GPB Capital Holdings Automotive LP released an SEC Form 10 yesterday. The form opens by citing the ongoing litigation against, and criminal indictment of, the “General Partner” (Scientologist David Gentile) and his former principal officer (Jeffry Schneider) and the devastating possible fallout from this:
We and the General Partner are involved in material litigation arising from the operations of the Partnership. The owner and former principal officer of the General Partner was indicted for, among other charges, securities fraud on February 4, 2021, and a monitor was appointed by a US District Court to oversee our operations. As a result, we and our dealerships are subject to litigation risks relating to the automotive retail business operations which could lead to manufacturer terminations of our rights to operate dealerships selling their vehicle brands, lenders terminating or adversely modifying our financing arrangements, other vendors terminating or adversely modifying business relationships, loss of employees and other adverse results. Resolving litigation disputes can be costly and time consuming.
The first bullet point on page 3 contains a devastating admission:
We have determined that there is substantial doubt as to our ability to continue as a going concern, due to the expiration of the facility for the majority of our dealerships within 12 months, as well as certain other factors. Our inability to extend the maturity of our credit facility, or replace the credit facility, prior to its maturity in February 2022 would materially adversely affect our financial condition, results of operations, cash flows and business operations.
Page 80 elaborates on what appears to be the looming insolvency of GPB’s Automotive Fund:
Management has determined that the following factors exist that raise substantial doubt about the Partnership’s ability to continue as a going concern:
• As of December 31, 2020, the Partnership and its subsidiaries had total cash and restricted cash of $135.4 million, of which $3.5 million was held directly by and available to satisfy general obligations of the Partnership. Included in total cash on hand is $26.9 million held by certain subsidiaries of the Partnership that is available for use and upstreaming without restriction. The balance of $105.0 million was held by GPB Prime (the Partnership’s largest subsidiary) and is restricted to use and upstreaming to the Partnership pursuant to restrictions imposed by its lender. At December 31, 2020, obligations of the Partnership and its subsidiaries, excluding GPB Prime, due within one year exceeded its available cash on hand. As such, the Partnership does not believe that cash on hand and cash flow generated internally will be adequate to repay its liabilities arising from normal business operations when they come due, unless it obtains additional sources of financing.
• The Partnership relies on its ability to upstream funds from its operating subsidiaries to meet its obligations in the normal course of business and also to allocate to other subsidiaries in need. The Partnership and GPB Prime are party to financing agreements with M&T Bank as part of an eight-member credit syndication (the M&T Credit Agreement). Borrowings under the M&T Credit Agreement are available for the purposes of financing the purchase of new, used and loaner vehicles, and for providing operational liquidity in the form of mortgages and term debt. Amendments to the M&T Credit Agreement dated September 21, 2018 and June 14, 2019 restricted GPB Prime’s ability to pay distributions, make additional requests for delayed draw loans, make any additional acquisitions (other than those already in process at that date) greater than $2.0 million, or to make any distribution to the Partnership as well as pay any put, redemption, or equity recapture options or agreements to any person. Our ability to meet our obligations over the shorter and longer term is dependent upon freeing up the restrictions that currently do not allow the upstreaming of funds from certain of our operating subsidiaries and negotiating extensions or replacement of our subsidiaries’ financing arrangements.
• GPB Prime’s M&T Credit Agreement expires and becomes fully due and payable in February 2022. Management and GPB Prime are currently in discussion with third party lenders to meet some or all of its short term and longer term liquidity needs including negotiating in good faith with M&T Bank to extend or renew the expiring Credit Agreement. The Partnership has implemented additional measures to address these factors including but not limited to the sale of real estate assets held by subsidiaries other than GPB Prime and the deferral of management fees payable to the General Partner by the Partnership. However, there can be no assurance that the Partnership and/or GPB Prime will be able to obtain sufficient additional liquidity or renew its debt on terms acceptable to them or us. See also “Footnote 17. Commitments and Contingencies” for discussion of the role of the Monitor with respect to the Partnership’s use of cash as well as indemnification obligations to GPB.
There are other blockbuster statements, admissions actually, in the Form 10:
Our strategy depends upon on substantial capital and we may not have access to consistent financing sources on favorable terms.
Our Limited Partners may not receive distributions and our distributions may not grow over time.
• Expenses related to GPB and Highline are significant. We need to make substantial profits to avoid depletion of our assets and provide a return to our Limited Partners.
• There are potential conflicts of interest between GPB and its affiliates and the Partnership that could impact our returns.
• Limited Partners may be subject to filing requirements and may be subject to short-swing profits under the Exchange Act as a result of an investment in us. It can be burdensome to comply with filing requirements.
• We will expend significant financial and other resources to comply with the requirements of being a public entity. These requirements may place a strain on our systems and resources.
• We have concluded that there are pervasive material weaknesses in our system of internal control over financial reporting, which if not remediated could materially and adversely affect our ability to timely and accurately report our results of operations and financial condition.
The compensation table for Highline Management, the so-called operating arm of GPB responsible for day to day operations, shows the key players running that part of the GPB Capital structure. These executives are long-time GPB Capital executives reassigned to Highline Management, the so-called operating arm of GPB:
There is a significant amount of detail in this report that will be of interest to those following the developments at GPB Capital. The role of Scientologist David Gentile and other Scientologists in the GPB Capital structure remain a subject of focus for this blog. Likewise, Mike Frost and his his “Austin Lake Technologies” also remain an area of focus.
We will offer further comments in future blog posts. Here is the Form 10:
Categories: The Scientology Money Project