Ares Management was sued by a specialist credit fund co-founded by a former Goldman Sachs Group Inc. partner over the sale of collateral on a loan to a struggling Norwegian airline.
Hudson Structured Capital Management Ltd., an alternative-asset manager, claims that several Ares funds that held the notes directed that aircraft used as collateral be sold to an Ares affiliate, despite a higher offer from an external bidder, according to the lawsuit, filed last week in New York State Supreme Court.
Hudson, founded by former Goldman partner and credit specialist Michael Millette and onetime Pacific Investment Management Co. executive David Andrews, was an investor in the notes and alleged that it lost at least $14.3 million as a result of the “sham foreclosure sale.” In the suit, Hudson seeks at least that much in compensation as well as unspecified punitive damages and other payments.
Spokesmen for Ares and Hudson declined to comment on the suit.
The complaint offers a behind-the-scenes look at a dispute involving some of Wall Street’s most seasoned negotiators. The 10 Boeing 737-800 planes at issue were bought by Norwegian Air Shuttle ASA and used as collateral for loans to support the purchase of the aircraft in 2016. They were valued at as much as $300 million in February and were then sold to Ares’ newly formed Vmo Aircraft Leasing for $250 million as part of the airline’s bankruptcy restructuring, according to the lawsuit, filed June 8.
Taking control of an enhanced equipment trust certificate, a type of security used in specialist lending, “with the purpose of buying the aircraft cheaply, and not paying all bondholders according to the terms, could materially change the market for these types of financing agreements,” said George Ferguson, senior aerospace and airline analyst for Bloomberg Intelligence, referring to the lawsuit’s allegations. “If this strategy holds, I would expect fewer EETC financings in the future.”
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Hudson, which has more than $3 billion in assets under management and specializes in financing in insurance and transportation, also named Wilmington Trust Co. as a defendant, saying that in its role as trustee the firm “blindly followed Ares’ instructions” in overseeing the transaction, rather than act in the interest of all noteholders as required.
Wilmington Trust, which provides wealth and institutional services for M&T Bank Corp., said it doesn’t comment on pending litigation.
Ares, which has $227 billion in assets under management, and several aviation industry veterans founded Vmo this year. The firm aims to provide financing in an area where many lenders have been retrenching. The global market for commercial aircraft leasing — $33.7 billion as of last July, according to industry estimates — could grow to $47.1 billion by 2027 amid continued demand.
— With assistance by Melissa Karsh
(Updates with analyst comment in sixth paragraph.)