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A loan from failed finance company Greensill Capital is at the centre of a battle for control of a US car leasing start-up that has 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 $100bn Vision Fund invested over $300m in the business.
In early December 2020, as Greensill faced escalating regulatory scrutiny and its finances began to unravel, SoftBank bought out the group’s $315m loan to Fair, according to people familiar with the matter.
Fair is now considering restructuring its balance sheet through a debt-for-equity swap and potential bankruptcy filing. While SoftBank would retain a stake because of its ownership of the debt, such a move would wipe out other shareholders including Fair’s founder and chair Scott Painter.
The fight over Fair underlines not only how the fallout from Greensill’s implosion in March, which sparked the biggest lobbying scandal in British politics in decades, continues to widen, but the deep ties the group had with SoftBank.
As well as investing in Greensill, SoftBank’s Vision Fund also set up a programme that saw the supply-chain finance specialist lend heavily to other start-ups backed by the Japanese technology conglomerate.
SoftBank has clashed with Painter over the direction of Fair, according to people familiar with the matter. A debt-for-equity swap would thwart efforts by the 52-year-old entrepreneur to regain control of Fair via NextCar, a new company he set up last year.
Fair’s chief executive Brad Stewart, a turnaround specialist who was parachuted in last year, said the business “did everything we could over a six-month period to put NextCar in a position to buy the company”.
“SoftBank ultimately concluded that there was not the will to close on the other side,” he said.
Painter told the FT that while he could not comment on “any confidential board matters”, he was “disappointed to hear how Mr Stewart and Fair are characterising NextCar’s proposals”.
“NextCar made an offer on December 11, 2020, and an improved offer in early March,” he said. “The offers were financed with committed capital in place. The proposals were rejected.”
SoftBank and Greensill declined to comment.
If the restructuring goes ahead, Fair would become the second SoftBank-backed company that borrowed from Greensill to file for bankruptcy, following US construction start-up Katerra in June.
One person familiar with matter said that in buying up Greensill’s loan to Fair, SoftBank and its Vision Fund had employed tactics more typically associated with distressed debt investing.
“It’s a venture fund, but it can be a vulture fund when it needs to be,” he said.
However, Stewart noted that SoftBank had bought Greensill’s loan at face value, adding that the Japanese group should ultimately become a minority shareholder in Fair under its planned reorganisation. Fair plans to merge with another business and raise new investment, shifting away from the debt-intensive business of leasing cars.
Fair’s previous business model was based on offering “subscriptions” in which customers paid monthly fees to drive used vehicles. The company borrowed from Greensill after running into difficulties stemming from a misguided expansion into leasing cars to drivers for Uber, another SoftBank-backed company.
Fair used Greensill’s loan to repay around $450m of existing debt primarily from banks, according to one person familiar with the matter. This also included a $50m bridge loan from SoftBank, which the Japanese group had provided months earlier in exchange for an additional equity warrant in the company.
Documents seen by the FT show that Greensill’s loan had security on all of Fair’s assets “including all intellectual property rights”, allowing a lender to easily seize control of the company if it defaulted. The documents also show that the loan benefited from a guarantee from SoftBank.
In a sign of the aggressive lending Greensill was undertaking, its loan to Fair had the potential to grow to $2bn in size, which was to “enable Fair to purchase more cars to support its growth”, according to the documents. Fair never drew this much on the loan facility, however, as the company retrenched in 2020.
Stewart said Fair’s debt woes predated Greensill’s loan, as the business had defaulted on its previous credit lines with mainstream lenders in 2019.
“Most venture companies don’t raise a shit ton of debt. If they do, they don’t default,” he said. “Greensill bailed them out. And then SoftBank Group bailed Greensill out.”