Greybull Capital accused of ‘fraudulent preference’

A cash injection by a second investor may have reduced the private equity firm’s equity exposure to now-defunct airline Monarch

Greybull Capital may have put itself at the top of the list of preferred creditors following the collapse of one of its portfolio companies, the UK parliament has heard.
The London-based private equity firm is owed around £150 million ($198 million; €167 million) for the loans it made to Monarch, an airline it acquired in 2014 that went into administration in the early hours of 2 October. As the preferred creditor on the administration documents it will be first in line to be repaid when assets such as airport landing slots are sold.

But Lord Myners, a former City minister, told parliament on Monday that a complex capital injection into the airline by aircraft maker Boeing, made in tranches in 2016 as part of a bailout, reduced Greybull’s equity exposure to what was the UK’s fifth largest airline.

The Labour peer said the UK aviation minister and the regulator had “misunderstood” the complexities of the airline’s financing, adding: “I hope the government will encourage the authorities to investigate whether that is not an issue [of fraudulent preference.]”
Fraudulent preference is a term used in insolvency law in which one creditor has put itself in a better position than it should have.

Boeing invested more than £100 million into the struggling airline in 2016 via the release of equity embedded in the value of orders for 30 new aircraft placed by the airline shortly after its acquisition by Greybull Capital two years earlier. At the time of the cash injection, Monarch’s chief executive said the airline had funded the bailout through an “equity investment.”

In a statement Greybull Capital said the financing deals were approved by the “relevant authorities,” but declined to comment on their impact on the firm’s equity exposure to the now-defunct airline.

Administrators for the airline, KPMG, are required to report to the UK government within three months on the actions of the directors.

The UK Aviation Minister, Lord Callanan, told parliament: “”If there is any evidence the directors have acted improperly we will not hesitate to take action against them.”
Separately, the British Airline Pilots’ Association has called for an investigation into the circumstances surrounding the demise of the airline and specifically, the role of Greybull Capital in it.

The association said pilots had taken 30 percent pay cuts and “huge pension losses” following the private equity firm’s acquisition of the airline in 2014.

“Monarch pilots made huge pay and pension sacrifices in 2014 to help Monarch turn itself around, only to find it was all in vain. They feel they did this simply to protect the financiers and they have been sacrificed in the process,” the association’s general secretary, Brian Strutton, said.

They are also calling for clarity over the 2016 cash injection “which was said to be funded by Greybull but is now reported as coming from Boeing,” Strutton said.