Business is booming.

Greensill offered GAM share options as it pitched for funding

Lex Greensill once offered Swiss asset manager GAM an option to buy shares in Greensill Capital, alongside a deal that saw it use clients’ money to inject funding into his now-failed finance firm.

The collapse of Greensill Capital a year ago sparked a sprawling corporate and political scandal, engulfing scandal-prone Swiss lender Credit Suisse and former British prime minister David Cameron.

Years before the specialist supply-chain finance company failed, however, it was at the centre of an imbroglio at Swiss investment firm GAM, in which the asset manager fired its star portfolio manager Tim Haywood and froze withdrawals on billions of dollars of funds he managed.

As well as investing clients’ money heavily into hard-to-sell investment products brokered by Greensill, Haywood was a go-between in GAM’s negotiations of side deals with the firm’s Australian founder Lex Greensill.

In a previously unreported arrangement, Greensill offered GAM an equity warrant in his company in October 2016, according to documents setting out the terms of the deal, allowing the Swiss firm to purchase a 12.5 per cent stake in Greensill Capital for $125mn.

The arrangement was provided alongside a deal in which GAM’s funds lent more than $120mn to Greensill Capital, via a special-purpose vehicle called Laufer, named after a creek on the financier’s family watermelon farm in Australia. The funding provided a lifeline to Greensill at a time when the young company had racked up huge losses, while also refinancing loans from shareholders that included GAM’s former chief executive David Solo.

Greensill Capital sent a letter to shareholders, seen by the Financial Times, two days before the Laufer deal closed explaining that the equity warrant was “part of the terms of the refinancing” it was negotiating with GAM.

Alongside the equity warrant, GAM and Lex Greensill also negotiated a so-called “fee ramp” arrangement, in which Greensill Capital would pay GAM $5mn in fees if the assets in a dedicated supply-chain finance fund had not hit $1bn by March 2017.

In an October 2016 letter to Haywood signed by Lex Greensill, the fund was referred to as the “Vodafund”, a reference to the fact that the UK telecoms firm had invested heavily into the investment vehicle while also drawing funding from it. While this $1bn milestone was not reached in time, the “fee ramp” was later “amended” in June 2017, extending the date to September 2017.

The Laufer transaction appears to have been one of the deals that triggered the Financial Conduct Authority probe that eventually led it to fine GAM £9.1mn in December, which was issued alongside a smaller £230,037 penalty imposed on Haywood. While the UK regulator is yet to release details of the investments that were the subject of the fine, it has previously said that the period under its review began on 20 October 2016, the same date the Laufer deal was signed.

Greensill Capital repaid the Laufer loans in 2018, shortly after a $250mn investment from US private equity firm General Atlantic transformed the valuation of the finance firm, to surpass $1bn.

GAM never made use of the equity warrant in Greensill, however, which carried a $15mn “exercise fee” to activate. The fees under the “fee ramp” arrangement were also never paid.

GAM told the FT that it “fully accepted the findings of the FCA” and “acknowledged the conflicts of interest shortcomings”. 

“We have significantly strengthened our senior management team, governance, control frameworks, policies and training to ensure that all lessons learned from that period are fully embedded into our firm and culture,” GAM said. “With all regulatory matters now concluded, we are looking forward and are focused on our strategy of bringing GAM back to growth.”

Haywood highlighted the fines imposed on him and GAM when the FCA published its advanced warning notices in December. “Each gave statements at the time,” he said. He added he “will await the publication of the comprehensive viewpoints of the regulator before commenting further”.

Greensill Capital’s administrator and a spokesperson for Lex Greensill declined to comment.

Some of the Laufer deal’s unusual terms were also flagged in an internal investigation carried out by GAM in 2018. An expert report into GAM’s Greensill-linked investments described one aspect of the transaction relating to its interest rate as “not a normal arrangement”.

The FT reported in 2018 that the Laufer transaction appeared to have provided funding directly to Greensill Capital. Greensill’s spokesperson at the time told the FT that “GAM provides no financing to Greensill”.

Source link

Comments are closed, but trackbacks and pingbacks are open.