CENTENNIAL, Colo. - Centrix Financial LLC, the subprime loan processor to credit unions here announced that it would sell its operations to a group of inside investors, allaying rampant rumors that it would file for bankruptcy.
Centrix said it reached a Memorandum of Understanding with a group that includes CEO Robert E. Sutton, its principal equity holder, chairman and CEO, Falcon Investment Advisors, LLC, a Boston/New York based private equity investment firm and Everest Reinsurance Holdings, Inc., a publicly held insurance company headquartered in New Jersey. The sales agreement is subject to "documentation of all elements of a definitive agreement" and is scheduled to be completed by the end of November 2006, according to a statement released by Centrix.
"I've got to hand it to Sutton, he seems to have pulled a rabbit out of his hat," said Denver Post columnist Al Lewis, who has written about the troubled company. "I've had sources in the company tell me they were only weeks away from filing for bankruptcy."
The company will continue the servicing of third-party loans to credit unions and intends to expand its portfolio following the completion of the sale. That may prove difficult, given that the company lost a valuable income stream when the NCUA issued a warning letter to credit unions last year about such loans, telling credit unions they must show that they have performed their own due diligence on these loans and not simply relied on the third party's monitoring. The company has also reduced its employee ranks from a high of 1,500 to a now-low 500.
A Raft Of Pending Lawsuits
Besides the obstacle of having to reestablish and reposition itself to take in new credit union business, Centrix also faces a raft of pending lawsuits. In June, a group of investors filed suit in the District Court of Arapahoe County, charging the company with fraud, claiming that Sutton concealed financial information and created subsidiaries to conceal Centrix' revenue growth, then transferred monies among them. The suit also alleges that Sutton gave himself $5 million in 2004 to cover personal income taxes.
Centrix General Counsel Michael Connolly denied the allegations, stating that the company would defend itself vigorously. Centrix vice president of communication Lauren Baker did not return calls or email from The Credit Union Journal at press time.
The company's press release listed a contact email and phone number for Marv Rockford of Rockford-Gray for inquiries concerning Mr. Sutton, but that number was no longer in service and email was not answered.
Breach Of Contract
Besides the investor lawsuit, Centrix is also being sued by an office equipment leasing company, National City Vendor Finance, for $530,280, alleging a breach of contract.
A former employee, Thomas Bollum, a well-known figure in the credit union industry (who later worked for Digital Insight) is suing for $1 million in unpaid severance pay. (Attempts to reach Mr. Bollum at press time were not successful.)
Several car dealerships are also seeking payment of unpaid bills.
Centrix has now cancelled its sponsorship of the Denver Grand Prix auto race, which Sutton owns.
