John Risley, President, Clearwater Seafoods Ltd., at his retail store in Bedford, Nova Scotia, June 1, 2012. Paul Darrow for the Globe and MailPAUL DARROW/The Globe and Mail
The restructuring of seafood magnate John Risley’s billion-dollar empire will now be conducted under the Companies’ Creditors Arrangement Act (CCAA), a change made after multiple parties, including the Canada Revenue Agency, pushed back in court against the original plan which was negotiated with a single lender.
After initially working with HPS Investment Partners, the New York-based private credit giant it owes the most money to, Mr. Risley’s holding company, CFFI Ventures Inc., announced this week it was willing to scrap that plan and seek creditor protection under CCAA “to address concerns raised by several parties, including the Canada Revenue Agency.” In total, CFFI owes $2.04-billion.
On Friday, a Nova Scotia judge approved the CCAA process, which means the court will appoint a monitor to oversee the restructuring. They will independently value CFFI’s assets, which range from renewable energy to nutritional products, and also oversee any asset sales, ensuring fair value for all parties.
Inside the unravelling of seafood magnate John Risley’s billion-dollar empire
Halifax-based CFFI initially negotiated one-on-one with HPS and the two parties submitted a plan to the court in February to restructure US$776-million in debt. The plan called for HPS to take control of CFFI and all its assets, leaving the CRA, which is owed $331-million in taxes, with little chance of getting the money.
In all, CFFI owes HPS US$776-million, but its assets have a fair market value of $367-million (Canadian), according to court filings. In other words, if the assets were all sold under the original restructuring plan, there still wouldn’t be enough money to repay what is owed to HPS.
That would leave nothing for the CRA or Brendan Paddick, Mr. Risley’s former business partner, who HPS claimed were unsecured creditors. HPS is a secured creditor.
Mr. Risley borrowed US$250-million from HPS in 2017 for working capital and acquisition financing purposes, and agreed to pay 8-per-cent annual interest in cash, plus an additional 5 per cent annually “in-kind,” which gets added to the debt total each year.
In 2019, he breached the loan’s covenants and chose to keep adding unpaid interest to the loan balance, at an annual interest rate of 20 per cent. The hope, according to court filings, was that he’d soon sell one or more of CFFI’s larger investments and use the proceeds to pay the debt back.
The problem: These sales never happened because there weren’t buyers. So, in 2022, CFFI defaulted altogether, and Mr. Risley was directly affected because he had personally guaranteed the loan to HPS. The seafood magnate is now piling up unpaid interest on that debt at an annual rate of 28 per cent.
CFFI’s assets include 30 per cent of World Energy GH2, a family of companies and partnerships based in Newfoundland and Labrador that are developing renewable energy; a minority stake in World Energy LLC, a Boston-based producer of biofuels for airplanes; and 47 per cent of Mara Renewables Corp., which delivers omega-3 products derived from algae.
World Energy GH2 is now in financial trouble after the provincial government stripped the company of its Crown land for not paying its land reserve fees. The company recently filed for creditor protection and in an affidavit the company’s CEO said the business faces “an immediate liquidity crisis.”