Creditors seek
to undo Brodie’s sale

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By Tim Ruel
truel@starbulletin.com

Three mainland creditors of the former owner of Lex Brodie's Tire Co. are seeking to undo the foreclosure sale of Lex Brodie's leases to an Arizona lender.

The creditors, vendors of Lex Brodie's, are: China Manufacturers Alliance, a Valencia, Calif., company that is owed $125,540; New Products Inc. of Clayton, Del., owed $7,950; and GWT LLC of Tuscumbia, Ala., owed $2,800. The firms joined together in a Thursday petition in U.S. Bankruptcy Court to force National Tire of Hawaii Ltd. into involuntary Chapter 7 liquidation proceedings.

In April, National Tire gave up the assets of the Lex Brodie's business to Finova Group Inc., a Scottsdale, Ariz.-based commercial finance company. National Tire President John P. Mayo had been unable to repay a Finova loan, so Finova acquired the assets using an out-of-court foreclosure.

Finova has since been running Lex Brodie's four Oahu stations, business as usual, and Finova has offered the assets for sale. The stations are on Queen Street, Kalihi Street, Farrington Highway in Waipahu and Kamehameha Highway in Pearlridge.

Finova did not assume any of National Tire's debts.

The creditors believe Finova should not have taken the leases to the stations from National Tire, said creditors' attorney Elizabeth Kane, a bankruptcy lawyer with Stanton Clay Chapman Crumpton & Iwamura. "It appears that (Finova has) received assignments of the leases of the debtor and the leases weren't its collateral," Kane said.

If National Tire is placed into bankruptcy proceedings, it would be up to a trustee to investigate whether the leases should have been transferred.

National Tire will have 20 days to respond to the suit once it is formally served. However, the day after the creditors filed their petition, three National Tire affiliate companies that held the leases to the stations filed Chapter 7 bankruptcy.

Mayo, reached in Tennessee, declined to comment yesterday.

Finova intends to prove that it does own the leases, said Donald Barrickman, a Finova representative who was in Honolulu yesterday. He described the petition as a minor nuisance.

The bankruptcy petition represents a further legal wrinkle in the entangled story of the foreclosure of Lex Brodie's.

Eight months ago, Mayo still owned Brodie's and reached a deal to expand the Lex Brodie's Fast Gas chain by buying more than 20 Arco gas stations on Oahu from Dallas-based U.S. Restaurant Properties Inc. Mayo's firm LBFG LLC provided U.S. Restaurant with a $1.75 million letter of credit for earnest money.

But U.S. Restaurant was already involved in a legal altercation of trying to evict gas station dealers from the properties, which dragged on in the courts. Making matters worse, the state Legislature in January began kicking around ways of regulating Hawaii high gas prices, adding an extra air of uncertainty to the sale of the stations. Financing for the purchase never came together.

Mayo's LBFG called off the purchase of the Arco properties in March, and sued U.S. Restaurant to reclaim the letter of credit, court records show. The suit was soon settled.

Finova has been working to get Lex Brodie's back to profitability, and is cautiously hoping to show net income this month, Barrickman said.

May's EBITDA -- earnings before interest, tax, depreciation, amortization -- was on target, since Finova had projected low earnings following the April purchase of Lex Brodie's. But June EBITDA was lower than expected. Reaching distribution agreements with tire companies wasn't easy, and inventory ran out, Barrickman said.

"Our ramp up basically has not been as rapid as we thought it would be," he said. July is looking better, he said. "The operations are profitable before extra expenses related to the foreclosure and the transitions to normalized operations." He declined to provide sales figures.