Jane’s LME Addiction — Co-Optimum — Navigating the Altice USA antitrust litigation

(upbeat music) - Hello and welcome to James Ellamy Addiction, a Cloud Madvent podcast where we talk about all things liability management. With me today are Josh Brody and Ken Runker, partners at Prairie Gottlieb. Thanks so much for joining me today. - Thanks for having us. - Sure, before we dive in, could you just tell us a little bit more about your practice areas at Cleary? Josh, we'll start with you. - Sure, yeah, so I am in the bankruptcy and restructuring group. I joined Cleary about eight months ago, and really focused pretty much on anything restructuring related, whether or both more on the creditors side, but on the company side as well, in court, out of court, Ellamy's kind of, you name it, whatever is restructuring lawyers are doing these days. - And Ken, can you tell us a little bit about your practice area at Cleary? - Sure, I'm an antitrust lawyer based in DC. I've been at Cleary about 15 years. I have a broad practice that covers merger, litigation, investigations, counseling. I've done a fair amount of work in financial services and the banking industry, and so I guess that's why I'm here. But I also do a lot of different industries, like I said, have a pretty broad practice. - And so Josh, I would consider you a typical guest on this show, but Ken, you're more of an anomaly with your antitrust and litigation background. But this is the first Ellamy episode of 2026, and to kick off the year, we thought it would made sense to dive straight into what will likely be the year's biggest Ellamy litigation, which is optimum communications, formerly known as all TCUSA, their co-op antitrust lawsuit. After spending the better part of two years attempting to coax its lenders into a liability management transaction, the company has now pivoted dramatically and they have sued the lenders who entered into this cooperation agreement, alleging antitrust violations. Josh, would you mind just giving us some more context as to how we got here? - Sure, I mean, it's funny. Co-ops, one of these things that obviously have become much more topical and focused for people over the last, I don't know, called like three, four or five years. But the concept's been around for a very long time. It just wasn't always necessarily in the context of a specific agreement. I actually remember doing a deal at this point, it was over 10 years ago, where we just had something we referred to as a blood oath, where there were a bunch of lenders in a few different tranches and, you know, kind of folks held stuff across the cap stack, and they wanted to make sure that it is, you know, we let folks into the group that they were going to behave themselves. So it wasn't necessarily like a full blown agreement, but it was the kind of thing that was definitely more market reputation focused, that, you know, if you don't behave, everyone's going to know that you said you wouldn't. It didn't, you know, fast forward. And I think what started to happen was in particular, was as sponsors started getting a little bit more aggressive in terms of the different types of LMEs, they were trying, I think lenders kind of realized that they were sort of sitting ducks. And if they didn't actually make sure that they kind of got together and prevented, you know, some of the lenders from getting picked off by the sponsor that they run, you know, we'd run the risk of waking up on morning and finding out there'd been some sort of, you know, drop down or up to you or whatever it is, and they are finding out only finding out about it, because the paper that didn't exchange just traded down significantly. And so the cops became a much more of a, a cult type of defensive maneuver by lenders to make sure that they were actually going to maintain their rights with respect to their loan, vis-a-vis other lenders in their tranches. And of course, what happened is, you know, creative advisors and creative lenders kind of started finding other ways to be able to use those co-ops to do things like actually make sure that only certain lenders got the benefit of certain treatment or that, you know, they would try to, what you even see even more recently, where your, you know, their lenders are actually starting to put together, you know, baked interior treatment within a co-op as to who is, you know, it's referred to in the in-group or in the out-group. And I think, and of course, those things have expanded, whereas, you know, at one point when lenders were really only responding to aggressive sponsor tactics, so co-op agreements would be only really unitrange and were focused on one particular, you know, first-lean term loan. And then over time, it got, as groups started getting bigger and there were, you know, biggers, you know, whole cross holdings, they started to become, in some instances, co-ops that went beyond just your term loan and actually started to encompass, you know, multiple tranches of different, you know, senior year debt in a given cap stack. And then you kind of led to where they all teased, or, you know, optimum co-op, which was, you know, pretty mammoth in terms of a huge cap stack and was sort of different tranches kind of up and down. - Yeah, mega co-ops just does not have the same ring to it as blood oath agreement, but still. - Yeah, I'm really sorry about that. A very disappointing vet term never really took off. I thought it would be way more interesting. - And I kind of need to know, was that ever put down in writing? - I don't know what you guys emailed everyone to sign off. - No, we did, every single fund who joined had to send an email to us as counsel that we, and we crafted certain language. Basically, they agreed to abide by certain rules in terms of what they would do the information that they got on group calls. - Yeah, and every time you have like a deal, I know there's always project and there's some code word. I like the idea of this being project blood oath. (laughing) Anyway, I digress. So Ken, can you walk us through