Inside Greensill's attempt to avoid collapse through an alleged bait-and-switch and a $850 million loan

  • SoftBank-backed supply chain finance startup Greensill just collapsed after a massive credit squeeze.
  • Bluestone Resources, a coal company owned by West Virginia’s governor, is suing Greensill for fraud.
  • Here’s how the high-flying fintech allegedly pressured Bluestone into repaying a $850 million loan.
  • See more stories on Insider’s business page.

Greensill Capital’s mission was not unlike those of many other fintech startups: to democratize finance for all.

Founded in 2011 by Lex Greensill, who grew up on a sweet potato and sugarcane farm in Bundaberg, Australia, the UK-based startup aimed to “unlock capital” for businesses through a lending practice called supply chain finance, per its LinkedIn page. With the backing of titans like SoftBank, Greensill rapidly became one of the largest non-bank bond issuers in Europe, expanding globally with offices in New York, Chicago, Miami, Frankfurt, Bremen, and Sydney.

The high-flying corporate lending startup sent shockwaves through the finance world when it filed for insolvency on March 8. The move came just days after Credit Suisse suspended $10 billion in investment funds that were critical to Greensill’s business.

The once-booming startup is now facing scrutiny from regulators around the world. It’s also getting heat from former clients, including a coal-mining company owned by West Virginia Gov. Jim Justice. Bluestone Resources sued Greensill in New York federal court Monday, alleging a slew of claims including fraud, breach of contract, aiding and abetting, and civil conspiracy.

Insider reviewed the 45-page complaint which alleges Greensill tried to rescue itself from its ultimate collapse through a series of alleged misrepresentations, bait-and-switches, and an ever-ballooning $850 million loan. Here’s what Bluestone says happened:

A loan based on non-existent customers

In May 2018, Bluestone Resources was in “financial and operational peril” after three years of alleged mismanagement under its former owner, according to the lawsuit. That’s when Greensill vice chairman Roland Hartley-Urquhart approached Gov. Justice, who had taken on the long-term project of restoring the coal company’s profitability. Greensill was extending its hand to help.

During initial conversations that year, Bluestone agreed to what it believed was a long-term dual financing program. Through the first program, Greensill would float approximately $70 million via a line of credit for Bluestone to draw on to pay down its accounts payable. This lending method, dubbed supply chain financing, is generally considered low-risk by industry experts.

But Greensill Capital did something different, too: It lent money to companies before any sale had been made, based on future projections of the client’s business. This “future receivables” lending practice is typically used to finance guaranteed, long-term contractual payments, like those for government infrastructure projects. In this case, Greensill loaned around $780 million to Bluestone in the future promise of repayment from these “prospective receivables” from “prospective buyers” — including entities that “were not and might not ever become customers of Bluestone,” per the complaint.

In return, Bluestone would ultimately repay Greensill through the fruit eventually borne from its rebuild, including cash generated, a potential IPO, or a potential sale of the business.

Mounting fees and ownership interests

Over the next several years, Hartley-Urquhart became the point-person, chatting with Gov. Justice on the phone two to three times a week and regularly exchanging emails, according to the lawsuit. Greensill himself purportedly knew and sanctioned the business relationship.

But over the course of their nearly three-year engagement, unexpected costs started mounting for Bluestone, according to the lawsuit.

To keep capital rolling in, Greensill obtained warrants that could be used to purchase, “at negligible cost,” 2.5% of the ownership interest of Bluestone Resources. The original agreement was then cancelled and updated into a new set of warrants for 10% of ownership interest. In total, these warrants were valued at at least $100 million.

Fees also piled up. Bluestone paid Greensill $25 million to cancel the first warrant agreement. The total fees came to more than $108 million over the course of their relationship.

With the warrants, fees, and around $89 million in interest, Greensill received a sum of nearly $300 million from Bluestone.

Greensill’s financial problems grew out of sight

When the COVID-19 pandemic hit, Greensill allegedly extended the original 4-5 year financing period to a 6-8 year period, inducing Bluestone to “expand their exposure to and deepen its dependency” on Greensill. 

Unbeknownst to Bluestone, Greensill was grappling with its own financial problems, fielding questions from its Credit Suisse financiers and dealing with German regulators who were investigating a bank subsidiary for criminal fraud.

In November 2020, Hartley-Urquhart became more aggressive with his communications with Bluestone, per court filings. He demanded even more fees, the creation of new security interests, and accelerated repayment of Bluestone’s outstanding loan starting as early as July 2021—an about-face on the two parties’ earlier agreements.

Bluestone said it had “no choice” but to enter into another agreement, dated November 3, pledging collateral to Greensill. The agreement came with an additional $15 million fee.

During this time, Hartley-Urquhart attempted a “bait and switch” of “forcing” Bluestone into a high-yield debt refinancing, the lawsuit claims.

‘Increasingly frantic conduct’

The pressure campaign continued through the early months of 2021, with Hartley-Urquhart engaging in “increasingly frantic conduct” that included a flurry of letters and phone calls, according to the lawsuit.

On February 20, Hartley-Urquhart met with Gov. Justice in West Virginia to ask that Bluestone pay $300 million by the end of the third quarter. Greensill might be able to extend the repayment by several months, but no more, he said.

But just six days later, Hartley-Urquhart returned to West Virginia, demanding that Bluestone repay the entire $850 million loan by the end of third quarter, the lawsuit alleges.

It was only on March 1 over the phone that Hartley-Urquhart told Gov. Justice Greensill had collapsed, and that he would be leaving the company. (Hartley-Urquhart had actually resigned on February 11, according to reporting by The Sydney Morning Herald.)

According to the complaint, Bluestone was unaware of any of the troubles Greensill was facing until press reports detailing the issues emerged in early 2021.

As of Monday, Bluestone said it had yet to receive any word from Greensill about the status of their financing agreement. The joint administrators of Greensill Capital declined to comment. Sullivan & Cromwell, the law firm representing Bluestone, did not immediately responded to Insider’s request for comment.

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