Honda F1 website

SEPTEMBER 20, 2006

Mystery surrounds F1 loan law suit

The mystery of the $300m legal action against the Formula One group, filed by Swiss finance company Kamos-Finanz has raised much interest in Formula 1 circles. The suit relates to a loan made to SLEC, the then Formula One holding company, in April 2001 when it was in the process of paying the FIA for a 100-year lease on the commercial rights of F1, worth $313m. This deal had been secured the previous summer with a downpayment of $60m and the balance of the money was due 12 months later. A loan was found and the money ended up being paid to the FIA and was used to establish the FIA Foundation.

The big question is why Formula One is not willing to pay the debt.

According to a report in the Swiss economic journal Bilanz in October 2005, a $235m loan was originally made to SLEC by MH Movie Consulting, a Swiss firm involved in funding the film industry. This was run by Martin Hellstern, a veteran movie financier. The connection with the Formula One group appears to have been made via the Kirch Group, the company that owned the majority of SLEC at that time, as Hellstern was involved with Kirch in the Swiss TV company Teleclub. Kirch completed the purchase of 75% of SLEC in April 2001, the same month in which the disputed loan was granted.

It is not clear which deal was done first.

A year later Kirch collapsed and by the end of 2002 the SLEC shares had been taken over by the Bayerische Landesbank, JP Morgan Chase and Lehman Brothers, three banks which had lent Kirch money to buy its stake in SLEC. According to Bilanz, at the end of 2004 Hellstern decided to sell the debt in a private auction, managed by the Zurich law firm of Lenz & Staehelin. Hellstern would not give details about how much was paid for the debt but told Bilanz that the buyer was "a Swiss finance company" and that the debt was due to be repaid in 2006.

Since the sale of the debt, SLEC has changed hands as well with Alpha Topco Ltd, an investment company, owned by CVC Capital Partners and Bernie Ecclestone, buying the business.

The argument, therefore, is probably relating to whether or not SLEC is liable for the money or whether it should be added to the losses of the now-defunct Kirch empire. The Alpha Topco investors must have known about the loan when they acquired the Formula One business from the banks but clearly they do not believe that they are liable for the money.

If they lose the case, that would be a major hit for CVC as repaying the debt may create difficulties later when the Formula One group starts to pay out more money of the F1 income to the F1 teams in 2008.