An emerging strategy many hedge and private equity funds are pursuing is known as the “loan-to-own” investment. In this type of investment, a fund’s investors acquire debt and sometimes certain amounts of equity or management control, such as voting power or board seats, from a lender of a distressed company.

Unsecured trade creditors in mid- to large-sized chapter 11 cases are frequently targets of distressed-debt traders looking to buy unsecured claims. These traders make their money in a variety of ways, principally on the assumption that the claims they buy today will be worth more later either in the distressed-trade market or upon plan distribution.

As several U.S. automakers teeter on the brink of collapse, the prospect of bankruptcy reorganization has become a present-day reality for two of the largest automakers in the U.S. Reorganization would involve plant closures, brand elimination, layoffs, union concessions, reduced dealer networks, asset sales and creditor compromise.

In an effort to protect suppliers who sell goods in the days leading up to a customer's bankruptcy, Congress has, via §503(b)(9) of the Bankruptcy Code, carved out special treatment for claims made by creditors who sell and deliver goods to a debtor during the 20 days before a debtor's filing.