand, market participants will continue to develop creative strategies to address the unique constraints and incentives that CLOs face.
Investment funds continue to play a significant role in Chapter 11 cases. They are sophisticated investors who are able to adapt quickly to changing market conditions to find new ways to deploy capital and maximise their investments. In the most prominent of these recent trends, investment funds have found increasingly creative ways to achieve short-term gains through new investments in distressed companies while at the same time positioning themselves to obtain longer-term payoffs. In achieving these goals, investment funds adapt existing tactics and strategies to new situations and new aspects of Chapter 11 practice. The new developments discussed offer excellent examples of the creativity and flexibility that can mark investment fund activity in distressed situations and demonstrate how borrowers and other institutional lenders are adapting their restructuring strategies in response to the participation of investment funds in restructuring transactions.
** The authors would like to thank Paul, Weiss counsel Michael Lee and associate Grace Hotz for providing valuable contributions to this chapter.
 In 2003, only 6 per cent of large companies entered Chapter 11 with a pre-negotiated plan; from 2015 to 2018, 65 per cent of Chapter 11 filings by large companies (those with liabilities greater than US$50 million at the time of filing) that emerged were pre-arranged or pre-packaged. See Norman Kinel, ‘The Ever-Shrinking Chapter 11 Case’, Nat’l L. Rev. (20 August 2018) (discussing 7 August 2018 report by Fitch Ratings); John Yozzo and Samuel Star, ‘For Better or Worse, Prepackaged and Pre-Negotiated Filings Now Account for Most Reorganizations’, ABI Journal, Vol. XXXVII, No. 11, November 2018. This has had a significant impact on the duration of Chapter 11 cases overall as the average duration of a Chapter 11 case fell by nearly one-half in 2016–2018 compared to 2010–2015, to 212 days from 401 days. See Yozzo and Star, supra.
 In a ‘pre-packaged’ case (as compared to a ‘pre-arranged’ one), the parties have taken the additional step of soliciting votes on that plan before filing. In these instances, the company avoids a prolonged stay in Chapter 11 engaged in solicitation and, instead, moves straight to confirmation (ie, approval) of the plan.
 See In re Mood Media Corp, Case No. 20-33768 (MI) [Dkt. No. 72] (Bankr. SD Tex. 31 July 2020); In re Sheridan Holding Company I, LLC, Case No. 20-31884 (DRJ) [Dkt. No. 76] (Bankr. SD Tex. 24 March 2020); In re Sungard Availability Servs. Capital, Inc, Case No. 19-22915 (RDD) [Dkt No. 46] (Bankr. SDNY 2 May 2019); In re FullBeauty Brands Holdings Corp, Case No. 19-22185 (RDD) [Dkt No. 39] (Bankr. SDNY 5 February 2019).
 But see Jared Ellias, ‘Are Litigious Hedge Funds a Problem? A Study of Activism’, 35 Am. Bankr. Inst. J. 28 (2016) (an empirical study of cases filed in the years immediately after the financial crisis found that litigation commenced by funds who had invested in junior debt, ‘junior activism’, was associated both with an increase in the assumed value of the restructuring transaction and higher recoveries than the market anticipated prior to the process).
 James J Mazza and Zahed A Hanseeb, ‘Rights Offerings in Chapter 11 Bankruptcies’, Rev. of Banking & Financial Servs. at 77 (July 2020).
 In one recent example, the court approved a plan under which the prepetition first lien lenders would receive their pro rata share of 100 per cent of the equity in the reorganised debtors on account of their claims. That recovery, however, was subject to significant dilution by new equity and special warrants that were being issued through a backstopped rights offering; after giving effect to the rights offering distributions, the first lien lenders’ 100 per cent equity stake would be diluted down to 3.7 per cent of the total equity. In re Windstream Holdings, Inc, Case No. 19-22312 [Dkt No. 2243] (Bankr. SDNY 26 June 2020).
 See Mazza and Hanseeb, supra note 5.
 For example, in the Pacific Drilling case, the court initially denied the debtors authorisation to enter into an equity commitment agreement because it found the 8 per cent backstop fee to be unnecessary to incentivise the commitment. In re Pac. Drilling SA, Case No. 17-13193 [Dkt No. 622] (Bankr. SDNY 27 September 2018). The court ultimately approved a revised equity commitment agreement with a backstop fee of 8 per cent for any unsubscribed portion of the rights offering and 5 per cent for the rest, despite ‘misgivings’, because all stakeholders supported the agreement. Id. [Dkt No. 616] (25 September 2018); Id. [Dkt. No. 634] (1 October 2018).
 Section 1123(a)(4) of the Bankruptcy Code requires that a Chapter 11 plan provide the same treatment for each class of claims or interests, unless a holder agrees to less favourable treatment.
 The objection also argued that the private placement violated the good faith requirement of section 1129(a)(3) because it failed to maximise the value of the debtors’ estate. The court held that the plan was proposed in good faith because the debtors mediated with their creditors to resolve a major dispute, the non-participating creditors received notice and could have intervened if they chose to do so, there was overwhelming consensus on the plan and the debtors had considered alternative plans.
