Restructuring of John Risley's troubled investment firm back in court

CFFI Ventures, controlled by John Risley, owes well over $1 billion and will be restructured under the federal Companies’ Creditors Arrangement Act (CCAA), with New York-based HPS Investment Partners holding the bulk of the debt and proposed ownership transfer. The Canada Revenue Agency is claiming $331 million and an unsecured creditor asserts a $23 million claim; FTI Consulting was appointed monitor and Risley is no longer a director. The firm has acknowledged it cannot meet obligations and has been selling assets (artwork, aircraft) as part of the restructuring process, increasing the likelihood of losses for unsecured creditors and a controlled takeover by HPS.

Analysis

A creditor-led debt-to-equity restructuring of a diversified investment vehicle creates a classic bifurcation: secured creditors and restructuring specialists capture option-like upside while unsecured claimants and minority project partners absorb downside volatility. For the next 3–9 months expect equity in related operating projects to trade like distressed call options — low liquidity, wide bid/ask, and material downside if the new owner chooses to mothball or sell non-core assets to preserve covenant headroom.

Second-order supply-chain impacts will show up first at regional contractors and suppliers tied to single large sponsors: expect stretched payables, tightened advance requirements, and increased factoring activity; these dynamics will push short-term working capital costs for those vendors up 200–400bps. Banks and insurers with concentrated exposure will likely re-price risk and increase reserves over the coming two quarters, creating attractive asymmetric opportunities in credit hedges.

Tail risks center on contested large tax claims and the negotiating posture of the principal creditor — a decisive court ruling or a creditor walkaway can flip recoveries by multiple turns. Catalysts to watch over days-to-months are creditor vote outcomes, auction announcements for material stakes, and any rulings narrowing or enlarging priority tax claims; a favorable settlement or a strategic third-party bid can re-rate affected equities within 30–90 days.

Key Decisions for Investors

• Long FCN (FTI Consulting) — 3–6 month horizon. Expect advisory/monitoring fee flow from complex restructurings to lift revenues; target +15–25% upside, stop-loss at -8–10%. Position size 1–2% NAV as a tactical event play.
• Buy puts on HYG (iShares High Yield ETF), 3-month, ~2.5%–3% OTM to hedge credit-spread widening — cost-efficient hedge if contagion to high-yield credit occurs. Allocate 0.5–1% NAV; breakeven is plausible with a 75–150bp HYG spread widening.
• Short a screened basket of Canadian small-cap project developers (quant screen: >20% revenue tied to a single industrial project, negative FCF, >60% debt/EBITDA) via equity swaps or long-dated puts — 3–12 month horizon. Target asymmetric payoff: limited carry vs potential 30–70% downside if projects are de-risked by an incoming owner or cut.
• Event-opportunity: allocate a small specialist sleeve (0.5–1% NAV) to buy unsecured claims or purchase distressed equity post-auction in the restructuring process — highest IRR if entry is after creditor votes/audited claims are published. This is illiquid and requires active legal/claims diligence; expect 12–36 month realization and binary outcomes.