The Collectibles (5 page)

T
he limo driver dropped Preston Wilson and Casey Fitzgerald, his chief financial officer, on the south side of 1575 Broadway. They passed by the green marble walls and floor into the spacious elevator and up to the thirty-eighth floor. The elevator door opened directly into the venerable law firm of Whitcock, Stevenson, Brookfield, Berry and Brown.

Preston stormed into the reception area, General Patton in a pin-striped suit. Casey waddled behind. The receptionist, apparently used to clients under stress, quietly called Andrew Brookfield, a senior partner heading the firm's fixed assets commercial group. At the same time she directed Preston and Casey to the waiting area: an antique sofa accented by a table with an assortment of neatly stacked financial magazines, softly lighted by brass and leather lamps. As he waited on the sofa, Preston bobbed his knees up and down while he noisily flipped through the pages of
Fortune 500.
Casey studied two bound financial reports.

Brookfield was the attorney supervising Wilson Holdings, Inc., the parent company of Preston's vast new and used car network. Under various names and in various locations, including Atlanta Motors, San Francisco Autoplaza, East Bay Porsche & Audi, Manhattan Mercedes, Charlottetown Motors, and Houston Automax, Wilson Holdings was one of the largest multi-state mega-dealers in the country.

Preston threw the magazine back on the table and thought about making calls on his cell phone, but the hushed atmosphere discouraged him. The only reason Preston was sitting here was the urgency of Mr. Brookfield's tone in calling the meeting.

Preston hated the way Casey looked, but there was no man he trusted more with his money. Casey's horn-rimmed glasses with thick lenses fell down his reddish, bulbous nose. Thin blond hair stuck out from underneath his khaki hat. He wore a rumpled, gray three-buttoned suit. The buttons on the vest struggled to contain his shirt, red-and-blue striped tie, and massive belly. Over his suit he wore a khaki raincoat, even though the skies were clear that morning.

It was Casey's sharp eye that had picked up the too-good-to-be-true numbers on the operating statements of San Francisco Autoplaza; his shrewd questioning and persistence that uncovered the general manager's attempt to hide the capital losses.

The silence was interrupted by an older woman who asked them to follow her to Mr. Brookfield's corner office.

“Good morning, Preston, Casey. Glad you could make it. Would you like coffee, tea?” He came around his large cherry desk and offered his hand. Andrew Brookfield was six feet, one inch tall, on the slight side, and wore thin, gold-framed glasses in front of intelligent if darting blue eyes. Except for his thin, gray hair he carried his sixty-four years well, leaving one with the impression that his experiences at Harvard and later with the United States Commerce Department, followed by the Securities and Exchange Commission, were all taken in stride.

“No, thank you, Andrew,” Preston said. “Can we sit at your table in the corner?”

“Of course, please,” Andrew said as he gestured, picked up a yellow pad, carefully selected one of his three fountain pens from the inside of his suit jacket pocket, and strolled to the corner where they sat on comfortable straight chairs with high backs, gathered around a small, round marble table. Casey took a yellow pad from his briefcase and prepared to record every word that Andrew said at his billable rate of $680 per hour. “Well, Andrew, have you taken Wilson's temperature?” Preston asked.

“Yes, several times,” Andrew replied.

“Let's have it,” Preston said, looking at Casey, who was studying the parquet wood that surrounded the border on top of the table. Casey, of course, had informed Preston of San Francisco's cooking of the books and said he regarded the situation as serious, a word Casey did not overuse.

“As you know, Wilson Holdings has guaranteed the debt of its six subsidiaries, and each has guaranteed the debt of the others. Accordingly, they are all cross-collateralized . . . ”

“Except for East Bay Porsche Audi,” Casey interrupted.

“Well, East Bay is the only store standing alone and in the black at the moment,” Andrew acknowledged. “As you know,” he continued, “the only franchises East Bay has are Porsche, Audi, and Range Rover. While these franchises are not down as much as Ford and certainly not demonstrating the huge losses being generally realized in Chrysler or GM stores, their volume is only average, and insufficient to carry any of your other stores, let alone all of them.”

