The absurdity of a potential bid for Everton by A-CAP

On Wednesday 12 June 2024 several newspapers and other media outlets have run a story claiming that Farhad Moshiri considers a US Insurer A-CAP, run by Kenneth King to be a serious bidder for Everton Football Club. The absurdity of such a claim by Moshiri is beyond belief. After more than nine wasted months of awaiting the inevitable failure of the 777 Partners bid, led by Josh Wander, we now see the arrival of a closely associated party, A-CAP run by Kenneth King (owner and CEO of A-CAP) enter the scene. A-CAP is a group of insurance companies in the US with close links and considerable financial exposure to the failing 777 Partner empire.

As was widely predicted, not just on these pages, but particularly through the work of Josimar (Paul Brown and Philippe Auclair), the Athletic, the Financial Times, Bloomberg and others, not only would 777 Partners fail to satisfy the ownership requirements of the Premier League, but that their very business was in grave danger of total collapse.

A-CAP’s exposure to 777’s aviation businesses

777’s airline businesses, Bonza in Australia and Flair in Canada are two examples. Bonza entered voluntary administration at the end of April, standing down all 323 employees immediately (without pay) and seeing its fleet of six Boeing 737 Max-8 aircraft abruptly repossessed. The company that leased planes to Bonza, Phoenix Aviation Capital, is now controlled by A-CAP. A day after Bonza’s collapse, 777’s shareholding in Flair was cut to just 10% (from 25%). The shareholding was acquired by an “unnamed affiliate of Flair’s largest senior lender” – it might not be too difficult to work out who that lender might be. A-CAP is believed to have more than US$ 500 million in debt exposure to Flair Airlines.

A-CAP’s exposure to 777’s football interests

777’s much published football multi-club operations comprising of Hertha Berlin, Standard Liege, Genoa, Vasco da Gama, Red Star Paris, Melbourne Victory and Sevilla have faced numerous issues, usually regarding late or non-payments. Such that 777’s managing Partners Josh Wander and Steve Pasko had to step aside. They have subsequently resigned as managing partners of 777. The whole footballing operation is currently for sale, a process led by the independent investment bank Moelis. The 777 company largely used for their football acquisitions was a Delaware company called Nutmeg Acquisitions. Unsurprisingly a principal funder of Nutmeg was A-CAP.

During the process of trying to acquire Everton, 777 Partners provided close to £200 million of junior ranked debt to Everton, to keep the club afloat. Much of that was ultimately funded by A-CAP through 777 Partners and their Nutmeg Acquisition vehicle – more on that later. That debt remains unpaid and there is considerable doubt as to how much might be repaid in the inevitable negotiations between Everton’s new owners and existing creditors.

A-CAP’s exposure to 777’s insurance businesses

777’s reinsurance business, 777 Re., a Bermuda domiciled, regulated business has faced huge problems with significant ratings downgrades by leading insurance ratings agency AM Best. Such has been the demise of 777 Re. that on 10 June 2024 AM Best withdrew its rating for 777 Re. and in an unusual move, stated, “due to the absence of any insurance liabilities by the Bermuda reinsurer and the company’s forthcoming plans to cease insurance activity” it could not issue a final rating update. Confirmation that the 777 Re. business was being or has been wound down.

This is particularly relevant in the context of A-CAP. A-CAP had considerable exposure to 777 Re. 777 Re’s continual downgrades impacted A-CAP’s own ratings. As a result, in a webinar hosted on 27th February 2024, Kenneth King laid out their plans to reduce their 777 related exposure to zero. The transcript of the webinar can be found here. In the webinar, Kenneth King claimed A-CAP were in the process of raising US$400 million of fresh capital to strengthen their balance sheet – I can find no public evidence of that having been achieved. Additionally, King claimed that exposure to 777 had been reduced by approximately US$1 billion since December 2023 and that that would continue. The recapture of assets (such as the aviation business) indicate to a degree, that control of some of those assets has been achieved, even if exposure has not been reduced.

