Lenders to bankrupt firms are increasingly insisting upon controversial contract clauses known as roll-ups, which boosts investments by moving existing debt to the front of the repayment line. This kind of contract structure prioritizes existing debt repayment, potentially limiting the resources available for lower-ranking creditors. Despite their controversial nature, bankrupt firms and judges overseeing them are compelled to accept roll-ups to avoid complete closure. Although not a new tactic, roll-ups are becoming more prevalent, as seen in the Chapter 11 cases including Bed Bath & Beyond, Vice Media, and a significant deal with Rite Aid. Speaking with Bloomberg, Professor Ralph Brubaker pointed to the dominance of hedge funds and financial firms in negotiating these agreements and suggested rules prohibiting roll-ups might be necessary.
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