Finance 101 wrote:
Not sure why nobody understands the simple structure that I am pretty sure GST set up with the investor base. These are Capital Call structures. The managing company (GST)has the right to call capital from a group of Limited Partners (LPs). This allows companies to run businesses and call capital when needed. This structure lowers the cost of capital for the managing company as they may not draw on the capital (funded) if the business is running well (think ticket sales). If they need capital they “call” the capital which has certain time windows - usually 90 days. In exchange for this option, the structure gives the LPs leverage. If the structure is well documented - it is a very strong set-up. MJ gave a bad explanation when he said the investor was using market volatility to invest in other assets. Of course, the cash was invested elsewhere. That’s the beauty of leverage. The investor is investing at both.
Here is the key point. Cap calls are not liquidity facility since it takes certain time to call the cash. That’s where banks come in- they lend against these structures - so if real cash flow is needed - they will bridge that gap until the LPs pony up. It’s clear GST didn’t understand this or thought their downside business model would not hit such a low ebb of cash. So for me - either this is a timing issue or the LPs have much better lawyers than GST and they had an option to bail. If you are GST and you let the documentation give that sort of option - you are a very crappy business person.
From what someone else reported a few days ago, the investors said they would most likely give Grand Slam Track the money, but they weren't 100% legally required to do so by a legally binding contract.
In other words, Michael Johnson wasn't being 100% honest when he said they had the money. They didn't. They only had an investor(s) who MIGHT give them the money. That's a big difference, and one that obviously wasn't told to the runners when they signed their contracts with Grand Slam Track.