Jayhawk Acceptance Corp. will quit its subprime auto lending business and focus on financing cosmetic surgery after it emerges from bankruptcy.

The Dallas-based lender, which rocked Wall Street when it filed for Chapter 11 bankruptcy protection in February, said in its recently filed reorganization plan that it "does not intend to continue" buying loans from dealers who sell cars to consumers with bad credit.

Instead, the company will develop its "elective medical procedure business" because it believes that is less competitive than auto lending and offers the chance to lend to people who are more likely to pay back their loans.

Jayhawk unveiled its plastic surgery financing arm last year shortly before its subprime auto lending business, one of the biggest at the time, suddenly collapsed. Since then, Jayhawk chairman and chief executive Carl H. Westcott has transferred money from the plastic surgery division to finance his company's ailing auto loan business.

"Financing elective surgeries appears to be a vast untapped market and with the right management could be a good nationwide business," said Salomon Brothers analyst Michael Durante.

Jayhawk officials did not return phone calls seeking comment on the company's plans.

Until it filed for bankruptcy in February, Jayhawk was, along with Mercury Finance Co., one of the leading financiers of car loans made to customers with D credit.

Investment bankers say the company's troubles stemmed from a sales force paid according to the number of contracts they bought from dealers, with little consideration given to credit quality. As a result, many dealers dumped their worst loans on Jayhawk.

In January Jayhawk reported a $7.9 million fourth-quarter loss and said it was in violation of the covenants of its $65 million revolving loan from Fleet Financial Group.

Fleet decided not to provide emergency funding, which forced Jayhawk into bankruptcy.

Jayhawk said it drastically cut back on its auto lending business, and last month its creditors agreed to a joint plan of reorganization. Creditors are to vote on the plan by Sept. 22, and a confirmation plan is scheduled for Sept. 29 in U.S. Bankruptcy Court in Dallas.

Although financing for "elective medical procedures" might help turn around Jayhawk, investment bankers familiar with the company say it will have to be more careful dealing with doctors than it was with used car dealers.

"Most doctors are honest, but still in cosmetic surgery you're dealing with the fringe of the business," one banker said. "The possibilities for similar kinds of problems that got Jayhawk in trouble before still exist."

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