Andrew rose from the table and poured himself a glass of water from the Waterford cut glass pitcher. Turning to Preston and Casey, he continued the lecture.

“You have $16.4 million past due in cap loans in three of your stores, some going back six months. The banks are pressing . . . hard. In an off-the-record statement, the bank's counsel in San Francisco told me she thinks your operating statements are bogus and your dealership's are SOT. She is threatening to go to the manufacturers on the statements, and we can expect her to seek a Temporary Restraining Order to protect the bank. In other situations, some suits have already been commenced and it's foreseeable that more will follow.”

“What's the good news?” Preston asked with a tight smile that never reached his eyes.

“We have had the privilege of serving you for many years. You like your coffee strong and the talk served straight.” Andrew pulled his vest down as he made this remark. Casey looked over at Preston and rolled his eyes which, if Andrew saw, he ignored.

“This is a serious matter. What I have not covered yet are the audits. Each demonstrates non-payment under the terms of the floor plan. Our auditors are still trying to determine how much.”

Andrew returned to the table, set down his glass, perused his briefcase, and pulled out a particular file. He then locked eyes with Preston, and said, “I want to review with you the condition of being Sold Out of Trust . . . ”

“We know what it means when we haven't paid the bank what we owe on the vehicles, Andrew,” Casey interrupted.

“I'm sure you do, Casey, but our litigation department received a memo from our malpractice insurance underwriter directing that we must inform you as to the meaning and implications of SOT. Please bear with me.” Andrew looked first at Casey and then at Preston. Preston nodded and Casey stared blankly at Andrew.

“I know you don't want to go through this and I'll make it as brief as I can,” Andrew said. He then proceeded to explain to Preston and Casey, in mind-numbing detail, the nature and character of SOT, legally and practically, with all of its implications, including potential criminal exposure.

“Again, Andrew, we know what SOT is. The real problem is what can we do about it? Aside from all the technicalities, when do we get to the real world?” Casey asked. “Given the 2008 crash, the aftermath and all the other problems in our business, how many dealers do you think can really keep up with timely payments to the bank? That money is needed for operating expenses and cash flow. Our dealers are getting killed, sales are way down and the customers are hurting and upset. What are we supposed to do?”

Preston shifted in his chair, obviously uncomfortable, as Casey, seeing that Andrew was not offering anything, continued.

“Hell, everyone's scared. Never been this bad. If the dealer needs cash, he'll keep all the money from the sale – and use it in the business or whatever – figuring he'll pay the bank off later.”

“I know you're upset, Casey,” Andrew replied. “I've already told you I had no choice but to be able to say that I explained all this to you. We think that the amount could be in excess of eight million. The inventory has relatively small value when compared to the debt from the cap loans and the floor plans, and the value is dropping further because of the deteriorating market conditions. Plus the manufacturers want to get rid of many of their non-performing dealers. The wheels are off the car business and we see no light at the end of the tunnel. I'm sorry.”

Feeling the sweat running down his sides and the middle of his back, Preston jumped up, hurried to the credenza, and poured a large glass of ice water. “We can always sell one or more of the stores, can't we?” Preston asked. “Ford, at least, is still buying stores back.”

“Ford's not easy. No blue sky. Valuation in the basement. As far as selling to dealers, the timing's bad. The buyers will work you over, discount the assets, and work with the franchisor on permission for the transfers – and that's if they don't cancel the franchises, like Chrysler and GM are doing now. When they finally conclude their due diligence, you'll be six to twelve months out.

“I've already mentioned the expected Temporary Restraining Order in California. They'll seek an order compelling all of the proceeds be directed to the bank. We'll try to prevent the TRO, or at least have it modified so that ordinary business expenses would be first taken out by the dealership before money goes to the bank. Loans to officers, however, would likely not be permitted, nor would drawing out funds to help any of the other stores. There would be no profit generation.”

