Bankrupt Auto Lender's Payments to CEO's Firm Temporarily Blocked
In a significant development for the ongoing bankruptcy case of auto-dealership lender PrimaLend Capital Partners, creditors have secured a temporary suspension of monthly loan payments to a firm controlled by the company's Chief Executive Officer Mark Jensen. The decision comes as the court examines whether these payments represent legitimate transactions or should be recovered for creditors.
Court Scrutinizes $34 Million Stake Claim
US Bankruptcy Judge Mark Mullin has ordered that payments to BVY Partners II, the Jensen-affiliated firm, cannot resume until he determines whether the company actually owns a stake in certain PrimaLend loans. BVY Partners II maintains that it paid $34 million for participation rights in the loans and is therefore entitled to receive portions of the payments that PrimaLend collects from its borrowers.
The official creditor committee in the insolvency case is actively challenging BVY's claims, while a group of senior noteholders has raised serious questions about at least one deal between BVY and PrimaLend. These noteholders have characterized the transaction as an insider deal that requires investigation and expressed what they described as "grave concerns" about PrimaLend's Chapter 11 filing.
Mounting Debt and Creditor Concerns
PrimaLend's financial troubles are substantial, with the company owing creditors more than $286 million. According to court documents, the company pays out approximately $350,000 per month to its lender partners, including BVY Partners II.
PrimaLend has taken BVY's side in the dispute, arguing that their agreement means BVY legally owns the payments and that PrimaLend simply acts as a traditional loan servicer collecting money from borrowers. However, BVY represents precisely the type of affiliate relationship that often faces scrutiny in major corporate bankruptcy cases, where creditors frequently challenge attempts to move money away from bankrupt entities to related companies.
Broader Implications and Ongoing Investigation
PrimaLend filed for bankruptcy protection in October, attributing its financial collapse to declining car sales to customers with poor credit. The company's troubles in the subprime auto lending sector reflect broader strains in consumer credit markets.
In a move that signals deeper corporate governance issues, the company appointed an independent manager in July to oversee an investigation into potential lawsuits that could be filed against insiders for their management of the company before the bankruptcy filing. Matthew Kahn, the independent manager, was granted authority to oversee any decisions that might pose conflicts of interest.
A company lawyer confirmed during a hearing last month in Fort Worth, Texas, that this investigation remains ongoing. Judge Mullin has scheduled a court hearing for next month to make a final determination on whether the payments to BVY Partners II should be permanently halted or allowed to continue.
The case, identified as PrimaLend Capital Partners, LP, 25-90013, continues in the US Bankruptcy Court, Northern District of Texas in Dallas.
