(Bloomberg) — Creditors of bankrupt auto-dealership lender PrimaLend Capital Partners won a temporary halt of monthly loan payments to a firm controlled by the company’s Chief Executive Officer Mark Jensen.
Before the payments can resume, US Bankruptcy Judge Mark Mullin said he must decide if the Jensen-affiliated firm actually owns a stake in some PrimaLend loans. The Jensen firm, BVY Partners II, argues that since it paid $34 million for participation rights in the loans, whenever PrimaLend collects loan payments from its borrowers, part of the cash must go to BVY.
An official creditor committee in the insolvency case is challenging BVY’s claims. A group of senior noteholders has also questioned at least one BVY deal with PrimaLend, calling it an insider transaction that must be investigated. Those noteholders have told the judge that they had “grave concerns” about PrimaLend’s Chapter 11 filing.
The company owes creditors more than $286 million. A representative for BVY did not return a request for comment.
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Mullin scheduled a court hearing for next month to decide whether the payments to BVY are legitimate. In court papers, PrimaLend said it pays out about $350,000 a month to its lender partners. PrimaLend has sided with BVY, claiming that their deal means BVY owns the payments and that PrimaLend is merely collecting money from borrowers as a traditional loan servicer.
BVY is an affiliate of PrimaLend that was not placed into bankruptcy. In big, corporate bankruptcy cases, creditors of one unit in a corporate family often challenge any effort to move money away from them to an affiliate.
PrimaLend filed bankruptcy in October, blaming its troubles on slowing car sales to customers with poor credit. In July, the company installed an independent manager to oversee an investigation of potential lawsuits that could be filed against insiders for how they ran the company before it filed its insolvency case.
That probe is continuing, a company lawyer said during a hearing last month in Forth Worth, Texas. The manager, Matthew Kahn, was given authority to oversee any decisions that might pose a conflict of interest, the company said in a court filing.
The case is PrimaLend Capital Partners, LP, 25-90013, US Bankruptcy Court, Northern District of Texas (Dallas).
–With assistance from Eliza Ronalds-Hannon.
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