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Judge: Ford Credit may repossess Reagor-Dykes vehicles

U.S. Bankruptcy Judge Robert Jones ruled Thursday Ford Motor Credit is due relief from an automatic stay, compelling Reagor-Dykes Auto Group to comply with Ford Credit repossessing its collateral -- that is, vehicles financed by Ford Motor Credit. (KVII File Photo)

U.S. Bankruptcy Judge Robert Jones ruled Thursday Ford Motor Credit is due relief from an automatic stay, compelling Reagor-Dykes Auto Group to comply with Ford Credit repossessing its collateral -- that is, vehicles financed by Ford Motor Credit. The court indicated the parties can still reach an accord despite this order, but if Ford Credit proceeds with repossession, the creditor must identify every vehicle's make, model, year, whether it is new or used, and the vehicle's identification number.

The court waived a 14-day stay, allowing Ford Credit to proceed immediately.

In his ruling, Judge Jones outlined the bankruptcy procedures thus far, including Ford Credit's six extensions of cash collateral funds, the failure of a sale process, and the reorganization plan sponsor "McDougal-Dykes-Ewing Group" and its $8 million payment to Ford Credit. Specific to that, Judge Jones indicated the group's solution provides no provision for exit financing under a new floorplan loan conditioned on Ford Credit's approval. Judge Jones wrote this deal required Ford Credit to release Rick Dykes and Bart Reagor from further liability; Ford Credit's counsel rejected that proposal and asked the court remove Ford Credit from Reagor-Dykes's automatic stay from relief.

A new reorganization plan was submitted January 7. The Judge wrote this plan is similar to the "global solution" (the McDougal-Dykes-Ewing Group plan), but with significant differences; it states Reagor-Dykes disputes Ford Credit's claims. This plan would also allow the secured portion of Reagor-Dykes's debt be satisfied through surrender of the collateral or payment in full; the unsecured portion would share proportionally through litigation proceeds. The Judge indicated this highlights the McDougal-Dykes-Ewing Group's contribution of $20 million, but it does not require Ford Credit release Rick Dykes and Bart Reagor.

"... the plan states that $3 million will be allocated to reimburse retail lenders that pay outstanding TT&L claims ... and liens on trade-ins. (The issue of unpaid TT&L and trade-in debt has plagued the case from the outset.)

Judge Jones ruled Reagor-Dykes's inventory is much less than the $112 million the auto group owes to Ford Credit alone; he cites a witness that testifies the vehicle inventory is only worth between $60 million and $70 million -- Reagor-Dykes scheduled the value at about $90 million. Both Ford Credit and Reagor-Dykes agree the value is constantly depreciating, perhaps a percent or two a month.

"Ford Credit is not being provided, and has not been offered, any form of adequate protection-- not periodic cash payments, no additional collateral, and no other form of relief that would give Ford Credit the indubitable equivalent of its interest."

The judge ruled, while the vehicles are necessary for an auto dealership to effectively reorganize, there is not a reasonable possibility of a successful reorganization within a reasonable time. Judge Jones finds Reagor-Dykes's plan is contingent on issues that "frankly, make or break the viability of the plan." He cited no prospective lenders to finance its floorplans, and writes Reagor-Dykes has not offered any evidence the McDougal-Dykes-Ewing Group can provide the $20 million capital investment included in the plan.

Judge Jones ruled a "bare proposal is not sufficient" evidence that a plan is in prospect-- crucial to chapter 11 proceedings and their automatic stays from relief.

Given Reagor-Dykes's track record during this case -- the chaos at filing and the extraordinary loss of employees, the lack of capital, the multiple extensions for filing schedules, the changing of counsel, the "pivots" from one concept to another for a plan -- the Court concludes that Reagor-Dykes does not have a "reasonable possibility of a successful reorganization within a reasonable time."

The judge cited Ford Credit's finding that Reagor-Dykes sold 1,100 vehicles "out of trust" worth about $40 million, and those cars and trucks are now gone. "And with this," Judge Jones wrote, "it has hundreds of sales on which the TT&L fees and trade-in liens went unpaid."

"These cases need," the judge ruled, "and perhaps unrealistically so, a prompt resolution. The deferral of attorney's fees and rents and the incurrence of debt post-filing are driving-up administrative expenses. Sufficient cause exists to warrant relief."

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