Canyon Bridge Fund I provides a £551,656,000 GBP shareholder loan to CBFI Investment for its acquisition of Imagination Technologies Group plc

Project narrative

On September 22, 2017, CBFI Investment Limited — an England and Wales-incorporated special purpose vehicle (SPV) wholly-owned subsidiary of Canyon Bridge International Holding Investment Limited, a Cayman Islands-incorporated wholly-owned subsidiary of Canyon Bridge Fund I, LP (CBFI), a Delaware-incorporated fund managed by Canyon Bridge Capital Partners, LLC (“Canyon Bridge”), a Cayman Islands-incorporated global private equity buyout fund headquartered in Palo Alto, California (1% stake) but majority owned by Yitai Capital Limited (99% stake), a Hong Kong-incorporated firm wholly owned by China-incorporated majority-controlled Chinese state-owned firm China Venture Capital Fund Corporation Limited, which is jointly owned by China Reform Holdings Corporation (CRHC) (35.29% stake), China Pacific Insurance (Group) Ltd, CCB Capital Management Company, CCB Trust Co. Ltd, and Shenzhen Investment Holding Company Ltd. — entered into an agreement with Imagination Technologies Group plc ("Imagination") to offer to acquire Imagination via scheme of arrangement for £1.82 GBP in cash, or £548,900,000 GBP ($744 million USD) in total. As of September 22, 2017, the Industrial and Commercial Bank of China (Asia) Limited (ICBC (Asia) had issued an irrevocable guarantee to Canyon Bridge Fund I to fund its equity commitments for the acquisition via debt financing. Then, on November 2, 2017, Canyon Bridge Fund I, LP entered into a £551,656,000 GBP zero-interest shareholder loan agreement with CBFI Investment Limited for its acquisition of Imagination Technologies Group Limited. The loan carried an interest rate of zero and was repayable on demand. The loan was fully drawn down. Record ID#109287 captures Canyon Bridge Fund I's shareholder loan. Imagination is a British semiconductor company that designs, manufactures, and offers intellectual property licenses for graphics processing units (GPU) and video-processing technology used to make graphics chips in computers and phones, a technology invented for rendering video games that is also used to run artificial intelligence tasks like image recognition and machine learning applications, as well as vision and multi-standard wireless communications. It was listed on the London Stock Exchange and based in Hertfordshire, England. Imagination had eight subsidiaries located in Germany, Japan, India, Australia, Sweden, China, the Netherlands, and the United States. The acquisition did not include MIPS, the United States-based unit of Imagination that makes processes used in embedded computing, was concurrently being sold to Tallwood MIPS, Inc. of Tallwood Venture Capital for $65 million USD. Canyon Bridge had previously attempted to purchase American semiconductor firm Lattice Semiconductor Corporation, entering into an agreement in November 2016. However, due to the fact that Canyon Bridge was (ultimately) owned by several Chinese state-owned enterprises and semiconductors are a sensitive technology with potential military applications (that the Chinese government has identified as a growth target), the Committee on Foreign Investment in United States (CFIUS) recommended against the deal both times Canyon Bridge applied for it. Despite Canyon Bridge directly appealing to U.S. President Donald Trump about the deal's potential job growth benefits, Trump blocked the deal on national security grounds on September 13, 2017, with the U.S. Treasury Department stating that the risks to the U.S. government's supply chain were too grave. This was only the fourth time in a 25 years that a U.S. president had blocked the sale of an American firm to a foreign firm for security reasons. As such, Canyon Bridge structured the acquisition of Imagination so that U.S. regulators would be unable to block it. At the time, Imagination's acquisition was considered a significant prize for the Chinese government because virtually all processor companies (central processing unit (CPU) and GPU) were in the United States -- or involved significant development in the United States -- and thus fell within the jurisdiction of CFIUS. The Chinese government had also set public goals to make major advances in artificial intelligence and machine learning. The acquisition came after Imagination, which was once considered a star of the British tech industry, suffered major setbacks. In early 2017, Apple Inc., which accounted for over half of Imagination's sales, disclosed that it would phase out use of Imagination's technology, replacing it with its own graphics processing units, causing Imagination's stock to decline by over 50%. The acquisition