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About 18 months ago, in July 2024, a group of the world’s most sophisticated creditors banded together in an unusual display of unity. The likes of Apollo, Ares, Oaktree Capital, BlackRock, and JPMorgan Chase—advised by PJT Partners and Akin Gump, no less—tried to prevent the cable company Altice USA from executing a liability management exercise. Perhaps it wasn’t as crazy as it sounded. After all, Altice had grown over a decade by taking advantage of artificially low interest rates—the byproduct of the quantitative easing era—to borrow more than $20 billion in debt. If they ever wanted to take advantage of the flexibility in its indentures (code for an L.M.E.), the exercise would pit one creditor against the others.

Instead of affording Altice that leverage in future debt-restructuring negotiations, this syndicate formed a cooperative. The creditors who joined the co-op represented $21.4 billion of Altice’s debt, or 99 percent of its combined bank debt, senior guaranteed notes, and senior unguaranteed notes. The company—now known as Optimum and owned by Sotheby’s proprietor Patrick Drahi—has around $26 billion of debt, including that of various subsidiaries. So about $4 billion of the company’s debt is not part of the creditor co-op.

The formal agreement among the creditors prevents any of them from selling their debt back to Optimum, effectively blocking the company from repurchasing the debt at a market discount. The agreement also requires that creditors in each tranche of the company’s debt be treated the same, preventing Optimum from executing the kind of coercive L.M.E. that both Saks and Lionsgate recently executed. And individual creditors are barred from both negotiating a deal directly with Optimum and selling their position to another investor—unless that investor joins the co-op and agrees to its terms. “In short, there are limits on what the company can do nonconsensually,” Charles Tauber, a partner at PJT, wrote Dexter Goei, a director of Optimum, a year ago. “The co-op takes a coercive exchange off the table.”

Not surprisingly, Optimum did not take kindly to the formation of the co-op. As Tauber explained, it pretty much prevented the company from extracting maximum pain and suffering from its creditors, which already faced serious losses on their Optimum debt as it traded down. According to John Bringardner, the executive editor of Debtwire, the debt now trades at steep discounts to par, with the unsecured notes trading at 19 cents on the dollar and the rest of the debt stack trading in the mid-60s on the dollar. “This has been a deeply distressed company,” Bringardner told me.

Anyway, the Optimum creditors banded together to force the company to deal with them collectively rather than picking them off individually or pitting them against one another. I suspect the creditors believe they will get a better economic outcome by presenting a united front. (Another complicating factor is that JPMorgan Chase, which is part of the co-op, agreed in November to refinance a separate $2 billion loan to Optimum that wiped out onerous creditor-friendly covenants, pissing off the other creditors. But that’s a story for another day.)

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Just before Thanksgiving, however, Optimum fought back by filing what looks like an unprecedented antitrust lawsuit against them in the Southern District of New York, referring to the co-op as a “cartel” some 24 times in the complaint. “This antitrust case concerns a horizontal group boycott among rival creditors to freeze Optimum out of the U.S. credit market,” the company argues. According to Bringardner, “This is the fight against cooperation agreements. Cooperation agreements have exploded. Their use has exploded among creditors in just the past few years. It’s the flipside of liability management exercises and creditor-on-creditor violence. It’s the reaction.”

Things have certainly changed for creditors since I did my restructuring work at Lazard in the 1990s. For a few years now, so-called “creditor-on-creditor violence” has been all the rage in Wall Street restructuring circles. By pitting one group of creditors against another, a company that needs to restructure its debt can extract benefits that might otherwise not be available—capturing the discount in the trading of a company’s debt, say, or getting creditors to pony up new money in exchange for being moved up in the capital structure. Companies can offer preferred creditors security at the expense of those who chose not to participate in providing new capital, or who were excluded from the whole L.M.E. in the first place. And there’s nothing the losing group of creditors can do about it.

These L.M.E.s are ruthlessly coercive, but they’ve become standard practice on Wall Street largely because they are permitted—or at least not prohibited—in the current “covenant lite” era of debt indentures. Shame on the creditors for agreeing to provide money to borrowers with these “covenant lite” indentures in the first place—that should never have happened. So in some sense, creditors are getting what they deserve by accepting the terms of the clever lawyers and bankers who put them together.

Optimum’s lawsuit will offer the latest twist in this dynamic. A pretrial conference before Judge Jeannette Vargas is scheduled for February 19. The company claims that the likes of Apollo, Ares, BlackRock, and others are among the most sophisticated creditors and collectively control some 88 percent of the “relevant credit market,” where they would normally compete against one another to offer borrowers new leveraged loans, or to refinance the debt they already have in a company. “Those conditions should apply to Optimum today,” the complaint continues. “If Optimum’s creditors were acting in a free market, each would vie to offer Optimum access to new capital, or to entice Optimum to repurchase or exchange the creditor’s individual debt on mutually beneficial terms.”

But, Optimum argues, the members of the co-op “orchestrated a conspiracy to squelch that competition. Their goal was as simple as it was illegal: they wanted to stop each other from dealing with Optimum in ways that might hurt their collective interests. Each creditor feared that, without collusion, its rivals might help themselves by negotiating unilaterally with Optimum to refinance their own debt.” Optimum did not mince words: “The Cooperative is a classic illegal cartel. Through the Cooperation Agreement, competing debt investors have agreed to lock Optimum out of the credit market unless Optimum offers terms the entire Cooperative deems acceptable.”

In the complaint, Optimum’s attorneys wrote that the colloquial term “creditor-on-creditor violence” was “just a pejorative term for competition.” (Optimum’s emphasis.) And, they went on to complain, “the antitrust laws’ founding principle—that competitors should compete—does not evaporate just because the competitors here collectively dislike it.” (A spokesperson for the creditor group declined to comment, as did both Apollo and Ares.)

The Washington firm Kellogg Hansen crafted the complaint, even though the legal powerhouse Kirkland & Ellis is advising Optimum on its overall debt restructuring. “We’ve been hearing for the past 18 months or so that Kirkland lawyers were floating this antitrust idea, at conferences, at happy hours, over cocktails,” Bringardner told me. “We would hear about it. They would never say it to us on the record or anything. But it was kind of out there. And most people kind of laughed, like, ‘What antitrust argument can you raise here?’”

In truth, an old-fashioned creditors’ committee operates pretty much the same way as the co-op—it must approve any restructuring by a wide majority, either in or out of court. And it is literally composed of a company’s largest creditors, who sit around a table and negotiate a deal with the company or with the debtor in bankruptcy. No deal is possible without some serious compromise on both sides since, essentially, the vultures are fighting over a carcass. What Optimum apparently doesn’t like is that the co-op agreement prevents it from undertaking one of these coercive L.M.E.s. I don’t blame Optimum for not liking that outcome. But at some point, it was logical to expect that creditors would fight back.

Bringardner agreed that he didn’t see much difference between an old-fashioned creditors’ committee, either in or out of bankruptcy, and the co-op. Optimum filed the lawsuit, I suggested, because the co-op was preventing Optimum from pulling off an L.M.E. “Exactly,” Bringardner replied. “The only difference is the size of the creditor group here, and Optimum’s argument—we’ll see how this goes down in court—is that it’s such a large group, there’s nobody else they can go to in order to pull off an L.M.E. If all these creditors are working in concert, they’re blocking their options to pull off anything else.”

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