what happened next? Tell us just a little bit about the litigation. - Sure, so this is a lawsuit by the debtor optimum against its major creditors that, at least at the complaint, they say make up about 99% of optum's outstanding debt. The main allegation is that these different creditors should be competing with one another to offer better restructuring terms to optimum, but that the co-op structure and the limitations and agreements that they've put into that agreement means that optimum can't bargain with each of the creditors individually. The allegations are also that it's not just about negotiating over recovery of the existing debt, but that there are also limitations on the ability of these creditors to deal with optimum going forward by making additional new loans and so forth. And they also say in the complaint that all this is contrary to most of the credit agreements that they have and that those credit agreements allowed for individual negotiations and rarely required majority consent and they say never require super majority consent. So that's the thrust of the litigation. - And so, besides for both of your expertise, part of the reason that I brought the two of you on is because you actually published an article recently where you took a side and talked about how this will play out, could you tell us a little bit more about that? - Well, I mean, the part of it is the fact that I just, you know, wanted to actually go out with what I thought the right answer was, opposed to doing a typical, more regular way, sort of this is what might happen this way, might happen that way, type of the marketing you see from lawyers, I think. And also part of it is like, look, this is a topic that has been sort of out there in the market for a little while. You know, it's certain law firms that share my name as talking about the fact that they thought these co-ops are, you know, anti-trust violations. And I think for a while, a lot of people kind of assumed that that was just, you know, lawyers talking to their book as they were trying to, you know, position themselves in the market or whatever it is. So I was, and the first time I heard the concept, you're not being an anti-trust lawyer, so Ken will have to keep me honest. But the first time I heard the idea of it being an anti-trust issue, just kind of like me scratch my head, like how can that possibly be the case? So once the laws who got filed, I also had this sort of very, almost a visceral reaction, like it just seems so strange to me. And it's just struck me as a kind of thing that could potentially have a really impact in the market. And this obviously a very cutting edge issue. And given, you know, Ken's expertise, you know, and I can say this with a strong level of confidence that our anti-trust group is about as good as it gets. And so some way we wanted to come at hard. And so I, you know, I had to drag Ken along a little bit who willing to be as explicit about it as we were. But I think that from my perspective, kind of where are we, how we ended up here? - Ken, I don't know if you want to add anything there. - No, I think that, I think Josh covered it. I guess I would just say that lawyers should be giving advice and not just saying, oh, on the one hand this, on the other hand, that. It's not very, it's not what the clients expect. And so it's sort of natural for us to try to take a side up things. - Yeah, so I mean, we at NIME have been suggesting almost like chicken little for like the last like year and a half that this litigation is coming, it's definitely, it's going to hit. And we tried to figure out what a perfect situation would be for this litigation to be taken seriously. And I mean, the way that we described it was basically as close to optimum as you're going to get, which is that you have multiple tranches. There's the no deal. There's the, they're not about to file for bankruptcy. And so I guess my question to you is, so you've read this complaint and you still don't see face to, I mean, the president is pretty scarce, but you still don't see, or at the very least, you think it would be a major uphill battle for them to succeed on this. Is there any sort of co-op that you think would be more likely to have anti-trust liability? - Well, I guess I would say like, I think that there are difficult issues that they will need to surmount to win an anti-trust claim. So I think I see difficult issues for them. I wouldn't necessarily be so strong as to say, like this case is implausible or something like that. I think that the plaintiffs have done a good job of pleading the strongest case that they can. And like you, I sort of feel like this case is about as good as it could get, right? Where it covers such a large portion of the lending and the segment that they allege. It limits the future lending. It doesn't seem like these activities were necessarily explicitly contemplated up front. It's not in the bankruptcy context specifically. So this does seem like one of the stronger types of cases that could be broad, which could be predicted for the future, right? If they don't succeed, then future lawsuits will be much more difficult. If they do succeed, then future lawsuits could try to extend that at sale. Well, it applies in this case, but it should be extended to this other lesser case. So I think what happens in this litigation will have a lot of influence about future litigation too. And so I think that's a really interesting point, which I'm going to come back to you in a little bit. But first, I want to just point out, I think one of the more interesting things in your article was sort of putting into context the relevant market for the benefit of our listeners. It would be great if you can sort of just reiterate what you were talking about there. Sure. So I mean, in antitrust cases for better or worse, you have to start by defining what the relevant market is, where the competition is occurring. And here, they've alleged two relevant markets. One was a market for leveraged finance. And the second is a