Lenders A-CAP reached an agreement with the Friedkin Group over the debt accrued during failed 777 Partners takeover bid
The investment firm that provided the funds for 777 Partners to meet working capital requirements at Everton during their doomed takeover bid has responded to claims in a New York civil case that impacts the Toffees.
Miami-based A-CAP had been the main source of funding for the crisis-hit 777 Partners’ growth for a number of years until they seized some of 777’s assets earlier this year, including Belgian side Standard Liege, in a bid to try and recoup funds after 777 found itself embroiled in a number of legal suits.
One of those suits was filed in a New York civil court by London firm Leadenhall Capital Partners, who allege that 777 Partners obtained $350m in funding using ‘fraudulent’ behaviour that included pledging assets as collateral that either did not exist, had already been pledged against (known as double pledging), or were not owned by 777 co-founders Josh Wander and Steven Pasko.
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777 Partners had been funding working capital at Everton since the beginning of the year with Toffees owner Farhad Moshiri unwilling to spend any more of his money on the club during a sale process. But regulatory approval never arrived for the American firm and the deal collapsed after they failed to meet a Moshiri-imposed deadline for the end of May to come up with the funds.
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But the £200m still sat on the balance sheet, and at a high rate of interest. That debt had initially put off Everton’s prospective new owners, the Friedkin Group (TFG) owing to concerns around the legal issues and potential ramifications.
But TFG came back to the table last month and last week an agreement was reached with Moshiri to acquire his 94.1% shareholding in the football club, with the Houston-based firm now going through the process of obtaining regulatory approval, something that isn’t expected to be an issue.
TFG, as a lender to Everton having taken over the £200m MSP Sports Capital debt during the summer, had remained in dialogue with other club creditors even after stepping away, with one of those being A-CAP. Having sought legal counsel, an agreement was reached between TFG and A-CAP that would see partial repayment of the debt, through debt restructuring, or potentially paying off the full debt. That agreement had to go before the New York court for approval of both the presiding judge and Leadenhall.
On Monday, Leadenhall’s legal counsel filed a letter to Judge Koeltl, presiding, that claimed that they had only been notified of the Everton agreement on September 30, and stated its concern that both the planned sale of Standard Liege, and the deal over the Everton debt, amounted to ‘asset stripping’, and were in breach of a preliminary injunction that prevented a party from taking a specific action until the case had been concluded.
On Wednesday, A-CAP filed a letter of their own with the court in response, claiming that the deal was outside the scope of the preliminary injunction.
The letter, from A-CAP’s legal counsel Cadwalader, Wickersham & Taft LLP, read: “Despite asserted concerns over press reports about A-CAP, Leadenhall did not include A-CAP or its counsel on its requests for information from the 777 Entity Defendents.
“Leadenhall did not make A-CAP aware of its earlier requests until after A-CAP provided notice of a particular contemplated transaction, one to which A-CAP, but no other party to this litigation, is a party.
“A-CAP provided notice, despite being under no obligation to do so – the contemplated transaction is far afield of the preliminary injunction (and is the opposite of ‘asset-stripping’).
“Even so, A-CAP and its counterparties agreed to notify Leadenhall and the intervenors in the spirit of open communication and to prevent any misunderstanding of the contemplated transaction (based on incomplete or inaccurate press or otherwise).
The letter continued: “While expressed a need to write to the Court on the topic before today’s hearing, the parties’ discussions about the contemplated transaction have no bearing on the merits of A-CAP’s motion to modify. That motion presents a question of law based on indisputable facts, namely the scope of Leadenhall’s security interest and the nature of its contract claim for money damages.”
In short, A-CAP believe that the agreement reached with TFG falls outside of the temporary court injunction, which Leadenhall secured on 777 assets for fear of asset-stripping.
A-CAP’s argument is that they willingly volunteered the TFG proposal with regards to the Everton debt, with that debt either to be repaid through debt restructuring or through TFG paying it off. The 777 Partners working capital loans, financed through A-CAP, were also unsecured junior debt, meaning that they would be at the back of the queue of creditors, some of who had their loans to the club secured against the stadium.
Court approval is required for the agreement to be actioned, but the stance throughout has been that approval is anticipated. Any decision isn’t expected to have an impact on the Everton takeover in terms of pressing ahead, with sources saying that they would have not come so far down the line were they not confident of clearing this hurdle. What it might do was change the way TFG address the debt, potentially clearing it all themselves, but the focus now lies on ensuring swift travel through the regulatory process.
Once the situation is resolved, TFG can move towards bringing an end to the 777 links. Given TFG’s strong reputation they will likely have no shortage of willing lenders for debt restructuring, and at a far lower cost of borrowing to the football club.
The TFG takeover of Everton doesn’t hinge on the New York court decision. They might have to go in a slightly different direction with regards to what they had planned to tackle the debt than they initially thought, though the confidence remains high that it will be an issue resolved to their satisfaction.