Indeed, rather than sell assets (which would disclose their true value (as against the value stated on the balance sheet), assuming buyers could be found) King’s strategy appears to be to gain control of the assets before potential administration or foreclosure – more to follow

A-CAP, a named co-defendant in the Leadenhall case

As if all the above was not of sufficient concern, then we must look at the Leadenhall case versus 777 Partners and others including A-CAP being named as co-defendants. This case is being heard in the United States District Court, Southern District of New York. The original civil claim can be found here. Leadenhall is a UK based financial services company that has provided 777 Partners with debt financing – the value of the claim now stands at US$609 million. Leadenhall claim numerous breaches of the loan agreements between themselves and 777. Most tellingly is the accusation of fraudulent behaviour in that 777 provided security for the loans with assets already pledged to other lenders and with assets that appear not to exist. A-CAP, in the meantime, have a senior lien across all of 777’s assets (such as they are) which directly conflicts with the security Leadenhall had on their loans. As a result, A-CAP appear as a co-defendant.

777 are currently in the hands of corporate restructuring experts, B. Riley Advisory Services (there is a dispute over who appointed B.Riley – was it Wander & Pasko or A-CAP?). Leadenhall, to protect their interests are, in the first instance, seeking the Court to appoint administrators. Their major concern is that other creditors, and particularly A-CAP are scrambling to secure control of what remains of 777’s assets. This is evidenced, for example, by what has happened with the airline related business (see above). There is also a considerable legal argument as to whether or not payments made by 777 and associates are a dissipation of assets or as 777 might argue necessary to protect the value of those assets – a so-called protective avoidance (in legal terms).

King’s logic?

This is perhaps, whereby King’s logic of a bid for Everton (despite all of A-CAP’s problems identified above) might be recognised. A-CAP’s exposure to 777 goes way beyond what anyone might consider to be prudent – conservatively it might be US$3 billion or more). He has a duty to protect his policyholder interests. It may be at some point, not just with the Leadenhall case, he may have to account for those investment decisions which gave such exposure and risk to A-CAP clients. Part of a defense or mitigation strategy might be that once realising the extent of 777’s problems he did everything in his powers to protect policyholders. No matter how incredulous that might appear to be, that he could not have foreseen 777’s problems and shouldn’t have had the degree of exposure he has – it is a potential defense of sorts. It doesn’t resolve the issue that 777’s assets have no value and may be encumbered elsewhere (Leadenhall, for example).

It might also be his reason for attempting an Everton bid. Just as he gained control or increased stakes in the airline related businesses that owed A-CAP huge, probably unrecoverable sums, he views Everton in a similar light. Everton owe 777 (or an associated company) near £200 million. He, (King) might take the view that his best chance of recovery is to acquire Everton (using policyholder funds). Having done so he can find a new debt issuer to Everton, swapping out the 777 related debt for a new issuer, and use the stadium as a potential additional source of security for debt funding. Having done so, the opportunity to flip the club (i.e. sell in the near future) may resolve one of his many problems.

Unlikely as it is to succeed, none of the above solves Everton’s problems. King is not a sports operator, he’s a financial services guy desperately trying to reduce the problems his running of his own company, his association with 777, has caused him but more importantly his own policyholders – people who have entrusted their life savings to this man and his companies.

The bluntest of opinion directed at Moshiri

That’s not a reason, in any sense, why Moshiri should consider A-CAP as suitable, appropriate owners – especially with what is likely to be coming down the track for A-CAP and King. Moshiri has to act in the interests of Everton Football Club, its stakeholders, the City of Liverpool and most importantly its employees and fans. To even entertain or allow King and A-CAP to enter the bidding arena is absurd and a huge insult to the club and Evertonians.

We should all, with the utmost force and without equivocation, condemn Moshiri for even suggesting such. He needs to focus on genuine bids, especially those with a local context backed by experienced sports funders and operators. Leave the club Moshiri as quickly as possible, allow us to recover from your ownership and do not insult us with proposals such as King and A-CAP.

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