Highland Capital Management said it doesn't have the cash on hand to make a payment of $175 million if that amount is eventually awarded to investors in its shuttered hedge fund by an arbitration panel.
An attorney for the investment firm made the statement in a March 22 affidavit in Delaware Chancery Court that was meant to be sealed from public view. It came in a case in which Dallas-based Highland was sued by investors in a hedge fund that was shut down during the financial crisis. Arbitrators haven't yet issued a final financial award in the case, and Highland doesn't explain how it came to the $175 million figure in its court papers.
Investors in Highland's Crusader Fund were supposed to get their money within three years of its closure in October 2008, following losses on high-yield, high-risk loans and other types of debt. In 2011, Highland said it would take another three years to return the cash. A group of investors sued in 2016, saying Highland engaged in "willful misconduct and gross negligence" by refusing to return their money and taking more than $30 million in fees it wasn't entitled to.
An arbitration panel on March 6 issued a "partial final award" in favor of the investors, according court documents. A judge on March 21 asked Highland for an affidavit explaining the firm's "ability to pay the award" as calculated at different points in time, according to a transcript of the hearing. The hearing, which didn't detail the nature or size of the award, was related to the investors' request for a so-called status-quo order that would prevent Highland from making major changes to its corporate structure and assets.
In the affidavit, the lawyer, Scott Hellington, notes the $175 million figure is "for the purposes of this affidavit" and that Highland "did not have cash, cash equivalents, or immediately liquid assets equal to the amount of the partial final award." That language was meant to be blacked out, according to a separate filing asking the court to retroactively redact the original document. That request was denied.
The $175 million figure is greater than the current size of the Crusader Fund, which has been run by Alvarez & Marsal since investors fired Highland in 2016. The fund, which has distributed almost all of the $1.7 billion of assets it had in 2011, had $128 million in net partners' capital as of Feb. 28, according to a document seen by Bloomberg. About $100 million of that is in cash.
William Braun, a spokesman for the investor committee at Abernathy MacGregor, declined to comment, as did a spokeswoman for Highland, Lucy Bannon. Highland oversees about $15 billion, the firm said in a separate filing.