 In re Peabody Energy Corp, Case No. 16-42529 [Dkt No. 2763] (Bankr. ED Mo. 30 March 2017), aff’d, 933 F3d 918 (8th Circuit 9 August 2019); see also In re CHC Group Ltd, Case No. 16-31854 [Dkt No. 1794] (Bankr. ND Tex. 3 March 2017) (confirming the plan over the objection of a non-participating creditor; the plan provided the noteholder class with their pro rata share of 79.5 per cent of the equity of the reorganised company, but recovery was subject to dilution down to 11.6 per cent upon conversion of convertible notes being issued under a backstopped rights offering).
 In re Breitburn Energy Partners LP, 582 BR 321, 358 (Bankr. SDNY 2018).
 Though the court denied confirmation of the plan for reasons unrelated to the rights offering in this decision, the plan was subsequently confirmed after the parties made certain technical modification. See In re Breitburn Energy, Case No. 16-11390 [Dkt. No. 2387] (Bankr. SDNY 26 March 2018) (order confirming modified plan).
 In re Paragon Offshore PLC, Case No. 16-10383 (Bankr. D Del. 2016).
 The litigation trust subsequently commenced a US$2.7 billion suit against the former parent company and certain directors of the former parent company and Paragon, which was pending for years until the parties reached a settlement in principle in September 2020. Paragon Litigation Trust v Noble Corp. PLC et al, Case No. 17-51882 (Bankr. D Del. 2017). The proposed settlement allows an US$85 million claim against the former parent company’s estates (now in Chapter 11) and requires the former parent company to make an upfront payment of either US$10 million towards a global settlement if reached on or before 1 October 2020 or US$7.5 million for a release of only certain claims, while bringing litigation against their insurers and sharing the proceeds thereof with the litigation trust. See In re Noble Corp plc, Case No. 33826 (DRJ) (Bankr. SD Tex. 23 September 2020).
 See generally Kenneth Epstein and Eric Fischer, ‘Litigation Funding in Bankruptcy Court: An Essential Tool for Maximizing the Value of the Debtor’s Estate’, 259 NYLJ 50 (2018).
 By fixing the DIP lenders’ percentage recovery at 30 per cent, the settlement resolved a pending dispute between the DIP lenders and general unsecured creditors over their respective entitlements to the proceeds of this litigation. The bankruptcy court found that the terms of the settlement, including the negotiated 70 per cent recovery for unsecured creditors, was reasonable when compared to the cost and uncertainty of litigating this issue. In contrast, the third-party loan did not resolve this dispute, which left the recovery for unsecured creditors unknown.
 See In re Motors Liquidation Co, 2017 WL 3491970, at *9 (SDNY 14 August 2017).
 US Bank Nat’l Assoc. v Windstream Servs., LLC, No. 17-CV-7857 (JMF), 2019 WL 948120 (SDNY 15 February 2019).
 See, eg, Mary Childs, ‘Windstream Loses Legal Case Against Hedge Fund Aurelius, and Now Is Stuck With a Huge Bill’, Barron’s, 16 February 2019, www.barrons.com/articles/windstream-loses-legal-case-against-hedge-fund-aurelius-and-now-is-stuck-with-a-huge-bill-51550318739.
 See https://www.sec.gov/Archives/edgar/data/1091667/000119312519161294/d753026dex42.htm; https://www.sec.gov/Archives/edgar/data/1703056/000119312520016985/d875991dex41.htm.
 Mary Childs, ‘Why Hedge Funds Could Find It Harder to Push Companies Into Default’, Barron’s, 2 August 2019, http://www.barrons.com/articles/hedge-funds-could-find-it-harder-to-push-companies-into-default-51564771477.
 Laurie DeMarco, Emily Liu and Tim Schmidt-Eisenlohr, ‘Who Owns U.S. CLO Securities? An Update by Tranche, Board of Governors of the Federal Reserve System’, 25 June 2020, https://www.federalreserve.gov/econres/notes/feds-notes/who-owns-us-clo-securities-an-update-by-tranche-20200625.htm.
 In re Deluxe Entm’t Servs. Grp. Inc, Case No. 19-23774 (RDD) (Bankr. SDNY 3 October 2019); Katherine Doherty, ‘We Can’t Give You a Loan, CLO Managers Told Now Bankrupt Deluxe’, Bloomberg (4 October 2019) https://www.bloomberg.com/news/articles/2019-10-04/we-can-t-give-you-a-loan-clo-managers-told-now-bankrupt-deluxe.
 Lisa Lee and Sally Blakewell, ‘Hedge Funds Exploit CLO Weakness Laid Bare by Corporate Distress’, Bloomberg (22 June 2020) https://www.bloomberg.com/news/articles/2020-06-22/hedge-funds-exploit-clo-weakness-laid-bare-by-corporate-distress.
 In re Pioneer Energy Servs. Corp, Case No. 20-31425 (DRJ) (Bankr. SD Tex. 11 May 2020).
 Kristen Haunss, ‘CLOs Seek Flexibility For Distressed Assets Amid Lender Competition’, Reuters (19 February 2020) https://www.reuters.com/article/clo-rescuefinancing/clos-seek-flexibility-for-distressed-assets-amid-lender-competition-idUSL1N2AJ1NB.