In 2013, hedge fund NB Distressed Debt Investment Fund Limited (NB Distressed) and affiliates purchased an interest in a defaulted loan to a bankrupt borrower.  Distressed debt investing can present a host of complexities, especially when the borrower is in bankruptcy.  See “ALM’s 7th Annual Hedge Fund General Counsel Summit Addresses Distressed Debt Investing (Part Two of Three),” Hedge Fund Law Report, Vol. 6, No. 46 (Dec. 5, 2013).  Those issues may involve credit bidding, equitable subordination, disallowance risks, insider trading and recharacterization of debt as equity.  In the case of NB Distressed, the loan documents provided that the lender could only transfer the loan to “Eligible Assignees,” a term that included banks, insurance companies and “financial institutions.”  The bankruptcy court ruled that the funds were not financial institutions and therefore not entitled to vote on the borrower’s reorganization plan.  In a recent decision, a U.S. District Court reviewed the bankruptcy court’s decision.  The District Court’s decision and analysis are relevant to hedge funds that purchase distressed debt and other loans containing “Eligible Assignee” provisions.