U.S. lawmakers likely to nix changes to debt restructuring law: source

WASHINGTON/NEW YORK/CHICAGO (Reuters) - Lawmakers are likely to scrap a revision to certain legal protections for bondholders from a spending bill that was under negotiation, a congressional aide said on Tuesday.

Critics had said the changes under consideration to the Depression-era Trust Indenture Act (TIA) would strip bondholders of their right to challenge out-of-court restructuring deals and benefit private equity firms that are lobbying for the changes.

Some of the largest U.S. fund managers opposed the revisions as "unwarranted and unanalyzed." A group of managers with combined assets under management of $7.3 trillion had sent a letter on Monday to top Democratic and Republican leaders expressing their concerns.

The letter was signed by BlackRock Inc, DoubleLine Group LP, Oaktree Capital Management LP, Western Asset Management Company, T. Rowe Price Group and Pacific Investment Management Co, which is owned by Allianz SE.

A spokeswoman for Senate Democratic leader Harry Reid, who had backed the proposal, would not confirm or deny that the restructuring revisions had been pulled. Representatives for other top lawmakers did not respond to requests for comment.

The fund managers said any changes to the law, which lawmakers considered bolting on to a $1.15 trillion spending bill, should take place through a "transparent legislative process," echoing the concerns of 18 law professors who had asked in a separate letter for a more thorough analysis of the proposals.

Critics also warned on the proposed retroactive nature of the law, which could influence court decisions such as for casino operator Caesars Entertainment Corp, whose operating unit is in the middle of a litigious $18 billion bankruptcy.

Creditors have complained that Caesars did not guarantee the debt of its unit before filing for Chapter 11, a move they say violated the TIA.

The law has existed since the 1930s and guides debt restructuring, but recent interpretations cast uncertainty on its reach.

Caesars is owned by private equity firms Apollo Global Management and TPG Capital, who are behind a lobby for the TIA to be amended.

Caesars, which has argued that lawsuits against its parent could push it into insolvency, was not available for comment.

A revised act could have affected other pending and future cases, including one between alternative investor Marblegate Asset Management LLC and for-profit educator Education Management Corp, which is partly owned by buyout firm KKR.

(Reporting by Trevor Hunnicutt in New York, Tracy Rucinski in Chicago and David Lawder in Washington; Additional reporting by Susan Cornwell in Washington; Editing by Meredith Mazzilli)