What's particularly nasty about this practice (though legal, I'd guess), is that as far as I can tell after a quick read, parties such as Sun Capital here inten

What's particularly nasty about this practice (though legal, I'd guess), is that as far as I can tell after a quick read, parties such as Sun Capital here intentionally manipulate the creditor pecking order. During a deal, they arrange a large secured loan that is large enough to push unsecured creditors down the ranking, but small enough so they're in limited risk. In theory, the board could reject that deal, but often they don't (and e.g. unsecured creditors such as employees don't get a vote) - afterall, it's hopeless for stockholders anyhow, and they might as well take the small chance of success with no downside... except to others. The other creditors get shafted. Pretty nasty practice. Legalized robbery, by the looks of it. Unlike some creative destruction practices, I can't see any upside to this either - it's just a clever way to split risks from rewards. IANAL, and I do not doubt the above analysis is leaky; nor do I see how this affects the case. Hopefully I'm not totally off base with my interpretation ;-).