Centrix Gets Court Approval to Begin Sale Process
DENVER -- Centrix Financial, the beleaguered subprime lender owing millions to credit unions, won clearance from a U.S. bankruptcy judge last week to begin the process for selling the company to an East Coast investment/insurance group. That group includes Centrix CEO Robert Sutton, but bidding procedures could bring in other suitors in the interim.
That was the word from attorneys for a creditor group representing scores of CUs, both big and small, which have Centrix loans in their portfolios and many of which have been represented by Denver, Chicago and New York counsel at proceedings in the Denver court.
Following two days of hearings on schedules and timetables for Centrix' Chapter 11 reorganization petition, U.S. Bankruptcy Judge Elizabeth Brown approved Jan. 11-12 as the auction dates on Centrix' servicing assets, but all parties in the case can file objections to the sale before then with new buyers possibly surfacing.
For its part, Centrix said Judge Brown's latest order was a "positive step" for the firm, which said in its Sept. 19 bankruptcy filing it seeks to sell the company to senior lender Falcon Investment Advisers of Boston; Everest Reinsurance Holdings Inc. of Liberty Center, N.J.; and CEO Sutton.
More than 150 credit unions have filed claims against the third-party auto lender. Centrix continues to service a portfolio of $1.9 billion, a large part held by 230 CUs.
For months, the Centrix bankruptcy filing has been watched closely by CEOs, their lending staffs as well as regulators to gauge whether CU losses might climb, perhaps causing more financial trouble to individual CUs as a result of servicing interruptions while a buyer is sought.
Underscoring the interest in the case, dozens of CU attorneys, in many cases accompanied by senior CU staff, packed a courtroom for Judge Brown's hearing as well as a previously scheduled meeting of the Unsecured Creditors Group which includes three CUs picked by the court and the U.S. Trustee.
They are Velocity Credit Union of Austin, Security Service Federal Credit Union of San Antonio and Credit Union 1 of Rantoul, Ill.
During the Oct. 30 hearing in which the urgency of dealing with Centrix' problems and the sale process was stressed, Centrix was described by attorneys for both the Denver firm and the creditors group as a "melting ice cube."
The lead creditors group is headed by attorney Michael Richman of Foley & Lardner of New York with Centrix represented by Craig Hansen, a Phoenix partner in Square Sanders & Dempsey.
In an earlier ruling dealing with Centrix' current operations, Judge Brown did side with Centrix by stating, "The court does not tell debtors how to conduct their business and cannot compel parties to conform to the ordinary course of business" following a motion from a separate creditor group which filed an involuntary petition against Centrix a few days before the Sept. 19 filing.
Meanwhile, state leagues that have CUs with Centrix exposure were working diligently to keep communication lines open with e-mails and meetings to apprise members of developments in the case and share ideas on how to cope with the servicing impact and potential losses.
"Yes, we had a meeting of affected credit unions last Thursday in league offices to review all the contingencies," said Carl Sorgatz, chairman of the Illinois Credit Union League and president/CEO of Hawthorne Credit Union of Naperville, Ill.
The Texas Credit Union League said it also sent out e-mails to its members to keep them informed. Texas has some 20 CUs with Centrix exposure.
"Our goal is to keep on top of something like this to help our credit unions cooperate with the courts and minimize risk," said a spokesman. "Any time you have a bankruptcy, members want to learn as much as they can." --firstname.lastname@example.org