market that's specific to optimum's own debt. And they alleged in this market for leverage finance that the defendants, the various creditors, have about 90% of that market. But before you get to the market shares, there's the question is, is leveraged finance a separate market from all other types of lending? And basically, they're saying, well, the borrowers are different, they're higher risk. They have to pay higher prices that differentiates leveraged finance from other types of lending. And they say, well, the industry recognizes that leveraged finance is different. They talk about it in industry reports, so on and so forth. But as an antitrust lawyer, I'm not sure that that's really right. You think about money as being fungible. There's a spectrum of risk. Different debtors have different levels of risk. And whether there's sort of this sharp break between leveraged finance versus other types of finance, then it doesn't necessarily just not clear to me that that's right. And it's unclear to me why money couldn't flow from one type of lending into another type of lending. And the complaint also admits that there are other ways to get credit and that optimum was able to get an asset back loan for about a billion dollars, I think is what they alleged, which seems a little intention with their point that there's only this leveraged finance market. And then a second point that we made in the article was, or at least hinted at in the article, is when you're thinking about this from optimum's perspective, what's the relevance of this 90% share? So they say that their lender is account for 90% of leveraged finance market. But I think the leveraged finance market and you and Josh will know better, but I think the total amount of leveraged finance in the US is like $2 trillion, something in that range. And even the 10% of the market that they say is remaining, if it's $2 trillion in total, the 10% is $200 billion. And that seems like it's much more that what optimum's demand or need for credit would be. And so when you're thinking about, is there actually harm to optimum? Are they really being denied access to leveraged finance? When the market is so big, when there's so much money in it compared to their needs, is it really plausible that they're going to be hurt by that? And again, I think that's quite unclear. And I guess a follow-up question is about their lack of injury or whether there really isn't injury there. I mean, from the perspective of every lender has the right to-- I'm not every lender. Every company has the right to access a market and has the right to negotiate with its lenders based on the actual agreement. Josh, do you have any thoughts about how this goes beyond one of the arguments that they made at the complaint, is that the co-op creates its own de facto agreement that goes beyond what was actually negotiated for within the actual loan agreement or the bond agreement, whatever was relevant in here, because it was both bond tolders and lenders. Both agreements are relevant. Do you have any thoughts about that? Well, I mean, look, certainly the way I think about this is when you enter into a loan agreement, whether it's a credit agreement or an indenture, the fact is there's a certain call of basic promise to pay and the lenders here are just trying to make sure that they're going to get what it is that they're entitled to in terms of repayment of their debt. So how that sort of starts to set the market, they're looking really to just get back what it is that they invested in, which is the paper, the money they lent the company. So I'm not sure how much that really is going to start setting the market. It's really just more a function of these are the lenders are looking for. They just want to get, get repaid. That makes sense. And so I guess going back to what Ken was saying earlier about the implications for the future. I mean, at the outset, Josh, you talked about sort of how cooperation agreements or something like that have always been around, but recently they've been morphing. It seems like the direction of most co-op agreements now are not really these mega co-ops that promise everyone par and factor more or moving more towards almost tiered. So even if this litigation ends up being successful, which I couldn't say, do you think that this will really have any impact on the market and how lenders are organizing? I mean, I don't think so. Look, if you find yourself at some point, whenever and Ken would know the timeline, I think better than I would, is when this thing would ever actually get finally adjudicated. And it turned out that when you get to the end of the road, a court ultimately determines that a co-op agreement, let's say like this, was a real problem, then yeah, that will change the market. I haven't seen anything that has changed just based on the lawsuit getting filed. And I really don't think I-- I don't really expect it to. I think co-ops have just become such a major part of restructurings that people are going to continue to do them until there really is a clear answer that goes the other way. And look, the reality is-- I think we pointed it out in the article too. And the reality is that I would say there's a pretty good chance that this lawsuit does not actually go the distance. Because the fact is, the company's going to need to do some sort of restructuring. They're going to need to deal with their lenders. And given the length of time that these litigations tend to take, I don't expect that really we're going to get to the end of the road on the litigation before there's been some sort of sort of deal that involves the loss of getting dropped. And one of the things I Jane, you mentioned earlier, actually, I think is totally right, is that the facts in this lawsuit that made it possible were the fact the company had just pulled down another billion dollars of financing and has capital that was not an extremist and didn't need to cut some deal with their lenders. And you know, on the eve of a bankruptcy filing that had enough capital