Creditors Claim Deal Was a ‘Bleed Out’

(CN) - A creditor of a now-insolvent Greek mobile phone company demands 268 million euros ($358 million) from two private equity firms that bought the company in 2005, claiming they purposefully bled the company dry, then left it holding the bag for tens of millions in loans it could never repay.

The Cortlandt Street Recovery Corp. and Wilmington Trust Co., as trustee, claim the private equity firms TPG Capital LP and Apax Partners assembled a group of investors to buy Hellas Telecommunications, then borrowed substantial sums which were paid directly to the investment funds.

The scheme, described as a "bleed-out," is usually associated with organized crime, the plaintiffs say. In this case, they claim, it was carried out "on a scale so grand that it would make organized crime jealous."

Cortlandt claims the private equity firms organized a group of interrelated companies to acquire the then-profitable and nearly debt-free company, then called Tim Hellas Telecommunications S.A., with an initial investment of just ¬ 50 million ($66.9 million).

Under the control of Apax and TPG and their investment funds, the Hellas companies were "left debt-laden and insolvent to the detriment of their creditors," Cortlandt says.

To underscore the alleged ill intentions of the equity firms, the complaint cites an interview allegedly given by one of TPG's founders, where it was explained that this kind of scheme "is a private equity method that works better when no one is watching."

"Private equity," the plaintiffs say, quoting from the interview. "it's traditionally among the most secretive of businesses, partly because a deal is like a poker hand, best deployed by surprise, and partly because the fees, and some of the industry methods, such as paying out enormous dividends from overleveraged acquisitions, work better when no one is watching."

In 2006, Hellas Telecommunications, S.ar.l., the parent company, paid Apax and TPG what it claimed was a ¬ 1 billion ($1.33 billion) dividend. But the plaintiffs say the money came from loans, not earnings.

"This would have been a phenomenal 1,900 percent return on the initial investment in only one year if there had been earnings to dividend, but there were none, only losses," Cortlandt says. "... Upon receipt, the loan proceeds were immediately paid to Apax and TPG and their affiliates."

As a result of this "bleed-out," the Hellas defendants are insolvent and cannot repay the loans, Cortlandt claims. Saddled with enormous debts, Hellas Telecommunications II, S.C.A., submitted itself to an insolvency proceeding in the UK High Court of Justice in 2009.

Thy plaintiffs say that because the loan proceeds were improperly paid to Apax and TPG, they should be held responsible to repay them.

Cortlandt and Wilmington Trust seek to recover what they are owed on the notes, claiming, among other things, breach of contract, fraudulent conveyance and unjust enrichment.

Cortlandt filed a similar lawsuit in November 2011, claiming the defendants owe it ¬ 77 million ($103 million) on another set of promissory notes.

The plaintiffs are represented in New York County Court by James Stamell with Stamell & Schager.

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