distressed debt arbirtrage including, somebody, interest, selling, because

willsucceed

can somebody explain how distressed debt arbirtrage works?

- long companys's distressed debt
- short selling company's equity

case 1:
if the firm's condition declines, the debt and equity will both fallin value; the equity should decline more in value, because debt has seniority---> OK

case 2:
if the company's prospects improve, because of the priority of interest over dividends, the returns to bondholders should be greater that that of equity holders, including dividends paid on the short position

dont understand case 2 especially in relation to dividends paid on the short positions. because i have shorted them this shouldnt matter???
thank you