Largest MCA Deal in History Suffers Multiple Closures
The $40 million merchant cash advance deal, a conglomerate of auto dealerships in California, that was facilitated by 1st Global Capital, hit an obstacle last week when six locations shut their doors without notice. deBanked had not previously revealed the name, but the business is Momentum Auto Group, a company owned by 39-year old Rahim Hassanally. Hassanally, who holds a governor-appointed position as a director of the California Consumer Motor Vehicle Recovery Corporation, owns the 124th largest auto dealership in the United States, according to Automotive News Magazine, generating $564 million in sales in 2017.
The Daily Republic, a local newspaper in Solano County, reported that there were signs on the doors of six dealerships last week that said they had gone out of business. ABC News reported on Saturday that it was seven (update: now eight) dealerships that closed and that while some signs said they were out of business, others said they were closed until further notice. One remaining dealership under the Momentum Auto Group umbrella is still open, ABC confirmed.
“One employee who stopped there Friday to collect his final paycheck said the situation began to unfold Nov. 9 when employees did not receive their paychecks as scheduled,” The Daily Republic reported. “The employee said they were told checks would be available the next Monday. When Monday came and the checks were not available, he said the federal holiday was the underlying cause.” They have since learned that the dealerships have closed.
While The Daily Republic suggested that the dealerships might be sold from people who had heard second- and third-hand information, details from the SEC case pending against 1st Global Capital offer additional clues.
A July 19 Letter of Understanding between 1st Global and Momentum Auto Group indicate that Momentum had entered into “an exclusive agreement” with David Cantin to sell the dealerships. Cantin, whose expertise is selling auto dealers, found himself in the news last year when he and his Real Housewives of New Jersey TV star fiancée, Dina Manzo, were robbed and bound inside their home by masked men with bats.
deBanked contacted Cantin in September but could not confirm if Momentum had hired him.
The letter between Momentum and 1st Global outlined an emergency funding rescue plan that detailed the need to satisfy up to $9 million in unpaid taxes, $37 million to a subordinated creditor, and $43 million in outstanding MCA obligations. The deal required that the owner, Hassanally, accept any offer that was $75 million ABOVE Blue-Sky Value to sell the company.
One curious stipulation was that 1st Global had to forever release Hassanally from all legal claims. Three weeks after the agreement is dated, 1st Global Capital filed for bankruptcy, revealing that it was being both investigated by the SEC and US Attorney’s Office. The SEC officially filed a complaint against 1st Global and its owner Carl Ruderman on August 23. No criminal charges have been filed to-date.
Emails disclosed in the SEC case revealed previously-confidential 1st Global communications regarding the Momentum deal, including awareness that Momentum was struggling financially.
On April 18, an email from 1st Global’s Director of Accounting and Finance says:
“[…]as we discussed last week, Momentum is projecting to be low on cash within the next 4-5 weeks due to payments on taxes and the construction. This is what is driving the lower cash flow because if they were to become insolvent, everyone loses. Once the sales tax matter is resolved and the construction costs are paid, Momentum can continue to focus on operations, driving growth and the cash flows to everyone will increase.”
Additional signs of trouble abounded two weeks after 1st Global declared bankruptcy when Momentum filed a lawsuit against a creditor in the Superior Court of California in Los Angeles County, claiming they should not have to repay millions of dollars borrowed because the loans violated state usury laws. Momentum withdrew the suit on September 10, however.
On Nov 6, BMO Harris Bank sued several of Hassanally’s entities in The Superior Court of California in Solano County, asking the court for a writ of possession, to take immediate control of company assets and for the appointment of a receiver.
On Nov 8, Compass Bank sued Hassanally and several of his auto entities in the Superior Court of California in Solano County for breaching the floorplan agreement, breach of note, fraud, violations of California business codes, and for the appointment of a receiver.
On Nov 14, the Court granted a temporary restraining order in favor of Compass Bank, prohibiting Hassanally from selling, transferring, removing or otherwise disposing of collateral. A hearing is scheduled for Dec 5th.
On Nov 21, Toyota Motor Credit Corporation sued Hassanally and several of his entities, seeking a restraining order and the appointment of a receiver.
deBanked attempted to contact Hassanally several times over the last few months without success.
According to The Daily Republic, Fairfield Vice Mayor Chuck Timm said the fate of the dealerships is important to the city because of the tax revenue they generate.
Fairfield City Manager David White told The Daily Republic, “Car dealerships are very important to us. Car dealerships probably represent about 20 percent of our sales tax dollars. I don’t believe [Momentum is] going away. I believe they are transitioning to a new owner.”