Complicated situation at Everton

When The Friedkin Group pulled out of talks with Everton owner Farhad Moshiri to buy the Premier League club, the two parties issued a joint statement saying they had agreed “to explore alternative options”, without explaining why the deal had collapsed.

It quickly became an established fact that The Friedkin Group got cold feet because of legal uncertainties surrounding the £200million ($260m at current rates) that former Everton suitor 777 Partners has lent to the club over the last year. That bid failed to receive Premier League approval and the Miami-based firm is now in quasi-administration, while 777 and its long-term backer A-Cap are embroiled in a $600million lawsuit with a London-based firm called Leadenhall, which believes it is the rightful owner of 777’s assets, including the loan to Everton.

It is a complicated situation, so it is hardly surprising that some commentators have boiled this down to saying the takeover collapsed because Leadenhall blocked it — an explanation that neither The Friedkin Group nor Moshiri objected to, as it suggests they are collateral damage in somebody else’s squabble.

It is a nice theory, but it is not true. The reality of the Leadenhall-related obstacle is far more concerning for Everton’s future.   Leadenhall’s case against 777 is that the latter borrowed money from the firm secured on assets in its portfolio of companies, but 777 had also been borrowing money from A-Cap using the same security. This is known as double-pledging and Leadenhall also alleges that A-Cap was complicit in the fraud. 777 and A-Cap deny any wrongdoing.

Opportunities to settle the case have come and gone, but a district court judge in New York has granted Leadenhall a “preliminary injunction” over 777’s assets to make sure any money that comes back to 777, which is now under A-Cap’s control, is available to all of its creditors and is not moved to somewhere they cannot get it.

The injunction is not meant to stop 777/A-Cap from running its various businesses or even selling them. So, there is no reason why 777/A-Cap cannot agree to Everton’s sale or enter into negotiations with a new Everton owner over full or — more likely — partial repayment of that debt.

Leadenhall would surely like 777/A-Cap to bring in some cash, as it wants its money back. The idea it is blocking 777/A-Cap from doing a deal on the Everton loan has come as a surprise. So, what is really happening here?

Is it that Leadenhall will not accept a penny less than the £200million 777/A-Cap lent to Everton, or is it that 777/A-Cap need that £200million to sit on the balance sheet at full value and therefore cannot get into everyday business conversations about settling a bad debt?