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A loan from bankrupt financial firm Greensill Capital is at the center of a battle for control of a US car-leasing startup that pitted SoftBank against the company’s founder.
Fair, a struggling Santa Monica-based car leasing company, borrowed from Greensill in late 2019, a year after SoftBank’s $ 100 billion Vision Fund poured more than $ 300 million into the business.
In early December 2020, when Greensill encountered strengthening control by regulatory authorities and his finances began to crumble, SoftBank bought out the group’s $ 315 million loan to Fair, according to people familiar with the matter.
Fair is currently considering restructuring its balance sheet through a debt-for-equity swap and filing for potential bankruptcy. While SoftBank will retain the stake because it owns the debt, such a move would destroy other shareholders, including Fair founder and chairman Scott Painter.
The fight for Fair underscores not only that the aftermath of Greensill’s collapse in March, which sparked the biggest lobbying scandal in British politics in decades, continues to expand, but also the group’s deep ties with SoftBank.
As well as investing in Greensill, Vision Fund SoftBank also launched a program in which a supply chain finance specialist participated. lend heavily other startups backed by a Japanese tech conglomerate.
According to people familiar with the matter, SoftBank came into conflict with Painter over the Fair direction. Debt-for-stock swaps will thwart 52-year-old entrepreneur’s attempts to regain control of Fair through NextCar, a new company he founded last year.
Fair CEO Brad Stewart, a repair specialist who was parachuted last year, said the business “did everything it could for six months to ensure NextCar was able to buy out the company.”
“SoftBank ultimately came to the conclusion that the other side had no desire to shut down,” he said.
Painter told the FT that while he is unable to comment on “any confidential board matters,” he is “disappointed to hear Mr. Stewart and Fair characterize NextCar’s proposals.”
“NextCar made an offer on December 11, 2020, and an improved offer at the beginning of March,” he said. “The proposals were funded with the allocated capital. The proposals were rejected. “
SoftBank and Greensill declined to comment.
If the restructuring takes place, Fair will become the second SoftBank-backed company to borrow from Greensill to file for bankruptcy after Construction startup in the USA Katerra in June.
One person familiar with the matter said that when buying up the Greensill loan for Fair, SoftBank and its Vision Fund used tactics more often associated with investing in bad debts.
“This is a venture fund, but it can become a vulture fund if necessary,” he said.
However, Stewart noted that SoftBank bought the Greensill loan at par, adding that the Japanese group should eventually become Fair’s minority shareholder as part of the planned reorganization. Fair plans to merge with another business and attract new investment by ditching its debt car leasing business.
Fair’s previous business model was based on a “subscription” offering where customers paid a monthly fee to use their used cars. The company borrowed from Greensill after facing difficulties as a result of the erroneous expansion of car rentals to drivers of Uber, another company backed by SoftBank.
Fair used Greensill’s loan to repay about $ 450 million in existing debt, mostly to banks, according to one familiar with the matter. It also included a $ 50 million bridging loan from SoftBank, which the Japanese group had provided a few months earlier in exchange for an additional equity warrant.
The documents reviewed by the FT show that Greensill’s loan secured all of Fair’s assets “including all intellectual property rights,” allowing the lender to easily seize control of the company in the event of default. The documents also show that the loan was guaranteed by SoftBank.
As a sign that Greensill is actively lending, its loan to Fair could grow to $ 2 billion, which, according to the documents, should “allow Fair to buy more vehicles to support its growth.” However, Fair has never raised that much of a line of credit as the company cut back on funding in 2020.
Stewart said Fair’s debt problems predated Greensill’s loan as the company defaulted on its previous lines of credit with major lenders in 2019.
“Most venture capital firms do not borrow a dime. If they do, they are not the default, ”he said. “Greensill helped them out. And then SoftBank Group bailed out Greensilla. “