Wind turbine manufacturer's unsecured creditors committee alleges Oaktree converted equity to secured debt without providing new funding ahead of bankruptcy
The Official Committee of Unsecured Creditors of wind turbine manufacturer TPI Composites Inc. has filed a sweeping adversary complaint challenging Oaktree Capital Management's controversial 2023 "uptier transaction" that converted approximately $400 million of preferred equity into first lien secured debt without providing additional funding to the financially distressed company.
The committee filed the complaint on October 1, 2025, in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, just 19 days before their challenge period deadline expires. The filing alleges that Oaktree, leveraging its insider status as a board member and preferred stockholder, orchestrated the transaction to "leapfrog over unsecured creditors" when it knew TPI was insolvent or would soon become insolvent.
"Oaktree—the Debtors' sole Preferred Equity holder—effectuated an uptier transaction to achieve a better position vis-a-vis unsecured creditors at a time when it knew the Debtors were insolvent or would soon become insolvent, without providing any additional funding (or other reasonably equivalent value) to the Debtors," the committee stated in the complaint.
Background of Oaktree's Investment
TPI Composites, a leading manufacturer of composite wind blades, entered into financial distress beginning in 2022 due to increased material costs, decreased demand, and challenging market conditions. The company's business model was particularly vulnerable due to extreme customer concentration, with three customers accounting for approximately 90% of revenues.
Oaktree originally invested $350 million in TPI's Series A Preferred Stock in November 2021, along with warrants to purchase common stock. The preferred equity carried an 11% annual dividend rate, which Oaktree later exercised in August 2022. By 2022, TPI's SEC filings acknowledged the company had "incurred substantial losses over the past three years" and was considering alternatives including asset sales and debt restructuring.
In March 2023, TPI issued $132.5 million in convertible senior unsecured notes in a private placement. However, the company's second quarter 2023 earnings fell well below market expectations, causing the notes to trade at a significant discount of roughly 50% of par value.
The Controversial Uptier Transaction
In 2023, facing mounting financial pressure and unable to pay accruing dividends, TPI entered into a credit agreement with Oaktree that exchanged all outstanding preferred equity and $43 million of accrued dividends for a $393 million senior secured term loan and approximately 3.9 million shares of common stock.
Crucially, the committee alleges that "Oaktree did not provide any new funding in exchange for obtaining liens on substantially all Debtors' assets." The interest rate remained at 11%—the same as the previous dividend rate—and the agreement included restrictive covenants that limited TPI's operational flexibility.
According to internal communications cited in the complaint, Oaktree was "intimately aware of the Debtors' dire financial situation" and viewed moving ahead of unsecured noteholders in priority as "one of Oaktree's primary goals of the Uptier Transaction."
Current Bankruptcy Proceedings
TPI and 21 affiliated companies filed for Chapter 11 bankruptcy protection on August 11, 2025—less than two years after the uptier transaction. Oaktree now asserts a $472 million secured claim and has provided only $7.5 million in debtor-in-possession financing, with an additional $20 million contingent upon Oaktree's approval of customer contracts and the debtors' reorganization plan.
The company is conducting an asset sale process with a bid deadline of October 22, 2025. Under current court orders, Oaktree has the right to credit bid its full $472 million claim, potentially allowing it to acquire the company's assets without paying cash.
Legal Claims and Theories
The committee's complaint advances multiple legal theories to challenge Oaktree's position:
Recharacterization: The committee argues the uptier transaction should be recharacterized as an equity contribution rather than debt, noting that Oaktree intends to convert its debt back to equity through the bankruptcy process.
Equitable Subordination: As an insider that engaged in inequitable conduct, the committee contends Oaktree's claims should be subordinated to general unsecured creditors under Section 510(c) of the Bankruptcy Code.
Fraudulent Transfer: The committee alleges both actual and constructive fraudulent transfer under federal bankruptcy law and Delaware state law, arguing TPI received no reasonably equivalent value for granting liens on substantially all assets and that the transaction was intended to hinder other creditors.
Credit Bidding Limitations: The committee seeks to limit Oaktree's credit bidding rights to only the $7.5 million in new DIP financing actually provided.
Stakes and Timeline
The outcome could significantly impact recoveries for TPI's unsecured creditors, including the noteholders who purchased $132.5 million in convertible notes. If successful, the committee's challenge could eliminate or substantially reduce Oaktree's secured claim and prevent it from using credit bidding to acquire the company's assets at a discount.
The committee noted that "absent this Court's intervention, Oaktree will come full circle and own the Debtors either through a credit bid or plan process without spending a dime (other than partially funding debtor-in-possession financing in the amount of $7.5 million), since it voluntarily purchased the Preferred Equity in 2021."
The case is being heard in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, under Case No. 25-34655 (CML). The committee is represented by Lowenstein Sandler LLP and local counsel Munsch Hardt Kopf & Harr, P.C.
With the committee's challenge period expiring on October 20, 2025, and the asset sale bid deadline set for October 22, 2025, the court will need to move quickly to resolve these fundamental disputes about Oaktree's claim status and bidding rights.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 31 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.