🔥Greensill Capital = DRAMA!🔥
The Auction for Finacity Heats Up
Back on March 25, 2021, Greensill Capital Inc. (the “Debtor”) filed for chapter 11 bankruptcy in the Southern District of New York. The company is the direct subsidiary of Greensill Capital Management company (UK) Limited(“GCUK”) and the indirect subsidiary of ultimate parent, Greensill Capital Pty Limited; it is the direct parent of Finacity Corporation (which we’ll come back to in a moment). All together, the Greensill situation is a complete clusterf*ck — as you likely know from extensive Financial Times coverage of everything Greensill…
…wait…let’s take a moment to just revel in the sheer bounty of FT coverage on the matter…seriously, look at that ⬆️, they’re cranking out a new story, like, every 9 hours on the subject!
Greensill was in the business of arranging factoring and reverse factoring programs around the world. Here is a company-provided description of the business:
The Debtor constituted Greensill’s US presence and sold these ⬆️financial products to clients and investors in the Americas, with revenue therefrom flowing up the corporate org chart to GCUK.
Unfortunately for Greensill, however — and, by extension, the Debtor — a lot of company-wide funding arrangements went sour, triggering a domino effect that first sparked a UK administration filing, a company-wide liquidation and, by extension, the US-based bankruptcy filing. Per The Financial Times:
Greensill Capital, a SoftBank-backed company that says it is “making finance fairer”, has had a string of its clients default on their debts in high-profile corporate collapses and accounting scandals.
The London-based finance group, which employs former British prime minister David Cameron as an adviser, arranged funding for scandal-plagued hospital operator NMC Health and controversial “rent-to-own” retailer BrightHouse, which have both fallen into administration in recent weeks.
Greensill, which received $1.5bn of investment from Japanese conglomerate SoftBank’s Vision Fund last year, also provided financing to Agritrade, the Singaporean commodities trader that collapsed earlier this year amid accusations of fraud from its lenders.
These corporate collapses mean Greensill and a group of insurers are having to cover losses in funds managed by Credit Suisse.
Things unraveled quickly. Per Reuters:
Greensill Capital filed for insolvency on Monday after losing insurance coverage for its debt repackaging business and said in its court filing that its largest client, GFG Alliance, had started to default on its debts.
Cause ⬆️. Effect ⬇️.
The Debtor is a much smaller piece of the overall Greensill puzzle: it listed 50-99 creditors, $10mm-$50mm in assets, and $50mm-$100mm in liabilities on its petition. It has no revenue and no secured debt. Prior to the leadup to bankruptcy, it had just one director, Alexander Greensill, and its top 20 list of creditors is comprised of employees. It is fully redacted though we know at least two of the names from the UST’s appointment of a 2-member official committee of unsecured creditors. To effectuate the filing, the Debtor added an independent director, Jill Frizzley, to its board (PETITION Note: she effectuated the filing of the petition) and hired Togut Segal & Segal LLP as legal and, after the filing, GLC Advisors & Co. LLC as investment banker. The purpose of its filing is insulate the Debtor from the general Greensill global sh*t show, minimize liabilities (PETITION Note: the Debtor filed a rejection motion on day one which encompasses both its lease in NYC, a WeWork location Chicago, and other contracts) and sell its valuable assets (read: Finacity) for the benefit of its creditors and shareholder. It secured $2mm of DIP financing from The Peter Greensill Family Trust to pursue this course.
Within days of filing, the Debtor filed a motion seeking approval of bidding procedures and approval of stalking horse protections on behalf of a stalking horse purchaser, the Katz Parties, which includes Finacity’s original founder and CEO. The bid is for $24mm which includes $3mm of cash, and the release of some $21+mm of earn-out payments still owed to the Katz Parties from the 2019 sale of Finacity to the Debtor. That last bit is interesting because, if ultimately successful, it will eliminate a massive general unsecured claim that dwarfs the rest of the unsecured claim pool and, consequently, will enhance general unsecured creditor recoveries. The Debtor initially sought a April 20th bid deadline with an auction on April 23 and a sale hearing on April 27. The bankruptcy court entered an order approving the procedures and stalking horse protections on April 6.
The next day the UST’s office appointed a three-person creditors’ committee. The committee then chose Arent Fox LLP as its counsel and Cohn Reznick LLP as its financial advisor.
On April 15, the Debtor filed a notice of revised dates and deadlines relating to the sale of Finacity, making the bid deadline May 5, the auction May 7, and the sale hearing May 12. Meanwhile, the composition of the UCC kept changing: it turned over for a third time on April 19. That must have been fun for everyone.
But the fun merely followed! Things got weird. On April 30, the UCC filed a motion to extend the sale process and push the bid deadlines, auction date, and sale hearing date. They wrote:
…it has come to the Committee’s attention that wrongful conduct and flaws in the sale process are chilling bidding. The Committee requests a reset of the sale timeline and remedial measures to bring bidders back to the process. Without these curative steps, the Debtor’s ability to maximize value will be compromised and general unsecured creditors, consisting largely of former employees, will feel the brunt of the wrongful conduct and irregularities in the sale process.
Irregularities? In a case that kicked off due to irregularities?! Stop the insanity!!
The UCC continued:
Most troubling – and the immediate cause for expedited relief – is that the Committee has learned of specific wrongful conduct by Finacity management this week alone that has tainted the sales process. At this point, the question is not whether damage has been done. The question is whether the damage can be repaired….
The UCC went on to cite (i) correspondence from a Finacity senior executive to a prospective bidder that informed said bidder that it was “not a good fit,” (ii) aggressive, adversarial and. unprofessional behavior towards a second potential bidder, (iii) slow processing of NDAs to the detriment of the expedited sale process, (iv) poor messaging that appears to be “artificially inflat[ing]” any required entry bid, and (v) some inside baseball shenanigans — including special discounts (in exchange for IP transfers) — that favor the Katz Parties to the detriment of other prospective bidders (without consideration for whether the Katz Parties are subject to additional scrutiny on account of, among other things, potential preference exposure related to earn-out payments paid in conjunction with the sale). They write:
The totality of the circumstances have created an environment that is chilling bidding and positioning the Stalking Horse to re-acquire Finacity for a mere $3 million cash, despite the fact that Finacity is performing better than when the Debtor acquired it for a price tag exponentially higher less than two years ago.
The UCC proposed pushing everything to mid-June. The Debtor did not agree to those dates but they did push the bid deadline to May 10, rendering the UCC’s objection moot. A member of the UCC subsequently said “f*ck this sh*t” and quit, leaving just a two-person committee. Ok, maybe it wasn’t that dramatic but you get the idea. This UCC has had more change than J.Lo has had long-term relationships that go nowhere.
Sh*t. We’ll take this drama over that drama any day of the week.
Anyway, yesterday the Debtor filed a notice indicating that “…the Debtor has received more than one ‘Qualified Bid,’” and therefore pushed the auction date — yet again! — to May 14 with a proposed sale hearing on May 21.
Stay tuned.