H2O Asset Management suffered larger writedowns on its holdings of bonds linked to Lars Windhorst, after agreeing to help the German financier avoid bankruptcy.
Once a star of European asset management, H2O was thrown into crisis in 2019 when the Financial Times revealed it had heavy exposure to illiquid securities linked to Windhorst, a flamboyant entrepreneur with a criminal record.
H2O’s funds allowed ordinary investors to withdraw their money daily, but the asset manager temporarily froze several of them in 2020 after the French financial regulator raised concerns about their Windhorst-related investments. H2O then split these funds, creating closed “side pockets” to house these hard-to-sell bonds and stocks, trapping over €1 billion in investor money.
These investors expected to access their money in a few weeks, but H2O has now informed them that it has reduced their investments further, after reaching an agreement which allows Windhorst to delay repayment of its debt by six months.
In a letter to investors on Wednesday, H2O revealed that the “estimated valuation” of side pockets had fallen by as much as 44% in some cases, due to “lack of repayment” since reaching a restructuring agreement with Windhorst last year.
Under that May 2021 deal, H2O said it had consolidated its disparate investments into a single bond with Windhorst’s main investment firm, Tennor Holding, with repayment due in “early 2022”. The German financier then told the FT in August that Tennor planned to “repay much of the H2O debt before the end of the year”. ”.
The latest repayment delay is likely to intensify regulatory scrutiny of H2O, which still manages 16 billion euros in assets, even after substantial withdrawals from investors. In minutes published last month, H2O confirmed that it was “currently under investigation” by several regulators, including for “alleged non-compliance with a number of principles established by the FCA”. [the UK’s Financial Conduct Authority]”. The company says it is cooperating with investigations.
H2O declined to comment. Tennor told the FT he had “made substantial repayments to all of his creditors, including H2O”.
“Tennor will continue its normal course of business and expect to repay its debts in the weeks and months ahead on a timely and regular basis,” the Windhorst-based company added.
H2O’s letter to investors cited a recent Dutch court ruling, in which Windhorst’s lawyers successfully overturned an earlier judgment declaring Tennor insolvent. To undo the bankruptcy, Windhorst negotiated a six-month standstill agreement with major creditors, including H2O, according to the December 21 court ruling, which means they cannot demand repayment of their debts during this period. period.
Dominique Stucki, a lawyer representing a group of aggrieved investors who filed a lawsuit against H2O, expressed surprise at the deal.
“We believe that if the debt was secured and guaranteed as heavily as H2O claimed, I don’t understand why they should waive their rights and agree to a six-month standstill,” he said.
The insolvency claim against Tennor was brought by Panamanian investment firm Corvallis Navigation, which is linked to billionaire heiress Athina Onassis, for an alleged debt of more than 36 million euros. The professional jumper inherited a fortune from her grandfather, Greek shipping magnate Aristotle Onassis.
A solicitor acting for the company told the FT that neither ‘Corvallis nor Miss Onassis wish to make any statement or comment at this stage’.
Besides Corvallis and H2O, the other major creditors that have signed the status quo are Heritage Travel and Tourism, a Bahamian investment vehicle linked to Monaco’s billionaire cruise magnate Manfredi Lefebvre d’Ovidio.
Heritage won a substantial judgment against Windhorst at the High Court in London last year, which ordered the financier to pay 172 million euros to honor a series of contested investment agreements, which involved shares in companies such as lingerie manufacturer La Perla.
French bank Natixis is still the majority shareholder in H2O, although it announced its intention to sell its stake more than a year ago. Natixis announced last month that the sale was still ongoing and would make a further announcement “in due course and in accordance with regulatory process”.
Before being mired in controversy, H2O proved a lucrative investment for Natixis, often paying out hundreds of millions of euros in dividends a year.
H2O’s auditor Mazars issued a qualified opinion for its 2020 accounts, while saying there was “material uncertainty” that could cast “significant doubt” on the company’s ability to continue as a going concern. .