K1 sued by portfolio company for breach of fiduciary duty
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Waste and recycling management company RTS last week announced $40 million in funding led by existing investor Edison Partners.
Why it matters: Just days earlier, the company claimed in a Delaware lawsuit that it only took the deal because of misdeeds by a different insider, K1 Investment Management.
Catch up quick: K1, a software investor with around $15 billion in assets under management, plugged $60 million into RTS three years ago, and received a board seat for managing partner Ron Cano.
- RTS at the time had an existing $45 million loan from Trinity Capital, with principal repayments slated to begin in February 2025.
- Last year, RTS negotiated with Trinity to defer those principal payments, so long as it could secure new equity funding.
- RTS says it got term sheets from both an outside investor and from K1, and formed a special committee that favored the former; a deal that was contingent on Trinity granting the principal payment deferrals.
- Cano resigned from the board, and just days later K1 bought the entire loan from Trinity. It then allegedly refused to defer the principal payments, instead proposing an alternative deal.
- RTS says that it scrambled, agreeing to the Edison investment in order to avoid default.
What the lawsuit claims: "By obtaining the assignment of the loan from Trinity, K1 aimed to gain majority control of RTS either by accepting a predatory equity investment offer or forcing RTS into default, at which point K1 could acquire the entire Company at a level well below its true value."
- RTS claims that it was forced to scramble, agreeing to the Edison investment in order to avoid default. That deal, it says, was "not as attractive" as the earlier equity offers.
- The company claims breach of fiduciary duty against both K1 and Cano.
What K1 is saying, via a statement to Axios: "The allegations in RTS' complaint are baseless, meritless and misleading. We will respond in due course."
Behind the scenes: Word is that there have been some discussions this week about a settlement, prior to a legal reply or related filing from K1, but so far they haven't borne fruit.
The bottom line: This reads like a garbage situation, both literally and figuratively.
