Debt Court Battle Pitches Battery Magnate Against GoldenTreeSteven Church and Marianna Aragao
GoldenTree lender group sues metals magnate over 2007 loan
Meyers says ‘vultures’ seek to take over Eco-Bat Technologies
The lead empire that Howard Meyers started building four decades ago is already contending with cost pressures and European Commission price-fixing allegations, and now it’s locked in a courtroom battle that threatens to wrest the heart of the business away from him.
The dispute involves a 600 million-euro ($633 million) loan that Meyers’s EB Holdings II took out in 2007 and spent much of last year trying to renegotiate. The debt comes due at the end of March and, because of its “payment in kind” interest structure, has ballooned to more than 1.6 billion euros, according to papers filed in a Nevada state court.
Restructuring talks broke down, and lenders led by GoldenTree Asset Management sued in August, accusing Meyers of fraud and racketeering. They say he caused EB Holdings to overstate its financial health to get the loan and then took some of the proceeds for himself. EB Holdings countersued, saying the lenders, including GoldenTree chief investment officer Steven Tananbaum, dragged out the negotiations, waiting for the debt to go into default.
Each side denies the other’s allegations. Both cases are before the same Nevada judge, who has already said the GoldenTree group’s claims can proceed. On March 21, EB Holdings is scheduled to argue that its case should be allowed to go forward as well.
A default on the loan, or a big loss in court, could cost Meyers control over Eco-Bat Technologies Ltd., the Dallas businessman’s main operating company. In court papers, EB Holdings said that unless the Nevada court intervenes, the “takeover scheme may well succeed.”
Meyers, 74, has been building his lead recycling business since the 1970s. Matlock, England-based Eco-Bat’s main activity is extracting lead from old car batteries and selling it to makers of industrial and automotive batteries.
An increase in the costs of scrapped batteries in Europe and cheaper lead eroded the company’s 2015 earnings to less than a third of what they were in 2011. On top of that, the European Commission last month fined Eco-Bat 32.7 million euros for allegedly participating in a buyers’ cartel that pushed down prices for the old batteries they purchase. Eco-Bat says it hasn’t yet decided whether it will appeal the penalty.
“The European market was difficult due to feedstock price pressures, and that was clearly a problem,” said Marc Pierron, a senior credit analyst at Spread Research in Lyon, France. “At the end of 2015 we were calculating a leverage of around 14 times when taking into consideration the PIK loan, which was clearly too high.”
Payment-in-kind, or PIK, loans offer lenders a higher rate while allowing borrowers to put off cash interest payments by adding the unpaid amount to the principal. New York-based GoldenTree and the other creditors suing EB Holdings -- including Alcentra Capital Corp., Arvo Investment Holdings, Mount Kellett Capital Management -- say in court papers that they hold almost half the loan and, as of September, were owed 787.7 million euros. Should the lenders’ racketeering claims prevail, U.S. law allows them to seek triple damages.
Meyers used the 2007 loan to pay off a 2005 debt and pay himself 268 million euros, GoldenTree told the Nevada court. Some proceeds of the 2005 borrowings were used to pay Meyers 242 million euros, GoldenTree claimed in court papers.
EB Holdings said in court documents that investors knew the 2007 debt offered few protections and that the money could be used to pay a dividend to shareholders. EB Holdings’ sole shareholder is Quexco Inc., whose sole shareholder is Meyers, according to court papers.
GoldenTree said in its filings that Meyers and EB Holdings made “material misrepresentations” to raise the 600 million-euro loan. Earnings at EB Holdings’ sole asset, an 86.5 percent stake in Eco-Bat Technologies, were “artificially inflated as a result of Eco-Bat’s anti-competitive conduct in Europe,” GoldenTree alleges in court documents.
Meyers, according to GoldenTree court filings, also organized his empire to put assets beyond the reach of creditors should EB Holdings fail, siphoning money from the company while knowing it couldn’t pay its debts.
EB Holdings says in court papers that investors led by GoldenTree started buying up the debt “at a deep discount” in 2009. EB Holdings told the court that, during last year’s negotiations, it passed on the chance to fix its debt problems by selling Eco-Bat stock or doing a reverse merger with a public company to raise money from the capital markets.
Meyers and Tananbaum began a final round of negotiations in early 2016 and continued talking throughout the first half of the year, according to the EB Holdings suit. During one phone call, Tananbaum said GoldenTree and its allied creditors wanted to avoid forcing EB Holdings to sell its Eco-Bat stock and wanted the negotiations to succeed, according to EB Holdings’ court filings. Just before talks ended, EB Holdings proposed exchanging the 2007 debt for 500 million euros of new senior secured notes and 50 million euros cash.
“EB Holdings relied on Tananbaum’s representations in determining to continue negotiations and forgo other alternatives,” according to the company’s filing.
Tananbaum himself is not a defendant in the EB Holdings suit. Speaking for Tananbaum, attorney Molly Stephens denied the allegations.
“The legal claims Meyers is asserting against the creditors are without merit and an attempt to distract from his blatantly unlawful behavior,” said Stephens, who represents GoldenTree and the other lenders involved in the litigation.
“Meyers seeks to intimidate the creditors by having EB Holdings assert meritless claims in an attempt to avoid his repayment obligations,” the lender group said in court documents.
Meyers denied the allegations and said the financial reporting and organizational structure of his companies are legitimate. EB Holdings didn’t get money directly from GoldenTree and the other creditors, the company said in court papers.
“Many believe that vulture funds like GoldenTree have grown bold in recent years in their attempts to bully the companies in which they invest,” Meyers said in an emailed statement. “We have a track record and professional reputation that are unequaled -- and will aggressively protect the rights to which we are entitled.”
The case is GoldenTree Master Fund Ltd. v. Meyers; and related counter- and third-party claims of EB Holdings II v. GoldenTree Master Fund Ltd., A-16-742507-B, Nevada Eighth Judicial District Court, Clark County (Las Vegas).