Two of distressed debt’s largest institutions are appearing at a hearing in a New York state court on Monday, 29 June to determine the scope of a trial that could transform the way DQ lists are enforced.
It started like any other trade. Andrew Van Orden, a distressed trader at Bank of America, joined a Bloomberg chat in September 2021 with a single word: “yo.” Ethan Auerbach, a portfolio manager at the alternative asset manager Black Diamond Capital Management, replied within a few seconds: “Lmk how operation royal crown goes.”
A few hours later, Van Orden offered a deal: $20m of term loans for Crown Paper, a manufacturer of cardboard packaging, for 91 cents on the dollar. Auerbach countered with 91 cents for $18m of the debt, and a deal was struck. “Awesome thanks dude,” he messaged.
There was one problem. Black Diamond was on a blacklist blocking it from owning Crown Paper’s debt.
Bank of America refused to settle the trade, and was left holding the position when the company’s value plummeted. When the company was later sold, with its loan paying out at 34 cents on the dollar, the bank demanded the $9.3m difference; instead...
