Helping Keep Windhorst From the Abyss Comes Back to Burn H2O

(Bloomberg) -- Lars Windhorst was at the edge of the abyss -- again.

It was late November 2016 when the 1 billion-euro ($1.1 billion) deal with an Abu Dhabi fund to save his investment firm collapsed. So Windhorst started running through the list of friends and allies who were still with him even after two previous failures.

For his investors, the choice was clear: either take a loss or double down on the one-time wunderkind of German business. Some, such as Italian insurer Assicurazioni Generali SpA, started to reduce or write down their exposure. The French founders of H2O Asset Management, Bruno Crastes and Vincent Chailley, were among those who stayed. A week later, Windhorst announced a 200 million-euro financing package.

It marked the start of the third comeback in the professional life of the 42-year-old Windhorst. The lifeline kept the lights on at his Savile Row offices in London, but it has come back to haunt the French investment firm backed by Natixis SA. H2O hemorrhaged assets in the past week amid concerns over holdings tied to Windhorst. To stem the outflows, it’s planning to unload those hard-to-sell securities and set up a standalone fund for new ones. But it’s otherwise standing by him.

‘Extremely Talented’

Windhorst is “someone who’s extremely talented, who’s capable of doing deals and has a network in Germany that allows us to access very innovative companies that pay extremely high returns,” Crastes told French website H24 last week. “Obviously there is no reason for us to not continue in the future to invest in those private bonds.”

Whatever the next chapter holds for Windhorst, the globetrotting financial engineer has come a long way from the small town south of Hamburg where he started trading computer parts in his father’s garage at the age of 14. Soon after, he became a household name in Germany as a teenage entrepreneur when he accompanied a business delegation led by then-Chancellor Helmut Kohl to Asia.

In time, his fortunes grew decidedly mixed. He filed for personal bankruptcy in 2003 and drove one of his holding companies into insolvency shortly after Lehman Brothers Holdings Inc. collapsed. Undeterred, he scored big in distressed real estate: he made more than 250 million euros from his stake in Grand City Properties AG, helping finance an expansion into sectors as diverse as coal, e-sports, oil exploration, and farming.

U.K. Connections

He continued to make influential friends: Peter Mandelson, a former Labour minister and European commissioner, joined the advisory board of his holding company, Sapinda. Backers fell for his energetic charm, his can-do attitude and dinners on his yacht, according to interviews with current and former investors.

His charm, though, didn’t work on bank lenders. So to finance his ambitions -- to be another Blackstone or KKR -- he placed bonds privately to a limited group of friends and investors. The network facilitated a complex web of trades that kept money flowing.

Trading Strategy

Described in court filings in lawsuits against him, the trades worked like this: Windhorst organized sales of securities by companies he controlled. In some instances, he had agreements to sell them and buy them back at a higher pre-arranged price. Brokers including ADS Securities in Abu Dhabi and Shard Capital in London were also involved.

An external spokeswoman said Shard Capital “has only ever acted as settlement agent for some Sapinda entities on a purely execution only basis, as one of their custodians.” Shard “did not broker any agreements,” she said. ADS declined to comment.

These transactions helped Windhorst raise short-term financing for his businesses and enabled investors to attach a price to the securities.

Windhorst’s complex trades came back to bite in 2016. That August, ADS reneged on a payment to buy back securities, leaving Goldman Sachs Group Inc. briefly on the hook for $85 million, according to a lawsuit brought by an ex-Goldman employee dismissed the following year. The failed trade, in which H2O was also involved, effectively ended the relationship between the New York-based firm and Windhorst, according to people with knowledge of matter.

Goldman was eventually able to offload the securities, though it’s unclear who bought them. Under pressure on all fronts, Windhorst said in an email at the time that he was “very confident” he could get help from Avenue Capital founder Marc Lasry, who now sits on his investment vehicle’s advisory board. Avenue denied that the billionaire ever invested with Windhorst.

Other stakeholders, including billionaire Len Blavatnik’s AI International Holdings and Generali, sued to get back their money. A German broker, Schnigge, eventually closed down after a late settlement on the trades.

Scaling Back

After the near-death experience, Windhorst cut back on expenses and used the 200 million euros to settle with claimants such as Blavatnik and Generali. He also began to restructure his investments --including buying back bonds and swapping debt for equity. He raised more through some of his corporate holdings; loss-making Italian lingerie maker La Perla issued 500 million euros of debt; for oil-services holding company Trent Petroleum, it was 850 million euros.

But while many long-time institutional investors such as BlueBay Asset Management have been seeking to reduce their exposure to Windhorst since 2017, H2O’s involvement has grown. A spokeswoman for BlueBay, a unit of Royal Bank of Canada, said the firm currently has no holdings in Windhorst’s businesses.

Until H2O started selling this week, the fund held about 1.4 billion euros of bonds linked to Windhorst and his companies out of the approximately 4 billion euros that Bloomberg calculates is outstanding. H2O bought some of the 1.5 billion euros of bonds issued last week by Tennor, the new name of Sapinda, according to people familiar with the matter. The proceeds are helping Windhorst restructure some of his businesses, including Fyber NV and Amatheon Agri Holding NV, which counted H2O as a shareholder as of the end of 2018.

The outflows that rocked H2O in the past week prompted it to sell at least 300 million euros of bonds tied to Windhorst and trim the price at which it held the remaining securities.

Amid the tumult at H2O, Windhorst told Bloomberg News he traveled to Bahrain and Germany this week for meetings and new business opportunities. He announced the purchase of a 37% stake in soccer club Hertha Berlin SC.

"Hertha BSC is a great sporting institution, which now faces an even brighter future,” Windhorst said.

--With assistance from Antonio Vanuzzo, Sridhar Natarajan and Suzy Waite.

To contact the reporter on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, James Hertling

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