Millett’s Hudson debt fund sues Ares over plane loan

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(Bloomberg) – Ares Management is suing a specialized loan fund co-founded by a former Goldman Sachs Group Inc. partner over the sale of collateral for a loan from a struggling Norwegian airline.

Hudson Structured Capital Management Ltd., which manages alternative assets, claims that several Ares funds that held the promissory notes ordered the sale of aircraft used as collateral to an Ares affiliate despite a higher offer from an outside bidder, according to a lawsuit filed by … last week in the New York State Supreme Court.

Hudson, founded by former Goldman partner and loan officer Michael Millett and former CEO of Pacific Investment Management Co. David Andrews, was a promissory note investor and claimed that she had lost at least $ 14.3 million in a “fictitious sale of pledged property.” In the lawsuit, Hudson is seeking at least the same compensation, as well as unspecified penalties and other payments.

Representatives for Ares and Hudson declined to comment on the lawsuit.

Out-of-frame view

The complaint offers a behind-the-scenes look at the dispute involving some of Wall Street’s most seasoned negotiators. The 10 Boeing 737-800 aircraft in question were purchased by Norwegian Air Shuttle ASA and used as collateral for aircraft loans in 2016. They were valued at $ 300 million in February and then sold to Ares. According to a lawsuit filed on June 8, the newly formed Vmo Aircraft Leasing for $ 250 million as part of the airline’s bankruptcy restructuring.

Gaining control of the Advanced Equipment Trust certificate, a type of collateral used in lending to professionals, “to buy an aircraft cheaply and not pay all bondholders under the terms, could significantly change the market for these types of financial agreements,” said George Ferguson, Senior Aerospace and an aviation analyst at Bloomberg Intelligence, referring to the lawsuit charges. “If this strategy is correct, I would expect less EETC funding in the future.”

Read more: Ares leasing company is launched with a capital of $ 500 million

Hudson, which has over $ 3 billion in assets under management and specializes in insurance and transportation finance, also named Wilmington Trust Co. as a defendant, claiming that in its role as trustee, the firm “blindly followed Ares’ instructions” in overseeing operations. deal, and not act in the best interest of all bondholders as required.

Wilmington Trust, which provides wealth and institutional services for M&T Bank Corp., said it would not comment on the pending lawsuit.

Vmo was founded this year by Ares, which manages $ 227 billion in assets and several veterans of the aviation industry. The firm is committed to providing financing in an area where many lenders are cutting costs. The global commercial aircraft leasing market – $ 33.7 billion as of July last year, according to industry estimates – could grow to $ 47.1 billion by 2027 on the back of continued demand.

(Updates with analyst comment in sixth paragraph.)

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