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It’s no secret that the ultra-wealthy often accrue various collections to enhance their status. Hedge fund billionaire Steve Cohen, for example, is known to have an art collection worth around $1bn with works by Picasso, Andy Warhol and Jeff Koons, among others. Actor Nicolas Cage reportedly paid $276,000 for a rare dinosaur skull and $150,000 for an octopus. These items and collections certainly are capable of wowing guests. And hey why not, they may even be used as collateral for a loan.

However, if an owner is willing to provide this personal guarantee, and if the underlying investment goes awry, lenders may just attempt to enforce that guarantee — no matter how inconveniently located the prized collection may be — and, if not fully repaid in cash, seize or enforce on assets that were pledged to recoup their principal or negotiate a settlement.

Two enforcement actions arising from private credit providers enforcing the personal guarantees of business owners — even venturing to foreign jurisdictions to seize assets or request recognition from foreign courts — provide a window into the lengths creditors may be willing and able to go as more and more sizable direct loans default. The first of those actions is discussed below. The second will be discussed in part two.

MGG v. Safra

A little over three decades ago, Jacob Safra, a member of the prominent Safra family, decided to diversify his investment portfolio by getting into the wine business. Beginning in 1992, he built up what became The Spring Mountain Vineyard, an assemblage of four historic Napa vineyards — Miravalle, Chateau Chevalier, La Perla, and Alba — located outside of the town of St Helena, California.

In 2018, Spring Mountain took out a $185m loan — a private credit facility if there ever was one —provided by MGG Investment Group.

Safra, whose wealth is tied to a number of sources from banking and financial investments to hotel ownership to equity in reference works companies, agreed to a personal guarantee and subsequently collateralized the loan with his equity stake in the parent company of the famed Encyclopedia Britannica and Miriam Webster. What could go wrong?

Well, at least two of the ten plagues: First, tourism fell off on account of the Covid-19 pandemic beginning in March 2020. Soon after, The Glass Fire, which spread rapidly through Northern California in September 2020, devastated a large portion of the vineyard stock and the 2020 harvest, as well as damaging structures on the property. As a result, the vineyard began to experience financial hardship and presumably fell behind on its interest payments.

MGG, run by debt investing veteran Kevin Griffin (a former Highbridge and Fortress exec), ultimately declared a default in February 2021, and the parties entered into a series of forbearance agreements through 30 September 2022.

In exchange for the forbearance, SMV and Safra agreed to commence a sale process of the vineyard and its wine inventory. The forbearance agreement also provided that if such sale was not consummated by 30 September 2022, MGG would have the right to (1) record and enforce a grant deed executed by SMV which would immediately transfer ownership of the vineyard to MGG in exchange for a loan balance reduction of $125m and (2) declare effective two bills of sale, which would transfer ownership of the wine inventory to MGG in exchange for a loan balance reduction of $20m. The forbearance agreement also contained a clause requiring Safra, as personal guarantor, deliver to MGG, a “confession of judgment” executed, notarized, and apostilled which would permit MGG to file with the Supreme Court of the State of New York on 30 September 2022 if payment was not made. The confession of judgment was provided by Safra and confirmed that “the full amount due and owing . . . which I am personally obligated to pay, is $192,221,090.14” and that his guarantee “is a valid obligation for which I am personally liable.” The confession also provided that Safra agreed that a judgment in that amount may be entered against him immediately and “without notice, hearing or an opportunity to be heard.”

