The growing presence of non-traditional lenders has been a noticeable trend in the finance industry for years. Yet these lenders have always played a prominent role in distressed lending. Oftentimes they are industry participants who are not only extending a lifeline to the debtor but perhaps more importantly protecting their customer base.
Because of their multiple relationships, these lenders also typically find themselves entangled with the debtor in more ways than just debt financing. And these relationships are not without risk. Other creditors are more than happy to try to convince a bankruptcy judge that a creditor with equity or mercantile connections to a debtor deserves less favorable treatment. Bankruptcy courts are courts of equity. They can impose restraints on a creditor by limiting its right to credit bid, or, even worse, subordinating its claims.
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