Vulture Hedge Funds & Bankruptcies
The first sentence of this article below is somewhat ironic. Hedge funds and private equity firms that are providing money to companies are an obstacle to the government looking to stem bankruptcies...while hedge and private equity funds may setup agreements which are aggressive upon nonpayment of loans this is because these companies have nowhere else to go. Often there are no other firms which would provide them support and bankruptcy may have been the only other choice is they did not take the capital from these "vulture" hedge funds and private equity groups. I doubt those writing article criticizing these funds would personally lend their money to such risky companies without some strong clawback features, at least not for long. Here is the article:
Hedge funds, private equity firms and other "vulture investors" that have pumped money into distressed companies present a huge obstacle to the government's plans to stem the flow of bankruptcies, a business adviser warned today.
Banks, even with a government-guaranteed loan, will find it difficult to stop a company going under when opposed by firms that can profit from the falling fortunes of companies.
"Parts of the current complexity arises from the existence of distressed debt investors who sometimes see commercial advantage from using an insolvency process to organise the sale of the viable part of a business to a solvent buyer leaving behind the least profitable parts," Tony Lomas, chairman of PwC Business Restructuring, said.
Vulture funds buy debt in struggling firms at a significant discount – sometimes at 20p in the pound – expecting that when the company breaches its loan covenants and falls into administration, a sale of assets may repay debt at a higher price. source