was expected to help Imagination expand into Asia. Canyon Bridge had no plans to change the staffing or management and the principal locations of Imagination's places of business, including its current British headquarters, or redeploy any of Imagination’s fixed assets. Canyon Bridge planned to further Imagination's PowerVR to increase market share in the smartphone, tablet, set-top box, digital television, and automotive sectors and to drive artificial intelligence technologies for new augmented and virtual reality and machine autonomy, while it would help Ensigma adopt integrated communications intellectual property for mobile, tablets, computers, devices and wearables, and entertainment centers. Canyon Bridge Capital Partners, LLC and Imagination entered into a confidentiality agreement dated May 30, 2017. Imagination had started a formal sale process of itself on June 22, 2017. The acquisition was subject to court approval, the successful sale of MIPS, and shareholder approval of Imagination, and was conditional on all notifications and filings under the Hart-Scott-Rodino Antitrust Improvements (HSR) Act in the United States. Should Canyon Bridge have failed to receive the necessary approvals, and the acquisition not proceed, it was required to make a £13.8 million GBP payment to Imagination, while Imagination was required to make a payment of up to £5.5 million GBP to Canyon if the acquisition lapsed. On October 9, 2017, the Imagination board of directors unanimously voted to recommend the scheme to shareholders. On October 30, 2017, the waiting period under the HSR act expired. On October 31, 2017, the majority of Imagination shareholders voted to approve the scheme. The Foreign Commonwealth Office reviewed the acquisition. To acquire Imagination, Canyon Bridge had to attest that its financial sponsors (effectively the Chinese government via its state-owned companies) were only passive investors, meaning that they had no control nor influence of Canyon Bridge as the legal acquirer of Imagination. The acquisition would become effective in mid-November 2017 and had a long stop date of July 22, 2018. On November 2, 2017, the High Court of Justice in England and Wales sanctioned the scheme of arrangement and the acquisition was completed the same day. Imagination was delisted from the London Stock Exchange on November 3, 2017. In January 2018, Canyon Bridge Fund I entered into a $20 million USD loan agreement with Imagination Technologies Group Limited (Imagination Technologies Group plc's legal form). This loan was interest-free and repayable in full on demand, or within 12 months of the date of the first utilization of the facility unless the lender agreed otherwise (one year). As of September 28, 2018, the borrower drew down $10 million USD (£7.8 million GBP) under the loan agreement. Record ID#107689 captures the Canyon Bridge Fund I $20 million USD loan commitment. In 2019, Canyon Bridge Fund I entered into a £12,200,000 GBP shareholder loan agreement with Imagination Technologies Group Limited for working capital purposes. The loan was interest-free and repayable on demand. In 2020, £6 million GBP of the loan had been repaid. Record ID#109291 captures the Canyon Bridge Fund I £12.2 million GBP loan. In 2019, Canyon Bridge Fund I entered into a $42,000,000 USD (£31,853,000 GBP) shareholder loan agreement with Imagination Technologies Group Limited for working capital purposes. The loan was interest-free and repayable on demand. Record ID#109292 captures the Canyon Bridge Fund I £31.853 million GBP loan. Some time after the acquisition, Imagination became the subject of a national security episode. Word reached British Members of Parliament that China Reform, one of the indirect shareholders of Canyon Bridge Fund I and thus of Imagination, planned to appoint four directors to the board of Imagination, thereby taking control of it, in an emergency board meeting schedule on April 7, 2020. In response, the chief executive officer and other senior executives of Imagination resigned in protest. On April 3, 2020, chairs of four committees in the U.K. Parliament sent a letter to Prime Minister Boris Johnson asking the government to intervene into the case, as the changes would give the Chinese state direct influence over Imagination. Two of the resigned executives testified in a select committee hearing in the U.K. Parliament about the takeover on May 5, 2020. As a result of the action by the executives and the British government's oversight, the board takeover was abandoned. Canyon Bridge provided written responses to the Foreign, Commonwealth and Development Office (FCDO) Select Committee during its inquiry. Canyon Bridge also corresponded with CFIUS about the Imagination acquisition in 2020.