Windhorst Gets $595 Million from Two Investors for H2O Deal

Financier Lars Windhorst has secured funding from two high-profile German investors to help him buy back illiquid bonds from H2O Asset Management that were at the center of a crisis last year.

Fashion retail magnate Friedrich Knapp and health care entrepreneur Ulrich Marseille have contributed about 500 million euros ($595 million) of a 1.25 billion euro high-yield bond issued by a Windhorst vehicle to buy back the portfolio, according to people familiar with the matter and a presentation seen by Bloomberg. The investors’ support is key for Windhorst, who in May agreed to repurchase the bonds -- that were issued by companies tied to him -- at discounted prices.

For H2O, the asset manager part-owned by Natixis SA, the sale of the bonds caps a rocky stretch that began with revelations about the investments’ links to the German financier. Research firm Morningstar Inc. last year flagged concerns about the rarely traded securities being held by H2O funds that allowed clients to make daily withdrawals. The potential for a liquidity crunch subsequently triggered about 8 billion euros of fund outflows.

Selling the bonds back to Windhorst allows H2O to unwind the illiquid assets that at the time prompted concerns about the firm’s risk controls. The proceeds of his high-yield bond sale will be used to buy back notes with a nominal value of more than 2 billion euros, according to the presentation. That represents a discount of roughly 50%, allowing Windhorst to make a profit of more than 1 billion euros.

Read more: Natixis’ H2O Agrees to Sell Stocks, Bonds to Windhorst’s Vehicle

Spokespeople for Windhorst and H2O declined to comment. Marseille confirmed by phone that he invested in the vehicle. Representatives for businesses owned by Knapp in New York declined to comment.

H2O on Friday suspended trading in eight funds with holdings of illiquid securities following pressure from France’s markets regulator. The AMF asked the firm to suspend subscriptions and redemptions in its Allegro, MultiBonds and MultiStrategies funds for around four weeks, according to a statement on H2O’s website. H2O said it decided to freeze five other funds that were also exposed to the securities.

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Knapp, Marseille and a third unidentified investor bought about half of the notes, people said. Windhorst himself invested about 400 million euros in his own bonds and a few outside investors took the rest, the people added. The German financier has recently held talks with other potential investors about taking part in the raise, some of the people said.

H2O agreed to sell the securities to Evergreen Funding, a new company owned by Windhorst’s trust, Bloomberg reported in May. The following month, Evergreen issued a 1.25 billion euro one-year bond paying a yield of 12.5%, according to the investor presentation seen by Bloomberg.

The pitch won over two of Germany’s self-made entrepreneurs. Knapp, 67, owns German fashion retail chain New Yorker which boasts more than 1,100 branches and 18,000 employees. Marseille made a fortune in sanatoriums, rehab and other specialized clinics.

©2020 Bloomberg L.P.

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