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Starz Creditors' Lawsuit Survives; Spandex Maker Files; Banks Fund Private-Credit Redemptions
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Welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Wednesday, March 18. In today's briefing, creditors of Starz Entertainment, formerly known as Lions Gate Entertainment, survived the company's efforts to dismiss their lawsuit over a roughly $1 billion debt exchange. Elsewhere, the maker of Spandex filed chapter 11, and more on banks' entanglements with private credit.
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Evan Agostini/Invision/Associated Press
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Starz will face minority creditors’ lawsuit over studio spinoff. A New York judge on Tuesday allowed a creditor lawsuit against Starz Entertainment, formerly known as Lions Gate Entertainment, to proceed over its spinoff of its studio assets.
New York Supreme Court Judge Joel M. Cohen declined to entirely dismiss a case filed by minority noteholders, including CPPIB Credit Investments and a Luxor Capital-managed fund, alleging that Lions Gate violated their rights so it could separate its lucrative studio business from its struggling Starz cable assets.
Lions Gate separated its businesses last year after investors holding the majority of a roughly $1 billion debt issuance agreed to amend the terms in their bond indenture to permit the separation. In exchange, the majority lenders got to swap their old notes for new, higher-interest debt backed by the studio assets.
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Fredy Builes/Reuters
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Spandex maker files prepack. Lycra has filed for bankruptcy with a restructuring plan backed by creditors to cut roughly $1.2 billion in debt, addressing financial problems caused by a “confluence” of industry headwinds.
The filing marks a recurring cycle of distress for the Spandex brand after a 2022 default that transferred control to its lenders.
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Banks fund private-credit redemptions as sentiment sours. Investment banks see opportunities to cash in as redemption requests hitting private-credit interval funds and other nonbank lenders drive demand for loans to cover the withdrawals.
Private-credit fund managers sometimes sell assets on the secondary market to satisfy periodic redemption requests from investors, as Blue Owl Capital and New Mountain Capital have recently done. But private-credit shops that run interval funds and business development companies also draw on credit lines extended by banks to cover the outflows.
A risk is that banks will stop lending if redemptions are sustained. Many direct-lending funds are of a size where a line of credit isn’t enough to cover redemptions completely, especially for successive quarters.
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