- Five entities linked to Texas multimillionaire James Dondero received approval for as much as $8.4 million from a government lending program meant to help small businesses known as the Paycheck Protection Program.
- Dondero founded Highland Capital Management in 1993 and built it into a credit investing powerhouse before suffering steep losses during the financial crisis. He also runs businesses under the NexPoint platform he started in 2012 to sell alternatives to retail investors.
- There’s been controversy around what companies should be taking money from the PPP program almost since the US Congress first passed the CARES Act. Dozens of firms took money before announcing plans to give it back.
- The US government released data on which companies got approval for loans under the PPP on Monday.
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Five companies linked to Texas multimillionaire James Dondero received approval for loans of as much as $8.4 million from a government program meant to help small businesses continue paying their employees during the economic slowdown.
Dondero is the founder of Highland Capital Management, a Dallas-based investment firm overseeing billions of dollars in assets.
The firm, founded in 1993 to invest in high-yield debt before branching out into real estate, distressed situations, and collateralized loan obligations, managed more than $40 billion at one point, before the 2008 financial crisis led many of its investments to suffer steep losses.
In October, an affiliate of Highland Capital voluntarily filed for Chapter 11 bankruptcy protection when it looked like a lawsuit linked to the crisis-era losses could have, as the company put it, resulted in a settlement “greater than the entity’s liquid assets.” Institutional Investor ran a lengthy profile of Dondero and Highland Capital in April.
Just days after that story ran, a Highland entity not in bankruptcy court, Highland Capital Management Fund Advisors LP, received approval for a loan of between $150,000 and $350,000 from the government’s Payment Protection Program, according to data released by the US government on Monday.
Four other Highland-affiliated entities also got money, including three doing business under the NexPoint name, which Dondero began in 2012 to sell alternatives to retail investors. The name or some version of it now adorns a publicly traded real estate investment trust, a closed-end fund, a broker-dealer, and a bank. Many or all of the entities state in regulatory filings that they are affiliates of Highland Capital.
“Each company that petitioned and received funding believes it did so in compliance with the program’s requirements and in the spirit of the regulation,” a spokesperson for the companies said in an emailed statement. She declined to say whether other Highland- or NexPoint-affiliated entities had also applied for funding.
The management company overseeing the REIT, NexPoint Residential Trust Operating Partnership LP, was approved on April 28 to get between $2 million and $5 million from the PPP, according to data it submitted in order to receive the funds. The entity did not take the money, according to the spokesperson. Dondero serves as chairman and president of the REIT.
NexPoint Advisors LP, the manager for the closed-end fund and other investment vehicles, and broker-dealer NexPoint Securities Inc. each got the nod for loans of between $350,000 and $1 million from the program, according to the data. Those entities were approved for the money on April 8.
The NexPoint entities are affiliated with Highland and reported their offices on the form as the same one in Dallas, 300 Crescent Court Suite 700, as Highland.
A fifth subsidiary, based in the same location, NexVest Realty Advisors LP, also received between $350,000 and $1 million from the program, according to the data.
In total, the money went to paying 396 people, below the government’s 500-person affiliate cap which served to make some larger businesses and many private-equity firms ineligible.
After reports surfaced of hedge funds and private-equity funds applying for the first round of the loans, the US government clarified the rules to make it clear that firms “primarily engaged in investment or speculation” were ineligible.
Read more:How big banks decided the futures of America’s small businesses: The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief
In total, more than 13,000 companies classifying themselves as doing business in the finance industry applied for or got approval for the loans, according to the government’s data. The database includes only those companies applying for loans of more than $150,000.
Dondero is thought to be worth hundreds of millions of dollars, though the exact size of his wealth is unclear. A 2013 article in the New York Post said he submitted documents in divorce proceedings saying that though he’d made at least $36 million in 2010, a series of lawsuits had left him, under some accounting rules, insolvent.
The Institutional Investor article detailed the wealthy investor’s background of legal fights under the banner “Nothing Can Stop This Hedge Fund Soap Opera.” The article goes on to describe Dondero.
“Thousands of pages of legal documents show that Highland’s co-founder and current chief executive, James Dondero, is not afraid to wage the legal equivalent of war — and doesn’t back down when the courts don’t rule in his favor.”
The Paycheck Protection Program was created by US Congress to offer federally backed loans to small and medium-sized businesses to help cover expenses and maintain employment levels. Businesses that meet certain criteria from the Small Business Administration can apply to have their loans forgiven.
Since the program has been announced there’s been some concern around what companies should be taking money from the program. Well-known, publicly-traded firms like Shake Shack and the parent company of Ruth’s Chris steakhouses returned money earlier this year after filings revealed they had taken loans.
And while the government’s updated guidance discouraged investment firms from applying to the program, there’s a worry inside the finance and investing industries that any discovery of the loans may prompt public backlash and lead to negative public relations. One issue is whether firms backed by, or owned by, wealthy individuals should be applying to a program intended to help struggling small businesses.
– The story has been updated to reflect the fact that, according to a spokesperson, one of the entities didn’t receive the funding.