Black Elk's creditors were left to wonder how Platinum was paid proceeds from the asset sale before them. Secured bondholders, for example, would normally have had first priority. Documents and interviews with people familiar with the transaction suggest an answer.
Just weeks before the sale to Renaissance closed, Black Elk asked holders of $150 million of its high-yield bonds to approve a measure that let Platinum receive proceeds of the transaction ahead of bondholders and other creditors.
Surprisingly, nearly 75 percent of bondholders consented, according to a Black Elk earnings announcement in August 2014. Reuters could not determine the identities of all bondholders or how they voted.
"No bondholder in their right mind would ever vote to have their covenants stripped like that," said one note owner. Lawyers and representatives for other secured bondholders did not respond to requests for comment or declined to comment.
Internal Black Elk emails and legal documents related to its bonds show that various Nordlicht-controlled hedge funds owned about 70 percent of the bonds before the vote and at least 47 percent after. The person familiar with Platinum's history confirmed that the firm voted its own bonds to approve the measure.
In addition, another large block of bonds was held by affiliates of reinsurer Beechwood Bermuda International Ltd, according to a Black Elk bond modification document from November 2014. Beechwood had hired former Platinum employee David Levy in November 2013 as chief investment officer of structured products. Levy returned to Platinum as co-CIO several months after the bondholder vote.
Beechwood spokesman David Goldin confirmed that Levy was responsible for Beechwood's purchase of Black Elk bonds and for voting them in Platinum's favor, along with the approval of other covenant changes. He said that those bonds were sold the month after Levy left.
Platinum believes that the measure would have been approved even if the firm's votes had not been counted by the bond trustee, Bank of New York Mellon, according to the person familiar with Platinum's position. The Renaissance sale proceeds, the person added, were used to pay back investors in a private equity fund Platinum created and from which it took no fees.
A lawyer for Black Elk declined to comment on Platinum, citing the bankruptcy proceedings.
Black Elk founder and CEO John Hoffman left the company shortly after the sale to Renaissance. Black Elk's next CEO, Jeff Shulse, left after the Northstar deal. According to a filing by Black Elk creditors as part of the bankruptcy proceedings, both men left in protest over cash from the sales being used to pay Platinum. The filing alleged "a series of questionable transactions" that allowed $96 million from the Renaissance sale to go to Nordlicht's firm "to the detriment of the company's creditors and estate."