Credit Suisse effort to recover Greensill loans faces roadblock
Credit Suisse Group AGof
Efforts to recoup $ 10 billion invested in loans from Greensill Capital face hurdles due to a complex structure that makes it difficult for the parties to agree on who owns the loans, people familiar with the matter say.
A “double trust” structure means that investors in Credit Suisse funds have rights to the cash flows of loans held in a trust, but the rights to the underlying loans are held in a separate trust, according to reports. people familiar with trusts. These include loans to Greensill’s largest borrower, GFG Alliance, the metals empire controlled by Anglo-Indian tycoon Sanjeev Gupta.
The emergence of the double-trust issue risks complicating Credit Suisse’s ability to recover money for more than 1,000 investors in its supply chain funds. Investors include pension funds, corporate treasurers, and other professional investors.
Credit Suisse said it had so far returned $ 3.1 billion to investors. More cash has recently been poured into the fund as Greensill borrowers repay part of the loans, according to a person familiar with the matter. The bank said it would return more money to investors in mid-April.
The issues with Greensill come at a difficult time for the Swiss bank as it deals with the liquidation of Archegos Capital Management. The bank said it expects to take a loss on both Greensill and Archegos.
Greensill, a financial start-up specializing in business loans, was founded in 2011 by former banker Morgan Stanley and Citigroup Lex Greensill. The company specializes in supply chain finance, a form of short-term business lending, and filed for bankruptcy earlier this month after losing the credit insurance that was crucial to its activities. Credit Suisse has suspended investment funds.
Discussions between Credit Suisse attorneys Grant Thornton, who acts as a director of Greensill, and GFG have become increasingly mired in recent days over the structure of the trust, according to people familiar with the matter.
operates a special-purpose vehicle, called a trust by some in the industry, which collects payments from Greensill borrowers and transfers money to Credit Suisse funds, according to people familiar with Greensill’s business.
This week, on instructions from Credit Suisse, Citigroup filed a lawsuit in a UK court to force one of Mr Gupta’s commodity trading firms into insolvency, according to people familiar with the matter.
A spokesperson for Mr Gupta said the GFG Alliance was in “constructive discussions with Grant Thornton” and said it would vigorously defend any legal action. The company is taking steps to refinance its business, the spokesperson added.
Mr Gupta said on a podcast for GFG employees last week that he “had a defense that is ready because we had facilities engaged for three years”. He said GFG will use defense if there is a dispute with the Greensill directors.
To complicate matters further: Although Credit Suisse’s investments were secured by loans renewed every few months, Greensill had provided GFG and some other clients with long-term commitments of up to three years, according to a note. Greensill’s July 2020 internal review by The Wall Street Journal. as well as people familiar with loans.
This could open the door to the argument that Mr. Gupta and other Greensill clients will not have to repay their supply chain loans for an extended period.
—Alistair MacDonald contributed to this article.
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Appeared in the print edition of April 2, 2021 under the title “Bank Faces Greensill Roadblocks”.