9 Oct - Commercial Awareness - Private Credit
Topic: Bain Capital brings a lawsuit against Blackstone to recover €200mn loan
https://www.ft.com/content/d390f4c7-6bf6-4111-9f1d-9c734ca07bbd
Blackstone hired law firm Pallas and Teneo to investigate whether it could recover €200mn of loan to Bain Capital and bring a claim against Bain over the collapse of Fintyre.
The courts appointed the restructuring unit of an advisory firm, Teneo, to handle Fintyre’s liquidation. They are also advised by Pallas to assess whether they can bring claims against Bain’s directors over their actions that led to the insolvency.
The collapse of Fintyre
- Bain acquired Fintyre in 2017 with the goal to transform it to the world’s largest tyre group. Blackstone provided €200mn of debt funding.
- Bain provided equity + Blackstone provided debt = high growth of Fintyre
- Subsequently, other investors were attracted. Sardinia and German businesses have doubled the revenue to €900mn.
- Less than a year later, Fintyre collapsed, which came as a surprise as there would usually be opportunities to rescue. Hence, Bain’s directors are in trouble about their obligations to make Fintyre’s performance transparent.
- It does not impact Bain as it is the nature of PE firms to make losses on one deal and recover from another rainmaking deal.
- Blackstone's credit arm is now owed €230mn, behind another creditor group €65mn.
The news is interesting because it alarms the risks of private credit just as private equity firms have favoured private credit. Apollo, KKR, and Carlyle are increasingly focused on credit and shifting away from traditional buy-outs.
Below are short points to revise on the technical aspects of the news:
Insolvency
Power of the liquidator - when the insolvency proceeding starts, the liquidator’s power is supreme. Directors cease to have control over the company. The liquidator has the power to sell the company’s assets without consent and repay the creditors in an order approved by the court.
The liquidator is also incredibly expensive, which could be a deterring factor that companies rely on to persuade their creditors not to instigate the proceedings and allow them more time to figure out the loan.
Under the Companies Act 2006, directors owe a fiduciary duty to their creditors, if they make an unwise decision to harm their financial positions, they will incur personal liability.
