Potential buyers for troubled Bridging Finance Inc. will have to win over BlackRock Inc. a creditor that holds sway in any final deal.Lucas Jackson/Reuters
Dozens of prospective buyers, including Canaccord Genuity Group Inc. , have expressed interest in buying or investing in troubled Bridging Finance Inc., but potential suitors will likely have to clear two hurdles before claiming victory: Winning over BlackRock Inc. , a Bridging creditor that holds sway in any potential deal, and beating rivals in a formal sale process run by the lender’s receiver.
Late Thursday, Canaccord was reported to be in advanced talks with BlackRock about a potential bid for Bridging, with Bloomberg LP reporting the two were looking to submit a bid to regulators.
Little known to Bridging’s 26,000 retail investors, BlackRock has significant influence over Bridging’s future and interested bidders will be forced to negotiate with the extremely powerful creditor, sources close to the matter told The Globe.
The giant New York-based asset manager, which oversees more than US$9-trillion in assets, has at least two outstanding loans to Bridging, both of which came about through a series of complex transactions. BlackRock has a senior secured claim on Bridging worth roughly $50-million, according to sources and court documents. In 2019, Bridging was valued at $100-million.
However, BlackRock is only one of the powerful stakeholders, and early Friday Bridging’s receiver, PricewaterhouseCoopers LLP, responded to Thursday’s news report by stating it is “not in advanced discussions with any party regarding a potential sale.”
What is Bridging Finance and who are its leaders?
An Ontario judge put Bridging under the control of PwC in late April following allegations by the Ontario Securities Commission that the private lender improperly used investor funds to benefit some of its founders and executives. As receiver, PwC manages all of Bridging’s affairs while the OSC investigates.
Instead of seeking a quick flip, PwC said it will ask for court approval to start a formal sale and investor solicitation process (SISP), and added it has received preliminary indications of interest “from a broad range of potentially interested parties.” The SISP is expected to last roughly three months and dozens of firms have expressed interest, according to people familiar with the matter.
In an e-mailed statement, a Canaccord spokesperson said the firm can’t comment on rumours in the marketplace, but added that the dealer is “always looking for opportunities to grow and provide solutions for the underserviced mid-market in Canada. We also work with strategic partners to evaluate opportunities, where appropriate.”
To some, Canaccord may seem like an unusual suitor for Bridging, given its investment banking roots, but the Toronto-based dealer forged close ties to Bridging in recent years.
Stuart Raftus runs Canaccord’s Canadian wealth management division, and in September, 2018, he took out a $3.75-million personal loan from Bridging at an annual interest rate of prime plus 4.3 per cent, according to court filings and documents obtained by The Globe. As of September, 2020, the loan remained on Bridging’s books and was still valued at $3.3-million, but a spokesperson said the loan was repaid “well before the receivership.”
Mr. Raftus received more than $3-million in total annual compensation from Canaccord in 2019 and in 2020, according to the company’s annual filings. He did not respond to questions from The Globe about the need for a loan from an alternative lender.
Canaccord has also served as lead financial adviser to several of Bridging’s borrowers, including MJardin Group Inc. , Enthusiast Gaming Holdings Inc. , FaZe Clan Inc. and Tilray Inc. , which collectively had loans outstanding worth $237-million as of September, 2020. Bridging had roughly $2-billion in assets under management before it was placed in receivership.
In at least one instance, Canaccord directly brokered a loan from Bridging. In January, 2020, the investment bank served as exclusive adviser to FaZe Clan, which is a gaming and e-sports brand, and helped secure a $30-million loan from Bridging. David Sharpe, Bridging’s former chief executive officer, who was fired when the lender was put in receivership, joined the board of FaZe Clan after the loan was extended.
If Canaccord – or any suitor – can successfully woo BlackRock, it is possible it will get a leg up in Bridging’s sale process.
In 2019, Bridging’s owners sold a 50-per-cent stake in the company to financier Gary Ng for $50-million, but unbeknownst to them, Mr. Ng’s acquisition was financed through fraud, an industry regulator would later allege.
When the alleged fraud came to light, Bridging’s shareholders forced Mr. Ng to sell his Bridging stake back to them for just $5. However, he had already pledged his stake as collateral for a $20-million loan he received from BlackRock. In effect, when Bridging’s other shareholders reacquired his stake, they were required to assume and service the BlackRock loan.
Bridging also borrowed another $52.5-million from BlackRock in November, 2019, court records show, and the money was allegedly used by Bridging to buy out the management contract of a former investment partner, according to court records.
In an e-mailed statement, a lawyer for BlackRock declined to comment.
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