Blackstone’s GSO fumes at Ally now revolting in distressed deal
His shirt collar open and his smile easy, Frank Baker’s appearance on “Good Morning America” early this month hardly fit the image of a financier creating trouble for the likes of Blackstone Group Inc.
The founder of Siris Capital was on national television being feted for pledging to pay off tuition balances for graduating students at Spelman College, the all-women, historically Black school in Atlanta.
But in the financial world, his once-little-known private equity firm has been captivating Wall Street with a hard-nosed fight against Blackstone’s powerhouse credit arm, GSO Capital. The Blackstone financing machine had put Siris on the map, and now executives at GSO can scarcely hide their annoyance.
The spat revolves around Siris and Elliott Management’s travel-booking venture Travelport. The pair shifted its intellectual property into a new entity to lend it $1 billion -- a deal that could leave GSO realizing steep losses on hundreds of millions of dollars already invested in the company’s debt. Hours after Baker’s TV appearance, GSO chief Dwight Scott jumped on the phone with him to air grievances, pressing the buyout executive to change course on the aggressive maneuver.
How the standoff unfolded is a tale of a long, close alliance that nearly turned into a formal partnership -- only to fall apart and spiral into the current fighting. The breakdown, described by people with knowledge of the relationship, is among the many scuffles emerging on Wall Street as the coronavirus pandemic pits distressed companies and their owners against lenders.
Representatives for Siris and Blackstone declined to comment.
Baker, a graduate of Harvard Business School, clocked a fast ascent on Wall Street, working at some of its most storied firms -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and the buyout arm of billionaire investor Steven Cohen.
In 2011, Baker and two colleagues -- Peter Berger and Jeffrey Hendren -- spun out on their own. For years, they leaned heavily on GSO for help building their shop by funding its conquests.
It was GSO that championed Siris by backing early buyouts of companies such as network-technology provider Tekelec. From there, the Blackstone unit quickly became the go-to for Siris as its assets swelled to $6 billion. Baker and GSO founder Bennett Goodman forged close ties that included fundraising for then-presidential hopeful Kamala Harris and even social visits by GSO executives at Baker’s Southampton home.
By the end of 2018, GSO and Siris started sketching out a plan, and eventually a term sheet, for a joint fund that would raise money to invest in technology. The idea: fuse Siris’s tech expertise with GSO’s credit chops.
The talks dragged out for more than a year. In that time, Siris sold a piece of itself to investors including Wafra Capital, nabbing a lofty $3 billion valuation in the process. The likelihood of a Blackstone joint venture was floated as a positive development by Siris when hammering out a deal with Wafra.
A deal with a Wall Street titan like Blackstone would have elevated Siris’s standing and turbocharged efforts to raise money. But unfortunately for Siris, GSO’s executive shakeups and exits kept an agreement out of reach. Blackstone President Jon Gray ultimately told the unit’s new leadership he wasn’t interested in teaming up with a small firm to raise money jointly. In February, the plan was officially quashed. Scott relayed the message.
Since then, GSO has found itself appealing to Siris for help.
The pandemic has taken a hard toll on Travelport, which connects airlines to booking websites and travel agents. As revenue plunged and Travelport’s planned sale of a unit fell apart, Elliott and Siris drew up an emergency plan to bolster the company’s finances. Yet their proposal to shift assets away from a group of creditors ran into instant opposition -- and none was more vociferous and more exposed than GSO.
Rather than persuade Elliott -- a corporate brawler not known to take a step back -- GSO and its partners focused their efforts on Siris, playing up the nostalgia of past partnerships and implicitly raising doubts about providing funds for future deals. But to little avail.
People close to Siris say it is acting in the best interests of its investors, not waging a vendetta against GSO over the failed talks on a joint venture. But it is hard to imagine that the two firms would have ended up at such loggerheads if they had paired up.
It’s not uncommon for fights to break out among opposing parties in distressed situations. Blackstone has waded into plenty of those, with controversial transactions of its own involving preppy retailer J. Crew, homebuilder Hovnanian and, years ago, Travelport.
One notable facet of this case is that a number of veteran advisers have surrendered roles. Kirkland & Ellis recently resigned as Travelport’s legal representation. Bank of America Corp. quit its role as administrator of the company’s loan. Travelport, meanwhile, has filed a lawsuit against the bank for sending a notice of default over the shift of assets away from lenders.
Lawyers for Travelport’s owners and creditors have been trying to work out a compromise without much sign of success. Without a deal, Travelport’s owners keep taking steps forward in their financing plan.
With the fight wearing on, Baker recently prepared to have another chat with the GSO chief. But Scott delivered a terse message to the buyout executive his company once helped get started: Not much use catching up.