At this point, Preston was pacing the room. “What about the value of the underlying real estate in those stores?” he demanded, throwing his pen on the table.

“I know you're aware that real estate's down across the board, some places worse than others. And I'm sure you know what's going on with the banks. The jury's not in on whether the bailouts will help or not. We argue about that every day around here. The only two stores where you own the real estate are East Bay in Chicago and Charlottetown. The North Carolina real estate is already encumbered by first and second mortgages, not to mention the Uniform Commercial Code's securing the collateral. There is very little, if any, equity remaining, particularly since the refinancing we completed last November for East Bay. The rest of the stores are leases, and the franchisors have been pressing your stores with such a demand for site improvements, I doubt that you have any real equity in the leases.”

Preston rose from the table and strolled over to the floor-to-ceiling window overlooking the west side of Manhattan. He stared out, his nose close to the windows. He could see his breath on the glass. He watched the cars running like ants up and down the West Side Highway and the boats on the Hudson River. The sky was filled with planes servicing Newark, Tetterboro, and other airports. He looked over at Casey, who still had his hat on. Casey returned Preston's look, shaking his head. Preston could see moisture behind Casey's thick lenses.

“But, Andrew, what's our solution?” Preston demanded.

“Our group has reviewed this, not only among ourselves, at length, but also with our commercial people, our real estate people, our financial people and our bankruptcy . . . advisors. Although they are not actually our people but a firm specializing in the actual handling of bankruptcy matters. While there have been some differences of viewpoint among the groups, the ultimate consensus is to file for protection under Chapters 11 and 13 of the Bankruptcy Code, with an individual filing under Chapter 7 of the code to follow for you and Marcia.”

Hearing the name of his wife jarred Preston and added a new dimension to his growing fear. He wished he could stop the words rushing out of Andrew's mouth.

“As you are aware, Marcia has personally guaranteed the debt for all of the stores,” Andrew said in a low voice. Preston slowly nodded.

“Except East Bay,” Casey mumbled.

“Yes, except East Bay. But again, in the overall picture, that does not make a material difference. The problem is that in the filing of a Chapter 11 proceeding, which deals with the businesses only, there probably will not be enough unencumbered assets to survive the filing and be of use to you. Even if there are sales, the trustee in bankruptcy will be doing the selling. It will take years to go through it, and the banks do not have to wait at all before going after you and Marcia on the notes – and pursuant to the Personal Guarantees – without waiting for the results of the suits foreclosing on the collateral. The only thing that will stop the tide is bankruptcy. By law, all the creditors will have to stop hounding you. They'll still be there but will have to work through a creditor's committee. And the Trustee.”

“If we file for individual protection under Chapter 7, these damn banks will take everything we have. We'll lose our Trump Tower condo, our home, and we'll lose all of our stores and all of our real estate. What's left? Personal belongings?”

“You have no choice, Preston. Besides,” Andrew said, playing his last card, “your best chance for keeping this civil is bankruptcy.”

“What the hell does that mean?” Preston asked, knowing at the same time exactly what it meant.

Andrew entered into another lengthy lawyer-like dissertation, more in the nature of an Artful Dodger disclaimer, including why Chapters 7 and 11 might not work depending on how the SOT was viewed.

“Are you telling us we could actually go to jail over this?” Casey asked.

“Well, we assume that the money that would have otherwise gone to the bank to reduce the interest and principal on the loan for the flooring line went back into the business in one form or another. That the monies were used for operations and other legitimate corporate purposes. Any non-corporate use exacerbates the problem. Private parties, the Lear jet, personal yachts . . . . ”

By this time, Preston, having heard enough, had already stood and was heading for the door. He turned to Casey, moving his hands to instruct him to pack his papers in his briefcase.

“So what you're telling us is we're screwed and there is nothing you can do about it. Where have you been?” Preston said, putting his hand on the large brass door handle and looking over his shoulder. “You've had no trouble billing the shit out of me. Probably paid for half this office. Come on, Casey, let's get out of here.”