Destructive weather in 2017 is at the root of a South Florida subprime auto lender's Chapter 11 bankruptcy filing for at least the second time this year.
Eight months after Plantation, Fla.-based Summit Financial Corp. sought protection from its creditors following what it claimed as a large number of defaults following Hurricane Irma, Miami Lakes, Fla.-based National Auto Lenders Inc. took similar action Nov. 23. The company claimed that financial woes stemming from Irma and Hurricane Harvey led to defaults of certain provisions of its secured financing facility on which nearly $36.3 million in aggregate principal amount is outstanding.
National Auto Lenders COO and CFO Dania Ramos-Infante declared in a filing with the U.S. Bankruptcy Court for the Southern District of Florida that the company incurred a $2.9 million operating loss in 2017 as Irma and Harvey hit markets accounting for about 60% of its then-outstanding loans. Lenders Wells Fargo Bank NA and BankUnited NA served notice to the company in November 2017 of a failure to comply with the loan documents' EBITDA and tangible net worth requirements. The parties were unable to work out a forbearance agreement by the facility's July 31 maturity date, leading National Auto Lenders to seek bankruptcy protection in an attempt to preserve the going-concern value of its business.
The company, which partners with dealers to lend on an indirect basis, including to borrowers with no minimum credit score, recorded net income averaging more than $1 million between 2011 and 2016 before encountering the hurricane-related challenges in 2017.
Ramos-Infante alleged that the company had never been in monetary default of its obligations because it had "timely paid all principal and interest required by the Loan Documents" and had paid the lenders $14.1 million since September 2017. She also claimed that the lenders did not permit the company to borrow money after that time and that they later boosted the interest rate on the facility "by 500 basis points to more than 11%."
The Wells Fargo & Co. subsidiary, however, denied in a subsequent court filing that there had not been a monetary default, calling National Auto Lenders' statement on its payment history "unfounded." It also alleged that National Auto Lenders "did not provide the Lenders with any advance notice" of the Chapter 11 filing nor of an associated motion to utilize the cash collateral securing its obligations under the facility. Wells Fargo submitted a limited objection to that motion, which it later withdrew.
In the objection, the bank said it had not received "any analysis" supporting the company's contention that the lenders enjoyed a cushion of 60% between the amount they are owed. The value of the cash collateral is "not remotely close" to that size, Wells Fargo wrote.
Ramos-Infante said that National Auto Lenders's portfolio consists of 4,323 loans with $86.5 million in gross outstanding principal and interest. It owns repossessed vehicles with an aggregate carrying value of nearly $5 million.
Summit Financial, meanwhile, has initiated a process to sell its loan portfolio through a court-supervised auction. The company had $129.6 million in receivables at the time of its bankruptcy filing, not including $5.8 million in loans that were at least 90 days past due. It owed secured lenders Bank of America Corp. and Bank of Montreal's BMO Harris Bank NA $71.2 million and $30.5 million, respectively.
Those creditors disputed the company's account of the circumstances leading up to the Chapter 11 filing, accusing Summit Financial of making material financial misstatements regarding the payment status of loans on certain repossessed vehicles. Summit Financial acknowledged some misreporting by a former employee but primarily pointed to fallout from Irma for its financial challenges.
Summit Financial closed for a 10-day stretch after the storm, and the company claimed that its borrowers, many of whom are road and infrastructure workers, struggled to stay current on their loans under challenging circumstances.
"[M]ajor roadways and interstates were either closed or were not readily passable, power outages lasted for days, and in some locations, weeks, and individuals, including, of course, the thousands of borrowers of loans issued by the Debtor, were prevented from working in the ordinary course and ultimately making their timely payments to the Debtor," Summit Financial wrote.
The latest Chapter 11 petition provides additional confirmation that the problems were not isolated to a single subprime lender, though they were not pervasive. Among larger competitors, Santander Consumer USA Holdings Inc. posted $53 million in reserves in the third quarter of 2017 for customers affected by Irma or Harvey, but General Motors Financial Co. Inc. reported minimal impact on its credit statistics from the storms.