Private Equity’s Brutal Side Deals Have Lenders Grasping in Dark

It’s a familiar saga in today’s credit markets: A debt-saddled company restructures and some of its lenders band together to defend their rights.

But when Vibrantz Technologies — a paint-additives maker owned by a private equity firm — overhauled its borrowings earlier this year, its smaller creditors were offered a choice: Agree not to speak to your fellow lenders and challenge the transaction before it closes, or face the prospect of steeper losses. Some had little time to decide.

Several individual lenders took the deal with the American Securities-backed company, according to people familiar with the matter who asked not to ...