There’s a dangerous new type of activist investor betting on companies to fail — and that behavior could permanently change how firms raise money

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Windstream's bankruptcy at the hands of Aurelius Capital is the latest example of how net-short debt activism can hurt companies.

, which was published in the Harvard Law School Forum on Corporate Governance and Financial Regulation.

As such, this subset of investors — known as"net-short debt activists" — are incentivized to hasten a corporation's default. Here's a quick rundown of how they operate:: Net-short debt activists identify a transaction that they can claim violates specific covenants in a company's debt documents.: Those activists build a position in the company's debt, while also amassing a larger short position.

The Wachtell Lipton study agrees with that last point: This type of behavior is becoming more commonplace. As a result, it's become a growing worry for many companies whose existing debt deals could contain troublesome covenants — ones that could be dug up and used against them.

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Isn’t that just an investor that subscribes to the principals of shortselling? And hasn’t that alway been a thing?

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