Assets of the troubled Reagor Dykes Auto Group dealerships in west Texas could be sold in November despite objections of three automakers or their affiliates whose brands are sold by the stores.
At a hearing last week, a judge in U.S. Bankruptcy Court for the Northern District of Texas approved a timeline that includes a potential auction date of Nov. 15 but also directs the parties to try to settle their disagreements before the sale.
A sale would mark a crucial chapter in what has been a dizzying downfall for Reagor Dykes, which filed for Chapter 11 bankruptcy protection Aug. 1 after a Ford Motor Credit Co. lawsuit accused the group of failing to properly repay floorplan loans.
All told, more than $41 million is allegedly due to Ford Credit now, but the dealerships have an outstanding balance of more than $116 million, according to court documents.
With regard to the proposed asset sale, distributor Gulf States Toyota Inc., Ford Credit and General Motors filed objections with the court leading up to last week's hearing. While reasons for the objections varied, the overall sentiment was that the companies had agreements with Reagor Dykes stores and should have a say in their sale.
The Chapter 11 procedure otherwise appears set to have KamKad Automotive Group, a relatively small dealership group with two Fiat and Alfa Romeo stores in the Dallas area and a Hyundai store near Houston, set a beginning bid for purchase of the stores.
In court documents, the beginning purchase price was put at just more than $25.3 million, but that amount includes "assumption of certain liabilities" and the payoff of a yet-undetermined amount owed to Ford Credit for vehicles subject to its floorplan liens. So any sale price would likely be much higher.
At the hearing last week, Robert Schleizer, a managing partner at BlackBriar Advisors who has been named chief restructuring officer for Reagor Dykes, put the value of the group's assets at more than $100 million.
In response to the objections filed by the automakers or affiliates, a court order directs the debtors and franchisers to resolve the objections and submit an agreement for the court's review. If such an agreement can't be reached, a hearing will be held Oct. 5.
Otherwise, a bid deadline for relevant Reagor Dykes assets has been set for 4 p.m. Central Standard Time on Nov. 12. If necessary, an auction will be held Nov. 15. A sale hearing, to approve and authorize the transaction, has been set for Nov. 29.
It's unclear whether any Reagor Dykes dealerships are still operating. Calls to several last week went unanswered, and sources say skeleton crews are on hand at the stores.
As of this spring, Reagor Dykes Auto Group, of Lubbock, Texas, had 12 used-only rooftops in addition to its nine franchised dealerships selling Buick, Cadillac, Chevrolet, Ford, GMC, Lincoln, Mitsubishi and Toyota vehicles.
The group ranks No. 131 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 6,718 new vehicles in 2017. It ranks No. 70 on Automotive News' list of the top 100 groups based on used-vehicle sales, with retail sales of 10,123 used vehicles in 2017. It did not make either list the prior year.
The bankruptcy filing came after an audit by Ford Credit allegedly found 147 of 150 vehicles sold by some of the group's dealerships were sold, on average, 55 days before the dealerships paid off floorplan loans vs. the seven processing days allowed by contract. In industry parlance, it means they were selling the vehicles "out of trust."
A July 31 lawsuit filed by Ford Credit made those allegations against several of the Reagor Dykes dealerships as well as owners Rick Dykes and Bart Reagor. The lawsuit also says Ford Credit's audit identified 15 cases in which the dealerships sold a vehicle and then, after it was sold, floorplanned that vehicle with Ford Credit even though it was no longer in inventory.
In a response filed on behalf of Rick Dykes Sept. 13, the dealer partner blamed the group's now-former CFO of 11 years, Shane Smith.
Sally Henry, a lawyer specializing in bankruptcy law, said she has never seen anything like this case.
"I just haven't seen one with allegations of this magnitude," said Henry, a law professor at Texas Tech University in Lubbock.
Dealers have sold vehicles out of trust "for as long as there's been an auto industry," she said. It happens when the dealerships get in a financial squeeze, but retailers in good faith try to limit out-of-trust sales.
In contrast, the alleged amount owed to Ford Credit in this case is unusually high, she said.
"That's a huge amount, particularly when you're talking about an entity that is basically a group of local businesses," Henry said.
In Lubbock and beyond, Reagor Dykes had established itself as a community-minded group with more than 700 employees in west Texas. It sponsored the closing fireworks display at Lubbock's 4th on Broadway celebration each of the last two Julys, publicizing the event on its websites. It also sponsored the Lubbock Arts Festival the last two years and had made a $1 million pledge to the Buddy Holly Hall of Performing Arts, which is under construction.
James B. Treece contributed to this report.