MANHATTAN (CN) - Former owners of Hellas Telecommunication, once the third-largest cellular service provider in Greece, siphoned 1 billion euros out of the company, leaving it insolvent after a pillage "evocative of the sack of Troy," the company's liquidators claim in court.
Hellas's U.K. liquidators Andrew Lawrence Hosking and Simon James Bonney sued private-equity firms TPG Capital Management and Apax Partners, and several subsidiaries and affiliates, in Federal Court.
Deutsche Bank and TCW Group are among the defendants.
The United Kingdom's Secretary of State for Trade and Industry appointed Hosking and Carl Stuart Jackson, who was replaced by Bonney, as liquidators for Hellas Telecommunications (Luxembourg) II.
TPG Capital and Apax Partners bought Hellas in 2005 for 1.1 billion euros, plus 166 million euros in debt and 69.9 million euros in transaction costs, according to court documents.
Hosking and Bonney claim TPG, Apax and their affiliates systematically pillaged Hellas's assets, drowned it in debt, paid themselves exorbitant management and consulting fees, and made improper distributions that left the company insolvent.
The Weather Group, an Italian communications company, bought Hellas in 2007. The company is liquidating in the United Kingdom, and has sought Chapter 15 bankruptcy protection in the United States.
"The joint compulsory liquidators bring this action for the benefit of the company's estate and its creditors to obtain redress for one of the very worst abuses of the private equity industry," the lawsuit states. "The defendants include certain entities and individuals comprising and affiliated with TPG and Apax (as defined below), two of the largest private equity firms operating in the United States and around the globe. TPG and Apax used the company to carry out the highly leveraged acquisition of a pair of Greek businesses, before causing the company to borrow well in excess of ¬ 1 billion in additional funds that were then immediately siphoned out of the company without consideration. Less than two months after that fraudulent transfer, TPG and Apax disposed of the company and its subsidiaries, pocketing a windfall and leaving behind an insolvent company staggering toward bankruptcy. Consistent with their code names for the initial transactions through which they later secured their windfall, TPG's and Apax's duplicitous and catastrophic plunder of the company is evocative of the sack of Troy.
"In 2005, TPG and Apax pursued acquisitions of TIM Hellas and Q-Telecom (as defined below), the third- and fourth-largest mobile telecommunications providers in Greece, respectively. TPG and Apax internally dubbed their acquisition plans for those two companies 'Project Troy' and 'Project Helen.' By press release on April 4, 2005, they announced their intent to acquire a controlling stake in their first target, TIM Hellas. At the time, Philippe Costeletos, a partner of and lead member of the deal team for TPG, promised that they 'remain[ed] committed to providing management with the resources necessary to invest in infrastructure, provide innovative products and services to customers, and continue to grow the business.' For his part, Giancarlo Aliberti, a lead member of the Apax partnership and of its deal team, welcomed this 'great opportunity' to 'work with TIM Hellas' management to create value and help the company realize its growth potential,' and to begin 'investing in TIM Hellas' future and building on its strengths.' Those promises and commitments were quickly betrayed."
TPG and Apax used entities organized in Luxembourg and Greece to acquire 100 percent interests in Hellas and Q-Telecom. When they sold the companies in February 2007, the defendants received a 375 percent return on their investment, according to the complaint.
Hosking and Bonney claim TPG and Apax boasted that they had turned Hellas around, selling it as "a robust company with genuine further growth prospects."
In fact, the liquidators say, the defendants used the company to borrow money for their acquisitions, increasing its debt by 1.4 billion euros from 2004 to 2005.
"In the light of day, however, 'Project Troy' and 'Project Helen' can be seen for what they were - a state-of-the-art Trojan Horse designed to financially infiltrate TIM Hellas and Q-Telecom and then systematically pillage their assets from within by piling on debt in order to make large distributions to the equity owners," the complaint states. "All the while, and even after the company had been left insolvent, TPG and Apax shamelessly collected millions of euros from the company in 'consulting fees' and for 'business advisory services.'
"As reported by the Daily Telegraph in a Jan. 7, 2012 article bearing the headline 'How Private Equity Plundered Profitable Greek Telecoms Company Hellas,' although '[t]here are plenty of examples of where private equity bought companies, over-leveraged them and left them facing potential collapse,' 'rarely have they been quite as big and left as bad a taste in the mouth as Hellas.' The New York Times, in a March 13, 2010 article entitled 'Private Equity's Trojan Horse of Debt,' similarly reported that TPG and Apax had 'larded Wind Hellas with debt before selling it off' in 'yet another tale for our times.' This sordid tale resulted in the company's creditors, located in the United States, including New York, and worldwide, paying the price for the unwarranted bounty enjoyed by the departing private equity owners."
The defendants flipped the companies for a quick profit after using them to borrow about 1 billion euros on subordinated notes issued to investors in New York and other places, according to the lawsuit.
The liquidators claim that shortly before selling the companies TPG and Apax transferred 1.57 billion euros to Hellas's holding company, and funneled almost 1 billion euros to themselves.
They say the defendants made large distributions to their equity holders, which did not reduce the telecom companies' debt, but enriched themselves at the expense of the companies and their creditors.
The liquidators seek return of all of TPG's and Apax's profits from the transfer, plus interest and consulting fees, and damages for fraudulent conveyance and unjust enrichment.
They are represented by Howard Seife with Chadbourne & Parke, and Eric Levine with Wolf Haldenstein Adler Freeman & Herz.
TPG spokeswoman Lisa Baker said "the lawsuit is totally without merit."
A spokesman for TCW Group declined to comment on the litigation.
Apax and Deutsche Bank did not immediately respond to requests for comment.