A wrench in Texas group's plans to restructure

A judge's ruling that Ford Motor Credit Co. can reclaim vehicles worth up to $90 million from bankrupt Texas dealership group Reagor Dykes likely will torpedo the retailer's latest attempts to restructure.

The turnaround plan of the fast- growing and then quick-collapsing Reagor Dykes Auto Group had been met with skepticism by several parties involved in the retailer's Chapter 11 bankruptcy. Even before last week's ruling, the case had devolved into a back-and-forth fight between the Lubbock group and Ford Credit, its largest floorplan lender.

Judge Robert Jones sided with Ford Credit in the latest round.

"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,' " Jones wrote in his order.

The ruling means the parties can still try to reach an accord. But if Ford Credit wants to seize the vehicles in Reagor Dykes' inventory that it financed — estimated to be worth $60 million to $90 million — the retailer must cooperate. The vehicle seizure seems likely.

Ford Credit has sued Reagor Dykes, accusing it of one of the largest floorplan financing frauds in U.S. history. The two parties have traded blows in court documents, with Reagor Dykes this month seeming to implicate a Ford Credit employee in its downfall. The lender called that "slander" in its response.

"All the gloves are off now," Lubbock lawyer Fernando Bustos said after those filings and before the judge's ruling. Bustos represents Vista Bank, one of the creditors in the Chapter 11 case and a plaintiff in a separate lawsuit alleging a check-kiting scheme involving the retailer.

Six Reagor Dykes dealerships filed for Chapter 11 protection Aug. 1, and five others have done so since. The initial bankruptcy filing followed Ford Credit's July 31 lawsuit. It alleged Reagor Dykes was selling vehicles an average of 55 days before telling Ford Credit and repaying floorplan loans, a practice known as selling "out of trust." The lender said Reagor Dykes obtained advances under false pretenses and sold more than 1,100 vehicles without repaying $41 million advanced to fund their acquisition.

In its suit, Ford Credit said it is owed more than $112 million, a debt Jones noted in his order last week.

Reagor Dykes has sought to restructure and emerge from Chapter 11 with the help of a $20 million equity infusion from the newly created McDougal-Dykes-Ewing Group. The investment group, made up of Dallas-area dealer Fin Ewing, former Lubbock mayor and real estate investor Marc McDougal and current owner Rick Dykes, would own 90 percent of the new entity, and the other 10 percent would be placed in a trust for unsecured creditors. Secured creditors would be repaid as part of the reorganization, according to a Jan. 7 filing.

That rescue plan — which came after a court-approved bankruptcy sale failed in November — was filed just after Ford Credit's Jan. 4 request for relief from the automatic stay that halts creditors from action in a bankruptcy proceeding.

With the court now approving the motion for relief, Ford Credit can take back its vehicles, end all sales agreements with the dealership group and move on. It could effectively ensure the demise of Reagor Dykes, which argued in a Jan. 6 filing that Ford Credit was trying to take it into "fire-sale liquidation" and "obliterate" the retailer.

Jones acknowledged that argument in his ruling. Still, Reagor Dykes' hastily filed and "bare" proposal "does not satisfy the requirement of adequate protection," he wrote.

Lawyers for Reagor Dykes have not responded to multiple calls seeking comment. A Ford Credit spokeswoman said after Jones' ruling that the company would not comment beyond what's in court documents.

Ford Credit struck up a defense in one bizarre turn the case took this month.

In response to the lender's request for relief, Reagor Dykes said it had thus far refrained from seeking Ford Credit communications between Shane Smith, the dealership group's former CFO, and his "long-time friend" Gary Byrd, "nor have the Debtors attempted to understand why Mr. Byrd's son worked for Reagor-Dykes without the ownership group's knowledge and how much was earned by this relationship."

Reagor Dykes has blamed Smith for its financial woes. Byrd is the Ford Credit regional manager who said in an affidavit filed with the lender's lawsuit that an enraged Bart Reagor screamed at him and threatened to "shoot my f---ing ass" after discrepancies were found in floorplan audits last summer.

Why Byrd was brought in to the bankruptcy case is unclear.

Ford Credit called the mention "nothing short of a last-ditch effort to buy additional time" even though reorganization didn't appear to be a viable option.

"This all post-dates Bart Reagor [threatening] to shoot Gary Byrd," Ford Credit said. "Now Debtors make completely false and salacious statements to slander Gary Byrd (sic) reputation and attempt to tie him to Debtors' fraud."

The statements show Reagor Dykes is desperate, grasping at straws and cannot be trusted, Ford Credit said. The lender also noted that Byrd does not have a son.

In an amended filing, Reagor Dykes changed Byrd's "son" to read Preston Legere, identifying him as the boyfriend of Byrd's daughter. But Ford Credit said in its response that Byrd's daughter doesn't date Legere.

Even before last week's ruling, one suitor for the dealership group's assets was skeptical of the investor group's plan.

"I don't believe the deal they presented to the court ever gets done," said Ken Strickler, CEO of KamKad Automotive Group in Dallas.

KamKad was the designated "stalking horse bidder" in the bankruptcy sale, meaning it would set a low bid to get the auction rolling. But the auction didn't happen because Reagor Dykes never supplied KamKad necessary documents, such as an asset list and a rundown of its contracts, Strickler said.

After pulling an initial bid of $25.3 million, Strickler said KamKad was still prepared to pay $5.8 million for the Reagor Dykes business "as-is," meaning without due diligence or guaranteed vehicle inventory. It would give KamKad whatever assets the dealership group still had, such as parts, computers, even items collecting dust in back areas of buildings — a cache of old eight-track music tapes, for instance.

"There's still enterprise value," said Strickler, who was waiting to see what happens in court. He could not be reached after last week's ruling.

Bustos is also a skeptic.

"The plan proposes having Rick Dykes as a prominent one-third of this company," Bustos said ahead of the ruling. "Yet he was one-half of the ownership team that got this thing in the ditch."