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Creditors to Optimum Communications have accused the heavily indebted telecoms group of improperly attempting to “weaponise the antitrust laws” in its efforts to stave off bankruptcy.
Late on Friday, creditors asked a judge in a Manhattan federal court to dismiss an Optimum lawsuit filed in November that accused several of the world’s largest asset managers of forming an illegal cartel during debt renegotiations.
The named defendants, including Apollo Global Management, Ares Management, and BlackRock, argued in their motion that US competition laws should not apply to the Optimum creditors, who had signed a pact last year that bound each member to only negotiate a debt restructuring with Optimum as a collective unit.
Optimum, formerly known as Altice USA and controlled by French billionaire Patrick Drahi, is languishing under a $26bn debt pile.
“Optimum received from its creditors billions of dollars in a freely competitive market,” the investors’ counsel at Sullivan & Cromwell wrote. “The notion that antitrust law entitles Optimum to have its creditors ‘compete’ over sweetening the terms of outstanding debt defies logic.”
Optimum’s theory, that so-called co-operation agreements struck between creditors are illegal, has become a flashpoint in the rough and tumble $3tn US junk bond and leveraged loan market.
The investor group, which also includes Oaktree, Loomis Sayles, GoldenTree Asset Management, Prudential and JPMorgan’s investment management arm, argued that their decision to co-operate remained “pro-competitive”.
More than 90 per cent of Optimum’s debt stack was subject to the co-operation agreement and the company’s complaint lists dozens of defendants in total.
In recent years, distressed debt companies in the US have relied on so-called creditor-on-creditor violence transactions — where competing groups of asset managers make offers of new capital to issuers — to stay afloat. Those in the losing group, however, often have their existing debt holdings pushed down in repayment priority, rendering such paper worthless.
The Optimum creditors argued in the court filing that creditor-on-creditor violence had harmed US capital markets and should be discouraged.
“[Co-operation agreements] reduce transaction costs and the destructiveness of brinkmanship,” the creditor group wrote. It added that the agreements promote “the very mutual forbearance that can keep a borrower operating”.
The blast radius from the original Optimum complaint has extended far.
Optimum’s transactional law firm at the time of the lawsuit, Kirkland & Ellis, recently resigned after Apollo, Ares and other large asset managers blamed the litigation on the powerful adviser, even as a small Washington DC boutique had been retained by Optimum to formally bring the antitrust case.
Optimum has since hired White & Case to replace Kirkland as its debt negotiation counsel.
The FT previously reported that JPMorgan had drawn the ire of the asset managers who were upset that the world’s largest bank had loaned Optimum $2bn in November in a deal that also facilitated a transfer of company assets away from existing creditors.
“We brought this action to defend our legal rights, and our objective remains to protect Optimum’s ability to access competitive and fair credit markets,” Optimum said.
The federal court judge overseeing the case, Jeanette Marcus, has ordered the sides to appear before her this month to determine next steps in the case.
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