As reported in a press release issued on 17 February 2021 by Atlas Mara Limited (“Atlas Mara”), TLG ATMA Ltd, an affiliate of TLG Capital (“TLG”), has filed an application to the Commercial Division of the British Virgin Islands High Court for liquidators to be appointed in respect of Atlas Mara.
The press release issued by Atlas Mara fails accurately to disclose – or has materially omitted – a number of relevant facts. For example:
• TLG does not just have an outstanding debt of USD 10.8 million; TLG’s USD 10.8 million loan was due and payable on 19 January 2021, and no portion of it has been repaid, including accrued interest.
• Atlas Mara has stated, “[Since executing the Standstill with a significant majority of its creditors, the Company has continued to engage with TLG in an effort to obtain its support and agreement to the terms of the Standstill or to find another consensual solution.” This is incorrect: Atlas Mara has generally refused to engage with TLG for months, failing to reply to no less than six separate legal notices. Along with a wholly-owned subsidiary, Atlas Mara has also failed to comply with its legal obligations under binding and enforceable agreements, despite being requested to do so on numerous occasions.
• TLG has never received any proposal regarding “another consensual solution”. Aside from demanding that TLG sign up to the Standstill, which TLG is under no obligation to do, the only action by Atlas Mara that could conceivably be considered attempting to “find another consensual solution” was an introduction Atlas Mara made to UBS O’Connor, the provider of Atlas Mara’s new financing announced on 29 December 2020. That introduction led to a call with Mr Kevin Russell, the Chief Investment Officer of UBS O’Connor, who invited TLG to make UBS O’Connor an offer to assign TLG’s loan at a discounted price. TLG is aware from conversations with other creditors who did not sign up to the Standstill that UBS O’Connor may be seeking to purchase their loans on a discounted basis, also after introductions made by Atlas Mara.
• Atlas Mara has also stated they are in discussions with TLG to have the involuntary liquidation application withdrawn. This is also incorrect: TLG has not engaged in any discussions with Atlas Mara since the application was filed.
TLG welcomes the news that over 87.7 percent of bilateral creditors agreed to enter the Standstill or similar agreements, along with over 60 per cent of the principal holders of the group’s convertible bonds due 31 December 2020. If this is the case, and if the statements published by Atlas Mara in their press releases of 29 December 2020 and 8 October 2020 are true, then TLG fails to understand why Atlas Mara cannot pay “a small holdout creditor” the debt of USD 10.8 million that is due and payable. The reason of course, is that Atlas Mara is insolvent, which fact fully justifies TLG’s liquidation application.
TLG assumes the reason Atlas Mara can state “[a] number of significant consenting creditors have reaffirmed their support for the Company by granting certain waivers as a result of these hostile actions” is because Fairfax Financial Holdings Limited (“Fairfax Financial”), Helios Fairfax Partners Corporation (“Helios Fairfax”) (both listed on the Toronto Stock Exchange) and UBS O’Connor constitute a significant portion of Atlas Mara’s creditors. TLG invites Atlas Mara to name the “consenting creditors granting certain waivers” beyond Fairfax Financial, Helios Fairfax and UBS O’Connor. These creditor arrangements, and other interlocking relationships with the potential for conflicts of interest at the Atlas Mara board and shareholder level, are gravely concerning to TLG, and TLG likewise believes they should concern Atlas Mara’s other third party creditors and stakeholders.
For example, TLG notes that Mr Prem Watsa, the founder and Chairman of Fairfax Financial, is also the Chairman of Helios Fairfax. Moreover, TLG notes that Atlas Mara’s Executive Director and Chairman, Michael Wilkerson, is also the Executive Vice Chairman of Helios Fairfax. Thus the most senior leader of Atlas Mara is a senior executive of one of Atlas Mara’s largest creditors. TLG cannot understand how these arrangements benefit Atlas Mara’s third party creditors or other stakeholders, or how Mr Wilkerson can purport to discharge properly his fiduciary obligations to both Helios Fairfax and Atlas Mara.
TLG further notes that Fairfax Financial appears to have form in its unduly casual approach to conflicts of interest, for instance in connection with 2019 court proceedings involving Fibrek Inc. and Fairfax Financial / Resolute Forest Products, as well as changes brought about in 2020 by a minority shareholder in Blackberry Limited concerning related party transactions between Blackberry Limited and Fairfax Financial, its largest shareholder.
TLG has sought further details from Atlas Mara’s solicitors in connection with certain recent transactions regarding Atlas Mara’s dealings, but has so far met with stonewalling. TLG is not a “holdout” creditor: it is an unpaid creditor. It is Atlas Mara that is “holding out”.
As a creditor of Atlas Mara, TLG finds it curious that in December 2020 Fairfax Financial purchased the entire 42% stake in Atlas Mara held by Helios Fairfax for USD 40m, when Atlas Mara was in the midst of negotiating a standstill arrangement with its creditors and acquiring new financing. Mr Wilkerson will of course have had full visibility of these facts as he hopped between his various fiduciary perches.
In reviewing the public filings of Fairfax Financial and Helios Fairfax, and particularly the footnotes to the financial statements, TLG is mystified as to what exactly transpired, along with the rationale for the transaction (purported or otherwise). What does stand out, however, is that Fairfax Financial guaranteed the debts of Atlas Mara to Helios Fairfax: Mr Wilkerson did not orchestrate similar guarantees for third party creditors of Atlas Mara, certainly not TLG.
TLG is also at a loss to explain why Atlas Mara would enter into a “standstill agreement” providing that payments of principal and interest cannot be made to existing creditors with binding and enforceable agreements: Atlas Mara has undoubtedly breached the previously existing agreements of those creditors who did not enter into the standstill agreement. Of course, if the “creditors” were in fact Helios Fairfax and UBS O’Connor, one reason might well be that these entities intended to benefit themselves while attempting to force other creditors to accept a discount on their debts – as in fact has been attempted with TLG.
TLG further questions whether, in providing the new financing, UBS O’Connor was given preferential treatment vis a vis other creditors and shareholders, thus advancing their own interests to the detriment of other creditors. Atlas Mara’s press release dated 29 December 2020 states that UBS O’Connor converted USD 10.6m of equity to debt via the new money financing and repurchase of Atlas Mara shares held by UBS O’Connor. On its face, that seems like an incredibly good deal for UBS O’Connor, and one that TLG does not believe was offered to other shareholders.
TLG agrees wholeheartedly with Atlas Mara’s stated aim to “maximise value for its creditors and other stakeholders”; however, TLG does not believe the current board of directors and management team, which has presided over a strategic review announced over two years ago on 6 February 2019, are intending to do so in a manner that is in the best interests of all creditors and shareholders. The existing board and management have presided over a diminution in value for shareholders of almost $400 million, or 87.5%, overseeing a decline in market capitalisation from USD 450 million to USD 56 million over the last 3 years. Moreover, indebtedness represented by borrowed funds has ballooned to USD 411 million as at 30 June 2020. This performance cannot be explained away as “a consequence of COVID”.
TLG firmly believes that only independent liquidators without any conflicts of interest can maximise value for creditors and stakeholders, including depositors in the banks across Africa in which Atlas Mara is an investor.