and cash in runway to actually try to bring the lawsuit and see what happens. So I think that's a long-winded way of saying that I don't expect anything to change just yet. Not from this perspective. And Ken, for you, is there any sort of like specific language that you would think of if you were advising lenders and during a co-op that you would change based on this litigation? Or do you think that is, I mean, that's totally fine? Yeah, I mean, I guess I'm not familiar enough with the specific language and the credit agreements to say, but as an anti-trust lawyer, it seems like lenders, if they could, it would be wise to get up front sort of agreements or acknowledgements from the borrower that they can work together at the back end as a co-op. That may not be feasible, but that would be a potential solution to this. I mean, that goes to a more general point that I think we made in the article, which is that these co-ops, they seem like they would benefit both borrowers and lenders because if lenders, like Josh was saying, the lenders want to recover the money that they've lent. If you make it harder for them to do that on the back end, they're less likely to lend money up front. Or they're going to lend money up front on worse terms. And so what you want, really, if you're a borrower up front, you want the lenders to be able to have some confidence that they're going to be able to recover later, because that's what helps reduce the risk to them and helps them give you better terms. And then on the back end, I think the borrowers benefit because lenders working together for a common solution reduces the risk that each different lender goes out and tries to make a run on the assets and pull apart the company when there could be a restructuring that works to make everybody better off. I mean, that's sort of the fundamental premise of bankruptcy law. And these things are happening outside of bankruptcy, but for the same reasons that an orderly bankruptcy process makes sense. These co-opt type of things make sense, too. So it seems like to me, it seems like they benefit both borrowers and lenders in that there should be some way to document that agreements, although, like I said, I'm not an expert in how these things are written. Actually, a couple of things I would add to what Ken said. I mean, this also goes in part to why I found the whole concept of this being an antitrust problem in the first place. You just be so almost ridiculous that every credit agreement in an indenture, since time memorial, contemplates the idea of collective action, right? The idea, if you get a certain percentage of the lenders together, usually call it majority, you can make certain changes. So collective action is sort of a concept within leverage loans or bonds or whatever it is. It really goes almost part and parcel already of what every bond, every bond, a denture and credit agreement is ever really contemplated. But the other thing I would say, Jane, because one of the things I think that the complaint talks about is that the co-op agreement prevented lenders from extent-- in the co-op, from any credit whatsoever. To the-- to optimum. And I haven't seen that co-op agreement really. But like, the fact is, I've done enough of these to know that I don't think that really the intent was that if a lender wanted to, on the side, extend credit to optimum, that they had nothing to do with their current position, I don't think the co-op was really ever intended-- I'm guessing-- but the co-ops I've worked on, I can say, this is true. It was not intended to do that. And maybe the language could be tightened up to make that more clear, but it was more of making sure that a lender didn't use their current position or new money to advantage their current position. So perhaps there's some tightening up that could happen there, but I don't think that would be something that would fundamentally change what people are trying to accomplish with their co-ops. Yeah, I think that's right. And I mean, to your point, we've seen sponsors trying to get anti-co-op language into different loans for the better path half of the year. And to my knowledge, not a single one has succeeded other than optimum's newest financing, which only had one lender on it. And there was really-- whether or not it has any teeth, I think I'll leave to the market to decide, but it doesn't seem to me like it does. And so I guess my final question for you is, do you see co-ops continuing-- how do you see co-ops continuing to morph over the next year as we look ahead? Yeah, I mean, from my perspective, I think it's going to be less about the changes or where the co-ops are going to go is going to be less about the optimum lawsuit than just more about general-called market realities. And so I think there was a view that we're going to see more like tiered co-ops building in in advance for the idea that the in-group is going to get x. The next group is going to get x minus and so on. But then there was a recent co-op that came out the name of it is escaping at the moment that had an unlimited carve out for the steer co. That was-- I was a little bit surprised we can't do when I saw it, because it's sort of telling people up front, "Hey, look, you sign this co-op and you may get hosed by the steer co-op." But if you don't sign it, who knows where you're going to actually end up? And I thought that was a little bit aggressive. But I think that the co-ops are not going anywhere. People are going to continue to do it. Like I said, they've just become a part of the market. And so I think you're going to continue to see-- I thought at this point, we have more teared co-ops and the like. And I think you're going to-- but this seems like we're still seeing movements around that. It may be more deal-to-deal based on who's in the group. Well, thank you guys so much for joining me. This was great. And if anyone has any questions or comments, please send them to [email protected]. Thank you for listening. Thanks, Jay. Thanks, Jay. [MUSIC PLAYING] [MUSIC PLAYING]