Even a seasoned management team and $1 billion in funding was no match for the difficult lending environment plaguing the auto finance market.
After just five months in operation, lender Sixth Gear Inc. shut down operations Nov. 14 when its capital dried up. The New York-based company had $750 million in long-term debt facilities led by Lehman Brothers and $250 million in equity commitments led by Warburg Pincus LLC. Lehman filed for bankruptcy Sept. 15.
At press time, Sixth Gear’s web site (www.sixthgear.com) consisted of a single white page with the company’s name and phone numbers for customer account information and general questions.
The closure comes amid legal wrangling. Sixth Gear Co-Chief Executives Michael Barrington, and Norman Buchan allege that Warburg Pincus and Capstone Advisory Group LLC, a company that offers restructuring services, as well as three executives, breached fiduciary duties. Specifically, the pair contends that the defendants took steps “to materially change the nature of the company’s business, to dissolve or liquidate the company, and to prohibit the company from operating and paying its creditors in the ordinary course of the company’s business,” according a complaint filed Nov. 10 in the Supreme Court of the State of New York.
Barrington and Buchan allege that the defendants — which include Warburg Managing Director David Coulter and Principal Daniel Zilberman, and Capstone Executive Director Christopher Kearns — are causing “irreparable harm” to the company and causing damages in excess of $200 million, according to court documents.
Sixth Gear had invested $75 million of equity to develop the company’s lending platform, which included technology from Fair Isaac, Fiserv, SAP, Oracle, Cognos, and Salesforce.com, according to the complaint. It had established relationships with 350 dealerships in 11 states, and had originated $32 million of loans since May. Until late September, the company had 130 employees nationwide. By mid-November, its payroll was trimmed to 58 employees, 15 of which were at its corporate headquarters in New York.
Aside from industry heavyweights Barrington and Buchan, other company executives included Michael Bachand, chief credit officer; Michael Berkowitz, human resources; Steve Dietz, general counsel and secretary; William Houlihan, chief financial officer; Michael Levine, chief technology officer; Cheryl Miller, chief servicing officer; Michael Miller, corporate strategy; and Joe Scimone, chief originations executive.
A status conference to address scheduling for discovery, motions, and the like, is scheduled for Dec. 17.
Sixth Gear executives declined to comment.
—Marcie Belles
Thanks for the clarification, Chuck. Sorry for the error.