THE liquidator investigating the collapse of the Gold Coast investment firm MFS has highlighted the role of investment bank UBS in the cash crisis that crippled the travel operator and financier in 2007.
In the New South Wales Supreme Court yesterday, Adam Bell, SC, on behalf of liquidator Kate Barnet of Bentleys Corporate Recovery, examined Rolf Krecklenberg, a former MFS director and the boss of its travel subsidiary Stella, about a $1.1 billion facility provided by the Swiss bank.
As part of the funding agreement in June 2007, UBS included terms restricting the flow of cash between the group's companies if certain debt-to-earnings ratios were not met.
Mr Bell described the clause as a ''cash lock-up''. Mr Krecklenberg agreed the clause meant distributions were governed by a leveraged ratio agreement of debt to normalised EBITDA.
Throughout the latter half of 2007, MFS was in talks to sell its travel and leisure business, Stella, to private equity firm CVC. But as the global financial crisis unfolded, MFS faced increasing funding difficulties.
Having drawn down about $800 million of the UBS facility, MFS took out a fresh $240 million short-term loan from Fortress. MFS's debt position became more critical the longer CVC took to negotiate the deal.
With $140 million due to be repaid to Fortress by February 2008, the court heard there was $211 million in free cash on Stella's balance sheet that MFS wanted. Mr Bell suggested: ''Stella wasn't in the position to repay interest on company loans since the UBS facility was entered into.'' ''Correct,'' Mr Krecklenberg said.
Earlier in the week, MFS founder and head Michael King gave evidence that he ''was begging, screaming at, berating and bullying UBS to permit lawful release of money''.
The Swiss bank's tentacles on the deal went deeper, with UBS banker Ben Keeble quitting to join CVC, where he would be instrumental in negotiating the Stella transaction.
With the Stella money blocked by UBS, questions emerged about the solvency of MFS in late 2007. Mr Krecklenberg was asked if around October 2007 the critical nature of MFS's cash flow was brought to his attention. He said it was not.
He was presented with internal emails showing concerns about a $345 million cash shortfall. Mr Krecklenberg said MFS was a ''highly acquisitive business'' that ''always had facilities'' and he was confident if funding was required, Mr King and the team ''would find it''.
After hoping to sell Stella to CVC for more than $2 billion, MFS sold it for it for $400 million. UBS was involved, managing about $800 million in Stella's debt before converting it into an equity stake. MFS became Octaviar then collapsed in 2008.
