Hedge funds, including CQS, have opened a new legal front in the ongoing battles over distressed credit restructurings, invoking US antitrust statutes to challenge what they call collusive tactics among rival creditors, according to a report by the Financial Times.
In a lawsuit filed in New York, Manulife’s CQS, along with Algebris Funds, and Deltroit Asset Management, allege that a group of majority bondholders — including Invesco, Man Group, Strategic Value Partners, and Diameter Capital — struck an anti-competitive “co-operation agreement” during the restructuring of Swiss vending machine operator Selecta.
The plaintiffs claim they were deliberately excluded from a debt exchange that delivered “disproportionate economic benefits” to participating creditors, in breach of both the Sherman Act and New York’s Donnelly Act. Bonds held by the majority group reportedly trade above 70 cents on the dollar, while the excluded holders’ paper trades near 50 cents.
The dispute stems from Selecta’s aggressive €1.5bn restructuring, which used Dutch insolvency law to allow majority bondholders to seize control and coerce minority investors into a disadvantageous bond swap. Such non pro-rata restructurings — long a fixture in US distressed markets — are now spreading in Europe, testing the boundaries of creditor cooperation.
Legal observers say the case marks the first known use of antitrust law in a creditor-versus-creditor dispute, signalling growing tension within the distressed debt community. While analysts doubt the plaintiffs’ chances of success, they view the case as a warning shot against coordination agreements that have become central to hedge fund strategies in complex restructurings.
