Jefferies CEO Rich Handler and President Brian Friedman on Monday accused Western Alliance CEO Ken Vecchione of making “false and misleading statements” with regard to the lawsuit the Phoenix, Arizona-based bank filed against Jefferies on Friday.
Western Alliance on Friday claimed Jefferies breached its contract and committed fraud when it said it would not repay $126.4 million connected to bankrupt auto parts supplier First Brands.
“Both the lawsuit and Mr. Vecchione’s statements ignore the simple reality that Western Alliance did not extend credit to Jefferies,” Handler and Friedman wrote to clients and shareholders Monday.
Rather, Western Alliance began lending money in 2021 to Leucadia Asset Management Trade Finance Group, an entity affiliated with Jefferies but owned by the Point Bonita master fund whose business is to purchase First Brands receivables, the Jefferies executives wrote.
The loan agreement at issue in the lawsuit is between Western Alliance and a second Leucadia entity, a special-purpose vehicle that holds First Brands receivables, the executives wrote.
That agreement “expressly precludes Western Alliance from seeking to recover from the [special-purpose vehicle]’s shareholders, managers or affiliated entities,” Handler and Friedman wrote.
“Jefferies honors all its obligations,” the executives wrote. “Jefferies has no obligation to pay off a non-recourse loan Western Alliance chose to make to a special purpose vehicle against First Brands receivables.”
Handler and Friedman noted that Western Alliance asked to have the Point Bonita master fund and Jefferies guarantee the loan shortly before First Brands filed for bankruptcy in September.
“Those requests were denied,” the executives wrote.
Western Alliance nonetheless began a forbearance with the Leucadia entities, with no guarantees from Jefferies, Handler and Friedman wrote.
“We are genuinely sorry that Western Alliance has joined the ranks of the dozens of financial institutions, including Jefferies, that are facing losses because of the fraud at First Brands,” the executives wrote. “We would note, though, that unlike many other investors, which have yet to recover any of their investments in First Brands, Western Alliance has been repaid more than half the amount it has loaned.”
In their letter, Handler and Friedman called out Vecchione for stating he would not “speculate as to what's going on at Jefferies as to why they couldn't make payments.”
“The statement that Jefferies ‘couldn’t’ repay $126 million is false and absurd,” Handler and Friedman wrote Monday. They noted that Western Alliance was “entitled to thoroughly examine all matters” related to the Leucadia entities, “as well as to audit the First Brands receivables it was lending against.”
Handler and Friedman reiterated their bank’s stance that Western Alliance’s lawsuit has “no merit.” Jefferies “will respond in more detail to the lawsuit in due course,” they wrote.
Western Alliance did not immediately respond to a request for comment Monday.
Handler and Friedman, in their letter Monday, also addressed Jefferies’ exposure to another embattled business, London-based mortgage firm Market Financial Solutions.
Jefferies estimated it would lose less than $20 million in net earnings in connection with MFS. One of Jefferies’ European subsidiaries loaned the mortgage firm £103 million ($138 million), but some of the collateral “may have been double-pledged,” Handler and Friedman wrote.
Jefferies has recovered roughly 25% of its facility and added that another 40% “is secured by valid loans.”
“We are continuing to review the remainder of the portfolio,” the executives wrote.
As for First Brands, Handler and Friedman doubled down on an initial statement that Jefferies is “confident any losses or expenses in respect of First Brands can readily be absorbed and do not threaten our robust financial condition or business momentum.”
“This remains our belief and is unchanged by this lawsuit or any other information we have received,” the executives wrote.
