As auto parts empire falls, a money puzzle emerges
Creditor attempts to garnish payments from customers VW, Ford and Chrysler
DETROIT -- Revstone Industries LLC Chairman George Hofmeister is watching his auto parts empire crumble even as automakers continue to do business with the organization.
The company and its affiliates, which once posted $600 million in annual revenue, filed for Chapter 11 bankruptcy protection Dec. 3 after a county court in northern Michigan ordered the company to pay nearly $27 million owed to its largest creditor, Boston Finance Group LLC. But that is just the tip of the iceberg.
Revstone and Boston Finance had been embroiled in a lending dispute in the court for nearly a year, and Hofmeister and his companies have been shrouded in controversy over allegations of fraud and financial mismanagement from the U.S. Department of Labor.
Hofmeister is under a civil and criminal investigation by the federal government over allegedly raiding employee pension funds of $34.6 million to keep Revstone afloat and fund his expensive lifestyle, which includes a 2,000-acre, $40-million mansion and horse farm near Lexington, Ky.
The government and Boston Finance allege Hofmeister has played a shell game with assets for years in attempts not to pay creditors.
The government and Boston Finance allege Hofmeister has played a shell game with assets for years in attempts not to pay creditors. Hundreds of pages of current and past court documents reviewed by Crain's Detroit Business, an affiliate of Automotive News, unveil a complex web of companies controlled by irrevocable trusts and internal Revstone finance staff unaware of the flow and disbursement of company money.
The accountant turned industrialist and horse breeder remains chairman of what's left of his Revstone companies -- a small portion of the transportation division is not in bankruptcy, according to the company -- as U.S. bankruptcy court and government investigations play out.
Hofmeister declined to be interviewed, as did Myra Moreland, president of Revstone.
Revstone companies supply a wide variety of parts and components to automakers, including aluminum castings, braking components, die casting, tooling, drivetrain components, dampers, and stampings.
In a prepared statement, Revstone as a company declined to discuss the allegations against Hofmeister, but said several of its business units have near-term viability tied to automaker contracts unrelated to the bankruptcy.
In a statement to Crain's, Revstone said none of the allegations against Revstone Industries or Hofmeister affect the transportation division or its customers.
Revstone customers General Motors Co. and Chrysler Group LLC filed motions to be included in litigation updates in the Boston Finance case and in the bankruptcy.
Mike Palese, head of legal communications for Chrysler, said in an email that the automaker is involved only to keep abreast of the proceedings as a Revstone customer.
GM declined to comment.
Revstone said contracts with the automakers are intact.
"No contracts have been pulled," Revstone said in the statement. "In fact, we continue to quote new business and are currently launching major programs at Chrysler and GM and continue to supply critical parts on the highest volume vehicles at Chrysler, GM and Ford."
The company also defends the viability of its automotive holdings not tied to the bankruptcy. Revstone's non-bankrupt assets, part of its transportation group, include Contech Castings LLC; Metavation LLC; Texas Die Casting; and Mexico-based Eptec. They employ more than 1,000.
"These businesses were in bankruptcy/distress when purchased," it said in the emailed statement. "Turnarounds are never simple or easy, but the technologies at companies like Contech and Metavation are worth the fight for our employees, suppliers, customers and for the industry."
Since the early 2000s, Hofmeister has attempted to turn around several distressed companies he acquired to form Revstone.
But many suffered from bad supply contracts that made it difficult to generate a profit, two unnamed sources confirmed to Crain's in previous interviews.
Beginning in March 2010, Revstone and some of its holdings entered into six loans with Boston Finance. The loans included $4 million to Revstone companies U.S. Tool and Engineering LLC and $6 million to Spara LLC, among others. All the loans carried a 20 percent interest rate.
By January 2012, Revstone couldn't, or didn't, make its payments and was sued by Boston in Grand Traverse County Circuit Court in northern Michigan for failure to pay on $23.2 million in loans, plus late fees.
After defaulting on some of those loans, Revstone faced even higher interest rates of 25 percent to 226 percent. During the case, Revstone failed to meet court-ordered payment deadlines, according to Boston Finance motions, and objected to fees associated with the loans from Boston.
Revstone said it was the victim of predatory lending, and last April filed a claim against "outrageous" interest rates.
The motion got a denial and scant sympathy one week later from Grand Traverse Circuit Judge Philip Rodgers Jr., who noted that Revstone had the benefit of negotiating the loans with "the benefit of counsel" before he ordered the company to pay all loans and fees totaling $26.7 million.
"Was your client unable to do the math at the time that your client signed the loan? Or like a heroin addict, your client was so desperate for money he just agreed to this, even though the math was done?" Rodgers said in court, later adding, "or, your client suffers, perhaps, from an excess of optimism and went into a ridiculous loan transaction -- which people like Boston Finance like."
Revstone Industries immediately filed a motion for reconsideration, but it was denied.
More time in court
Last year got worse for Hofmeister, as the U.S. Department of Labor filed suit against Hofmeister and Revstone subsidiary Metavation LLC alleging $34.6 million in prohibited loans Hofmeister made from employee pension funds to companies within the Revstone organization.
According to the suit, filed Aug. 9 in U.S. District Court in Kentucky, Hofmeister, on behalf of the plans, also used pension assets to buy and lease property, buy customer notes and pay adviser fees, and allocate income and expense payments between the pension funds. The suit alleges the defendants engaged in prohibited use of about $12.1 million from the Hillsdale Salaried Pension Plan and about $22.5 million from the Hillsdale Hourly Pension Plan.
A criminal investigation was also launched by the U.S. government into Hofmeister's role, according to court records.
The new allegations put extra scrutiny on Revstone Industries from Boston Finance, which after months of unsatisfactory payment on the ruling in northern Michigan, began deposing various members of the Revstone organization, unraveling a complex ownership structure.
Boston Finance also sought to garnish payments from Revstone customers, including VW, Ford and Chrysler
On Aug. 29, Jan Owczarzak, corporate controller for Revstone Industries, was deposed and verified a complex corporate structure.
Some of the details of Hofmeister's intertwining of assets were detailed over the course of a 2001 contract dispute -- which is ongoing.
In that dispute, a judge concluded that Hofmeister had drained assets from the trusts to avoid paying a $1.2 million judgment. However, Hofmeister's lawyers continue to file appeals to the decision.
Operations being sold?
Meanwhile, Revstone Transportation is in talks to sell Metavation LLC and a Contech plant, the company confirmed.
Metavation is a sole supplier of certain engine and brake assemblies for unnamed GM vehicles, the company said in an Oct. 22 filing in the northern Michigan court.
Revstone confirmed the Metavation sales are roughly $100 million.
The company said Contech is Revstone's focus moving forward and expected to generated revenue of $122 million in 2012.
Creditors are objecting to both proposed sales.
More litigation in multiple courts is expected.
Scott Eisenberg, managing partner at suburban Detroit turnaround firm Amherst Partners LLC, said Revstone was always in danger of struggling.
He said: "They've built the business by buying troubled assets, and they've always been highly leveraged, and that's a challenging formula."
For a more complete story on Revstone published by Crain's Detroit Business this week, click here.