One day prior to expiry of the forbearance period, on 29 September 2022, SMV and Safra, represented by Kasowitz Benson Torres, filed a complaint in New York State court seeking a temporary restraining order and a preliminary injunction to prevent MGG from taking possession of the vineyards. In their complaint, SMV and Safra argued that since the execution of forbearance agreement, Safra and SMV acted in good faith and in accordance with their obligations, with Safra providing $40m to MGG, engaging with a real estate broker to sell the property, and devoting significant time to refinancing the loan. SMV and Safra also argued that the MGG loan was massively over-secured on account of its first lien security on the property (valued at over $200m) and the wine catalogue (valued at $82m retail) and a $75m third lien on Safra’s 100% equity in Britannica, which was estimated at $500m. Finally, SMV and Safra asserted that the grant deed and bill of sale were unenforceable under New York law because they were part of the forbearance agreement which created a mortgage. Implied in every mortgage is the “equity of redemption” which permits an owner to redeem their property by tendering the full amount owed before the property can be sold at a foreclosure sale. The fact that the grant deed gave MGG the authority to immediately take possession of the vineyard “clogs” SMV’s equity of redemption. Similarly, the bill of sale did not abide by Article 9 of the UCC, which also required that SMV have the opportunity to pay off the loan before the wine collateral was sold, according to SMV.

MGG, represented by Proskauer Rose, on 29 September 2022, in its opposition to SMV’s complaint and request for a TRO, portrayed SMV and Safra as “trying to exploit the lenders’ patience with their delinquent claims” but “common sense and applicable law dictates that the Grant Deed and Bills of Sale” do not “clog” the parties’ rights, as they did not secure the forbearance agreement itself. Rather, they were an efficient way of implementing the deed of trust and security agreement that secured the original loan. According to MGG, the grant deed was not in fact a new mortgage. Rather, the grant deed was executed after a default had occurred and as part of the forbearance agreement. Thus, it was negotiated through counsel and SMV and Safra “bargained for” the lenders’ agreement to forbear from foreclosing in exchange for granting the lenders the right to immediately transfer title of the property if payment had not been made by the expiration of the forbearance period.

MGG’s winning argument, however, was that the New York court was without jurisdiction to grant the relief requested because while New York courts may have personal jurisdiction, they did not have authority to enjoin real property transactions outside the state.

The court, on 29 September — one day after SMV’s complaint was filed — in a hand written denial by Judge Robert Reed, simply stated that “this court lacks authority to grant such restraint” while also adding that the application “demonstrates that there is no irreparable harm, as the sale of the commercial property was expressly contemplated and the value of the commercial property is quantified in the moving papers.” Wasting no time, SMV then filed for Chapter 11 in the US Bankruptcy Court for the Northern District of California on 30 September 2022. Safra himself did not and therefore was not subject to bankruptcy stay afforded to SMV.

After being the DIP lender and providing an additional $9.6m to the company, MGG also submitted a credit bid for the vineyard and was deemed the successful bidder with a $42m bid. Following the auction, the parties entered into a settlement agreement whereby Safra would be fully released of all claims arising from the guarantee and the New York confession of judgment conditional upon Safra paying $180m by 28 June 2023. MGG agreed to delay the closure of the sale until that date. The day came and went without Safra paying MGG, and the sale closed on 3 July 2023.

Relying on the New York court’s judgment in favor of MGG in the amount of $192m based on the confession of judgment entered on 7 October 2022 and served on Safra in December 2022, MGG, working with Kobre & Kim and local Irish counsel McCann FitzGerald LLP, sought to enforce before the High Court in Ireland on the basis that Safra resided in and has assets in Ireland.

Justice Eileen Roberts of the High Court did not find convincing Safra’s arguments that enforcement would be in contravention of public policy, would amount to unjust enrichment for MGG, or that Safra’s obligation had been satisfied because MGG acquired the vineyard and the fair market value exceeded the judgment amount.

As such, on 30 November 2023 Justice Roberts ruled against Safra in the amount of $159.8m — the amount sought by MGG and agreed between the parties in Safra’s confession of judgment less the credit bid amount. Which of Safra’s assets in Ireland — whether his collection of hotels and resorts or his purportedly extensive personal art collection — that MGG will enforce upon may be moot as 9fin understands the parties have settled.

Additionally, 9fin understands that MGG even had its sights on taking action against the art houses auctioning off the world’s oldest Hebrew Bible, which the Safra family sold in May 2023 for $38m. In the meantime, MGG is hard at work replanting the historic vineyard and returning the historic winery whose chardonnay placed fourth in the 1976 Judgement of Paris to its former glory.

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