A coal company owned by Gov. Justice sues lender threatened with insolvency | Business
A coal company owned by Governor Jim Justice claims to have been cheated by a global lender and now faces “a clear and current threat”.
These allegations were made in a federal prosecution filed in U.S. District Court for the Southern District of New York on Monday. In the 45-page dossier, Justice-owned Bluestone Resources accuses Greensill Capital of a “continuous and profitable fraud” adopted “under the pretext of establishing a long-term financing agreement.” He also claims that “the damage to reputation has already been severe” since Greensill filed for bankruptcy on March 8.
The lawsuit seeks punitive damages and expenses “in an amount to be determined at trial.”
In addition to Bluestone Resources, sister entities Bluestone Coal Sales Corp. and Blackstone Energy LTD are listed as plaintiffs in the lawsuit, along with Justice and his wife, Cathy, and their son, James C. Justice III. Lex Greensill, CEO and founder of the London company that bears his name, and Vice President Roland Hartley-Urquhart are identified as defendants.
The lawsuit comes after Greensill’s operations were frozen and its banking unit was taken over by regulators. The Wall Street Journal reported that the 10-year-old bank, once valued at $ 4 billion, is now worth around $ 100 million.
Requests for comment sent to the governor’s office, as well as to the Manhattan law firm Sullivan & Cromwell, which filed the complaint, went unanswered. The consultancy firm Grant Thornton UK, administrator of Greensill in its insolvency proceedings, declined to comment.
Greensill’s relationship with Bluestone was important to both companies.
The Journal, citing an internal company document, reported that more than 70% of Greensill’s revenue in 2020 – and 90% the year before – came from a handful of customers. This core group made up the vast majority of the $ 150 billion in funding provided by Greensill in 2019, according to its website.
Among these five clients was Bluestone, who borrowed $ 850 million of Greensill in the spring of 2018. But this transaction broke with Greensill’s normal playbook. The company typically offered short-term loans which allowed clients more flexibility with available cash.
The Bluestone loan, however, was to be in the game for years, while other shorter-term loans were rolled over. The lawsuit claims Bluestone paid Greensill $ 108 million in costs and an additional $ 100 million in warrants to buy stakes in the coal company.
These conditions and actions, according to the lawsuit, led Bluestone to believe it had secured a long-term funding partner.
“I think this type of lawsuit will be difficult to sustain in court,” said Mike Pagano, professor of finance and real estate at the Villanova School of Business, by email, “because Bluestone’s CFOs should have take into account the risk of depending to a large extent on one type of lender [Greensill] which also depends on its continued funding through short-term debt securitizations.
The lawsuit claims the relationship has grown strained over the past year.
Hartley-Urquhart asked Judge III on February 9 to send his loan payment directly to Credit Suisse AG, a principal creditor of Greensill. Hartley-Urquhart also urged Judge III to take responsibility for a payment Greensill missed to the Swiss bank, according to the lawsuit.
The lawsuit also claims Bluestone came under pressure last year to sell coal to GFG Alliance, a London-based conglomerate and Greensill’s biggest customer. Bluestone said it had not yet been paid for the delivery of this coal.
The lawsuit also alleges that Greensill prompted Bluestone to rely more and more on the lender even as its own financial situation crumbled. The relationship deteriorated completely last week, when Japanese insurer Tokio Marine refused to renew a $ 4.6 billion insurance contract with Greensill. Credit Suisse also froze most of Greensill’s accounts and demanded repayment of a $ 140 million loan.
Insolvency proceedings followed, sending ripples through a vast network of connected industries and businesses around the world.
Bluestone said that “sellers, suppliers, customers and surety companies have immediately contacted to express serious concern about the impact that the demise of Greensill Capital will have on Bluestone’s liquidity and cash flow. Such a fallout from the implosion of Greensill will have long term effects on the business of the applicant Bluestone. He also alleged the harm caused to the individual claimants.
In a statement on Tuesday, Bluestone said it has engaged potential lenders and has “sufficient working capital to support its operations, serve its customers and maintain relationships with all of its stakeholders.”