The Rundown

• Sale of Telesis stake could come by the end of2012.
• Oregon company said NCUA should look at more experiencedbidders.
• NCUA seeks options that pose least risk to insurance fund,consultant says.

Nearly three months after the NCUA was appointed the liquidatingagent for Telesis Community Credit Union, the agency has beenworking behind the scenes to divest the cooperative's roughly $4million stake in Autoland Inc., an auto buying CUSO.

Since June 1, the date that Telesis of Chatsworth, Calif., wasliquidated and its assets purchased by the $1.3 billion PremierAmerica Credit Union, also in Chatsworth, a number of entitiesinitially expressed interest in Autoland, said John Fairbanks, NCUApublic affairs specialist.

The list has since been reduced to a few final serious bidders,Fairbanks said. Price and terms continue to be negotiated in orderto ascertain the final bidder and value received, he added.

“Liquidation of a business entity presents unique challenges,”Fairbanks said. “NCUA has embarked upon a process that balances theinterests of all involved while at the same time obtain fair valueto the liquidating estate.”

The NCUA said it is hoping to finalize a sale prior to the endof the year. Meanwhile, Autolandcontinues to conduct business as usual.

Formed in 1971, Autoland became a credit union-owned entity in2007 through Telesis and two other California cooperatives, the $3 billionKinecta Federal Credit Union in Manhattan Beach and the $29 millionCalifornia Agribusiness Credit Union in Buena Park, through CUVehicles LLC, a holding company owned by the credit unions.

At the time of liquidation, Telesis served approximately 37,600members and had $301.3 million in assets. On June 1, Premier America purchased and assumed Telesis' members,deposits, core facilities and consumer loans.

The most current financials showed that Telesis had a $3.8million investment in CU Vehicles, an aggregate cash outlay of$12.5 million and a $2.3 million loan to Autoland.

As the NCUA moves forward with the sale of Telesis' stake inAutoland, at least one company has expressed strong interest inacquiring those assets as it seeks to build a presence inCalifornia.

Auto Solution Inc., a vehicle brokerage firm that it said workswith more than 300 credit unions in Oregon, Washington and theNorthwest, contacted the NCUA shortly after Telesis was liquidatedto request information on the potential bidding process forAutoland, said Mark Loebner, owner of ASI.

He said he was told that only credit unions and CUSOs may bid onAutoland and those are the only ones who are eligible to receive abidding package. A representative with the NCUA's Asset ManagementAssistance Center said ASI could not bid because it is a competitorto Autoland, Loebner said.

The AMAC conducts credit union liquidations and performsmanagement and recovery of assets. The office also assists theNCUA's regional offices with the review of complex loan portfoliosactual or potential bond claims, conservatorships and recordsreconstruction.

“The lady at the AMAC said 'no,' the packets are only offered tocredit unions, which seemed strange to me,” Loebner told CreditUnion Times. “I thought I was uniquely suited to run Autolandgiven that I've been in this type of business for 20 years.”

Loebner didn't stop his pursuit. He asked a credit unioncolleague to ask the AMAC for a bidding package. The credit unionsigned a nondisclosure agreement but was not given a biddingpackage, Loebner said. When his multiple requests for anexplanation on why the credit union was not given the informationwent unanswered, Loebner contacted Lawrence Reichman, an attorneywith Perkins Coie LLP in Portland, Ore.

Despite a series of emails, faxes, letters and phone calls,neither Reichman or Loebner were able to get any additionalinformation on why the credit union colleague was not given abidding package and why the AMAC would not consider other biddersbesides credit unions or CUSOs.

“As Telesis' experience shows, credit unions and CUSOs may notbe in the best position to operate an auto brokerage service andthus, may not fairly value the operation,” Reichman wrote in a July13 letter to NCUA General Counsel Michael McKenna, provided toCredit Union Times by Loebner.

Reichman said if a credit union or CUSO were to acquire theoperation, there is a significant risk they will not operate itprofitably, which could ultimately threaten the stability of thecredit union. At the very least, the NCUA should open up thebidding process to ensure that the best value is received forAutoland, Reichman said.

The NCUA did not respond to questions about ASI's requests, itsbidding process or which entities had placed bids.

In the end, it is unlikely that the NCUA will seek bidders otherthan credit unions or CUSOs, said Steve Sala, principal with SFE Advisors, a consulting firm thatdoes workouts, counsels senior management through execution ofcorrective action orders and serves as a third-party loan reviewfunction for credit unions and banks.

“The NCUA clearly serves the credit union industry,” Sala said.“If at all possible, it will find an option that allows theoperation to remain connected with credit unions.”

Sala said in the case of Telesis' stake in BusinessPartners LLC, a business lending CUSO founded by the creditunion, the NCUA most likely asked Premier America and the CUSO'scredit union partners if they were interested but received notakers.

“The thing you have to always remember is the NCUA's job is tominimize the cost to the insurance fund,” Sala said. “When theyevaluate all their options, they will figure out which option willpose the lease risk to the insurance fund.”

The NCUA may go as far as dissolving Telesis' investment inAutoland or even explore having a note sale for the entireportfolio, Sala said.

“They're not in the business of running things like this,” heexplained. “When appropriate and at such a time that it turns outthey have found an exit, they will use the appropriate exitstrategy.”

Meanwhile, Loebner said the NCUA's bidding process needs to bere-examined. For some additional guidance, he even contacted Rep.Suzanne Bonamici (D-Ore.).

“ Loebner has brought this matter to the attention of hiscongressional representative because it appears that a federalgovernment agency is not appropriately performing its duties,”Reichman said.

Loebner is convinced that the NCUA is trying to rush the sale ofTelesis' stake in Autoland. He said he was told that the AMAC wantsto finalize the transaction by September.

“I'm not trying to ruffle feathers,” he said. “It's just that ifsomeone is offering fair value, it should be worth more to someonewho knows how to run this type of business.”