A Chicago bank is owed millions in unsecured debt from a bankrupt subprime auto lender.
According to a petition filed in U.S. Bankruptcy Court in Delaware, First Merchants Acceptance Corp., which filed for Chapter 11 bankruptcy on July 11, owes $67.1 million to LaSalle National Bank, a unit of ABN Amro NV.
That amounts to virtually all of the bankrupt firm's unsecured liabilities.
First Merchants' total unsecured debts are $68.8 million, according to the filing.
LaSalle was apparently First Merchants' lead secured lender in addition to being its largest unsecured lender.
The bank led $103 million in secured loans that were sold this month to another auto finance company.
This episode appears to be the latest in a series of bitter pills LaSalle has had to swallow in the ongoing debacle in subprime auto lending.
"They and First Chicago (NBD Corp.) have a long history of lending to finance companies," said Darrell G. Hendrix, an industry analyst at Friedman, Billings, Ramsey & Co., Arlington, Va.
In addition to First Merchants, investment bankers say LaSalle made substantial loans to Dealers Alliance Credit Corp. and TFC Enterprises Inc.
All these companies were run by Chicago Holdings, a venture capital group.
LaSalle officials could not be reached for comment on Wednesday, but the bank appears at this point to be withdrawing from the subprime auto sector.
This month LaSalle, the lead secured lender for First Merchants, sold $103 million in secured loans to Ugly Duckling Corp., a company based in Phoenix that operates used car sales facilities and finances customers' purchases.
Ugly Duckling, which runs 23 "used vehicle superstores" in three states, agreed to pay 90 cents on the dollar for the loans. LaSalle and other secured creditors agreed to lend Ugly Duckling 80% of the money necessary to buy them.
Dealers Alliance filed regulatory applications in November 1995 to conduct an initial public offering for its shares, but the offering was never held.
In June 1996 its assets were sold to Search Financial Services Inc. for $8.4 million in stock.
TFC reported a loss of $12.3 million in the fourth quarter of 1995 and violated its loan agreements in spring 1996. Its stock currently trades for $1.75 per share.
