28 July 2018

The latest on Force India

The Formula India F1 team is now in administration. It is being run by Geoff Rowley and James Baker of FRP Advisory, a well-known insolvency firm. Rowley is well-versed in the ways of Formula 1, having dealt with the Marussia and Manor F1 administrations in the past. The first step will be to call a meeting of creditors and then move forward trying to find a buyer for the team as a going concern.

Vijay Mallya is no longer in control but he is claiming to be the biggest creditor, through the Orange India holding company in Luxembourg. The biggest creditor beyond this is believed to be Mercedes (although it seems that more than one Mercedes entity is involved). The outstanding debt to the German firm is believed to be in the region of $13 million. There are a number of other creditors, mainly parts suppliers.

The current excitements began in the middle of last week when there was a winding up petition, rumoured to be from HMRC. This was settled but another creditor joined the action and the petition hearing was adjourned when an administration application was filed by a Guernsey-based company called Brockstone Ltd, which is a management company that oversees Sergio Perez. This claimed $4 million which had not been paid. There are some in the F1 paddock who believe that this action was a stalking horse for Mercedes because the car manufacturer does not want to be seen to be taking such actions. It is clear that Mercedes needs to protect its situation.

The administration hearing took place yesterday and was adjourned midway through when a sponsorship contract was presented suggesting that Rich Energy would inject $19 million in 2018 and a similar figure in 2019. The judge considered the arrangement and rejected it as not being a credible method of saving the team and so it was placed in administration late on Friday night. There are believed to be four possible buyers at the moment although it is possible that they will be joined by others, and that one or more of them could combine to come up with a business plan that FRP Advisory will accept and put before the judge to allow the firm to exit administration.

“We shall be engaging with key stakeholders on an urgent basis to secure the best outcome for creditors," Rowley said in a statement. "In the meantime, the team will continue to operate as normal, including racing in Hungary this weekend. Our aim is for business as usual whilst we assess options to secure the future of the team."

The Rich Energy bid, which is supposed to be supported by publishers-turned-sport entrepreneurs David Sullivan and David Gold, may still make a play for the team but with the judge having been so dismissive it would need a very convincing package. 

There is believed to be another bid from a New York private equity fund called Castle Harlan, which may involve the Mexican-American Tavo Hellmund. There is also a bid by Rockefeller Capital Management (RCM), a subsidiary of Viking Global Investors, a hedge fund based in Greenwich, Connecticut, which has around $28 billion under management. RCM has ambitious plans to increase its portfolio and recently helped the celebrated baseball player Derek Jeter buy the Miami Marlins baseball team. There may also be a bid from Michael Andretti, with support from a private equity group, which may or may not be linked to one of the above.

The big question now is whether or not we will see some changes before the F1 circus gathers again at Spa, with the suggestion being that Esteban Ocon may be in a position to leave and move to Renault, displacing Carlos Sainz. There have been rumours for several weeks that Sainz could be on his way to McLaren and even suggestions that this could all happen immediately. There is also the question of Lawrence Stroll, who is often touted as being a possible buyer of Force India. It is more likely that the canny enterpreneur will not buy the team but may provide convertible loans to keep the business running healthily and will then cash these in when the team is sold by the administrator. This would make way for Lance Stroll to switch out of the mess at Williams and get into a more competitive car at Force India. This would then open the way for Mercedes protege George Russell to join Williams. He would fit the Williams profile as a rising British star, but the key question there is how this would be funded. There is increasing talk of Williams doing a deal to buy more Mercedes technology rather than doing it all themselves and one can imagine that Russell's involvement would be aided by Mercedes.

One must also remember that the Formula One group will play a role in the process because it wants a credible owner of the team and one that meets the strategic goals of the organisation (ie something with an American flavour).

Having said all of this, the situation remains fluid and while F1 may have seen the last of Vijay Mallya and his business partner Subrata Roy of Sahara, his adventures are far from over as he is due back in court in London next week to face extradition charges.

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