Taxpayers face losses on loan to neighbor Lex Greensill

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UK taxpayers are facing heavy losses on a government-backed loan Greensill Capital provided to a business owned by a neighbor of its disgraced founder.

Greensill collapsed in March last year, sparking a financial and political scandal that engulfed David Cameron, the former prime minister who advised the supply chain finance firm.

The saga spanned Australia, where founder Lex Greensill ran a watermelon farm; Switzerland, where Credit Suisse investors funded Greensill; and Japan, where SoftBank bought Greensill at a racy valuation.

The bad loan in the UK was a much more local affair, although it affects some of these global institutions. The Chester-based Special Needs Group is owned by local businessman Barnabas Borbely, who lives around the corner from Lex Greensill in the Cheshire village of Saughall.

The firm, a private company that provides services for people with learning disabilities, has also collapsed into administration, with Greensill Capital having to recoup less than a quarter of the money it lent to the ‘company.

A report from the company’s directors shows Greensill is Special Needs Group’s “sole material creditor” and is only set to receive £4.9m of the £22.8m owed to him, describing this as a “significant deficit in relation to their safety”.

Of the debt provided by Greensill, £5m is in the form of a government-guaranteed loan, while most of it has been financed by a Credit Suisse investment fund.

Greensill has filed an insurance claim in a bid to recoup the losses, according to a person familiar with the matter, but he could face an uphill battle to recover the money. Tokio Marine and Insurance Australia Group, which underwrote the bulk of Greensill’s riskier loans, both accused Greensill of making “fraudulent” misrepresentations and refused to pay any claims.

The British Business Bank has confirmed that government guarantees remain in place on Greensill’s loans to small businesses such as Special Needs Group, but the public lender told the Financial Times that it has now opened a new investigation into the “compliance of Greensill with the CBILS”. [Coronavirus Business Interruption Loan Scheme] terms”.

“We note that if a lender is found to have applied program eligibility criteria incorrectly or violated program rules, the bank has steps to remedy the situation, including removing of the guarantee,” added the British Business Bank.

The bank has already suspended government guarantees on £400m of loans that Greensill advanced under a separate Covid-19 loan scheme for large businesses.

Greensill Capital declined to comment.

As part of an administrative agreement, a new company that Borbely set up this year will buy Special Needs Group’s operating subsidiaries for £5.2million. The administrator’s report notes that ‘no further offers’ were made for these business units and that it was given a valuation on a ‘breaking basis’ of just £4.3million.

While Borbely has provided an “unlimited personal guarantee” over Greensill’s £23million loan to Special Needs Group, the finance company releases him from this obligation under the terms of the administrative agreement.

In addition to the £5m of government-guaranteed debt, Greensill bundled the bulk of the loans to Special Needs Group into Credit Suisse’s $10bn supply chain finance fund, which exposed some from the Swiss bank’s wealthiest clients to potentially billions of dollars. dollars of losses.

Greensill’s loan to Special Needs Group is one of many more speculative deals that depart from the on-bill financing he was supposed to specialize in. Greensill pushed the envelope by also lending against hypothetical future bills, a risky practice that contributed to the downfall of the financial group.

The administrator’s report shows Greensill essentially provided seed funding to Special Needs Group, providing £18million in loans to the business on an ‘interest only’ basis in 2018, as the company based in Chester was only a month old.

Greensill announced in 2020 that he had developed a “revolutionary funding model” with Special Needs Group, under which he used “fintech to identify and account for future cash flows from local authorities and central government”.

However, while Lex Greensill and Borbely lobbied their local council to adopt the finance company’s ‘supply chain finance model’, Cheshire West and Chester Council never adopted the scheme. proposed – determining that it offered “no benefit”.

Borbely did not respond to requests for comment.

Video: Greensill: A Story of Pride, Hype and Greed


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