Ex-Blackstone trader balks at ‘grubby’ terms of Codere debt deal
Hedge fund manager battles over restructuring of Spanish casino operator
Akshay Shah, the former Blackstone executive who once raked in large profits by persuading Spanish company Codere to default on its debts, is challenging a new restructuring at the casino operator that he says will award “grubby fees” to select creditors.
The legal fight represents a role reversal for Mr Shah, who was one of the most senior managers of distressed debt at the credit arm of the $560bn-in-assets private equity firm. He now manages a $28m hedge fund he set up after leaving Blackstone in 2017.
In 2013, Mr Shah engineered what some described as a “manufactured default” involving Codere, when the company accepted funds from Blackstone in exchange for briefly reneging on its debt. That guaranteed a profit on the credit default swaps held by the US firm.
Critics said that the agreement amounted to an abuse of power by Blackstone to influence restructurings for its own benefit. Jon Stewart, the US comedian and talk show host, compared the deal to a scene in Goodfellas in which mobsters burn down a restaurant to collect the insurance. At the time, Blackstone pointed out such deals were “wholly compliant” with market rules.
Now, Mr Shah has cast himself on the opposite side of a new struggle over Codere, saying it is once again favouring larger creditors at the expense of other bondholders, such as his firm Kyma Capital. It is the latest in a string of disputes among creditors over the restructuring of companies caught in the Covid-19 downturn.
Codere, which had to shut many of the gaming halls, betting shops and racetracks it operates across Europe and Latin America in response to coronavirus, cut a deal with some of the largest holders of its €750m of bonds for a new funding lifeline in July.
Under the plan, a so-called ad hoc committee of these creditors will provide €250m of new funding that ranks ahead of its existing debt. Codere needs approval from an English court for the deal, and the backing of creditors representing 75 per cent of its debt.
However, Kyma argues that because the investors on the committee — whose identities are not public — are receiving fees and other benefits worth €22m, they should count as a separate class of creditor in the English court.
Codere already has approval for the deal from bondholders representing over 80 per cent of its debt. But if the court were to agree with Kyma it would mean the restructuring deal would need separate support from three-quarters of its bondholders who are not on the committee.
Kyma has further argued that this major creditor group’s advisers are earning substantial additional fees that have not yet been disclosed.
Last week, Codere offered all bondholders an additional fee to back the deal. Kyma has said this is a bid to get above a 90 per cent threshold, which would allow the deal to pass without the need for court hearings.
“If the company and ad hoc committee can avoid the English court route, I suspect they will want to, to avoid scrutiny of all the grubby fees,” Mr Shah said.
Codere said that it strongly disagreed with the hedge fund’s characterisation of its plan.
“Kyma's arguments are wrong in both fact and law, and Codere does not believe they have any real prospects of success in court,” the Madrid-based company said.
An initial High Court hearing is due on 3 September. A judge is then expected to rule on whether to approve the restructuring at the end of the month.