PrimaLend Creditors Block Loan Payments to CEO-Controlled Firm

(Bloomberg) — Creditors of bankrupt auto dealership lender PrimaLend Capital Partners have won a temporary halt on monthly loan payments to a firm controlled by the company’s Chief Executive Mark Jensen.

Before the payments can continue, U.S. Bankruptcy Judge Mark Mullin said he must decide whether the Jensen-affiliated firm actually had a stake in some PrimaLend loans. Jensen argues that because his firm, BVY Partners II, paid $34 million for rights to participate in the loans, some of the cash should go to BVY when PrimaLend receives loan payments from its borrowers.

The official creditors’ committee in the bankruptcy case disputes BVY’s claims. A group of senior shareholders also questioned at least one BVY deal with PrimaLend, saying it was an insider transaction that should be investigated. Those noteholders told the judge they had “serious concerns” about PrimaLend’s Chapter 11 filing.

The company owes more than $286 million to creditors. A representative for BVY did not respond to a request for comment.

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Mullin has scheduled a hearing next month to decide whether the payments to BVY were legitimate. In court documents, PrimaLend said it pays its lending partners about $350,000 a month. PrimaLend sided with BVY, claiming that their agreement meant that payments belonged to BVY and that PrimaLend, as a traditional loan servicer, was merely collecting money from borrowers.

BVY is a non-bankrupt subsidiary of PrimaLend. In large corporate bankruptcy cases, creditors of a unit within a corporate family often oppose efforts to move money away from them and to a subsidiary.

PrimaLend filed for bankruptcy in October, stating that its troubles were due to the slowdown in car sales to customers with low credit scores. In July, the company appointed an independent administrator to oversee an investigation into potential lawsuits against insiders over how they ran the company before it filed for bankruptcy.

That investigation is ongoing, a company lawyer said at a hearing last month in Forth Worth, Texas. The company’s court filing stated that director Matthew Kahn was given the authority to oversee any decisions that might create a conflict of interest.

The case is PrimaLend Capital Partners, LP, 25-90013, U.S. Bankruptcy Court, North District of Texas (Dallas).

–With help from Eliza Ronalds-Hannon.

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