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In October of this year, the UCC in TPI Composites’ Chapter 11 case filed a motion for standing to bring a derivative suit against Oaktree for its involvement in a 2023 uptier transaction. Pending a ruling on the standing motion, the UCC also filed a complaint to initiate an adversary proceeding.

In the uptier transaction, Oaktree exchanged $350m of preferred shares and $86m of accrued dividends for a $393m senior secured term loan and 3,899,903 shares of common stock. As part of the transaction, Oaktree eliminated $43m of accrued dividends—representing half the amount it was originally owed.

UCC attempts to invalidate uptier transaction and limit Oaktree’s ability to credit bid

The UCC’s complaint seeks to recharacterize Oaktree’s senior secured loan as equity pursuant to Sections 502 and 105 of the Bankruptcy Code. According to the UCC, the senior secured loan was always intended to function as an equity contribution—the loan had no principal repayment schedule and its interest rate was identical to the dividend rate on the preferred equity that was exchanged. The UCC also alleges that Oaktree intended to convert the senior secured loan back into an equity interest through a credit bid in Chapter 11.