Clearwater auto lender lays off 137 people for default

Clearwater subprime auto lender Nicholas Financial will close 34 of its 36 branches and lay off 137 employees after defaulting and undergoing major financial restructuring.

The company disclosed changes to its US Securities and Exchange Commission filings on November 3 and 4.

As part of the workforce reduction, Nicholas Financial will shift its focus from obtaining and servicing loans for new and used vehicles and other consumer products to providing financing for passenger cars and light trucks. The company will outsource its loan services operations to his Westlake Portfolio Management, a Los Angeles firm.

“We’ve been looking over the past few months to see what we have to do to be profitable at this point,” said CEO Mike Rost. “Outsourcing. Obviously, this is where I can do more work on operational expenses and be more efficient.”

The announcement comes two weeks after Wells Fargo notified Nicholas that it had defaulted on the company after it failed to meet its loan obligations on its $175 million credit facility. An additional $130,000 in interest will be paid for the three months ending March 30, and an additional $118,000 per month while the default rate is in effect.

Rost blamed Wells Fargo’s default on its “struggling” branch model, but also due in part to the loss of federal COVID-19 relief, with customers I was able to keep paying off my loans during the recession.

The company itself has had problems with its COVID-19 relief. In 2020, Nicholas received a US Small Business Administration Payroll Protection Program loan of over $3.2 million. In December, the agency refused to repay the loan. Nicholas had his appeal against that decision dismissed in May, requiring him to repay the loan and $64,518 in interest. Rost couldn’t immediately say why the loan wasn’t allowed.

A deal with Westlake should result in annual savings so the company can pay off Wells Fargo’s debt, according to Rost. The deal is due for him to close in December and will cost him $11.1 million to $12.4 million over the next five years. As of March 31, the company had $4.8 million in cash on hand, down from his $22 million a year earlier.

The company said it will have to cut about 82% of its workforce by Jan. 31 due to the restructuring. This follows the additional closure of 11 branches announced in July, affecting 44 employees. It follows a May letter to shareholders calling it an important part of its growth.

Rost, who was appointed CEO of Nicholas Financial in August three months after former CEO Douglas Mallon stepped down, was previously in charge of accounting, compliance and other functions in the Clearwater office. said it would probably shrink to 8 or 10 people. The company will maintain the financial base of its operations in Charlotte and another office in Columbus, Ohio.

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Related: Clearwater auto loan firm Nicholas Financial CEO resigns

“We are still looking to keep much of the footprint,” Rost said. “We’re going to walk away from some markets that aren’t profitable, like we’ve done in Texas before, and maybe exit them completely. So there are some markets that we just exited. But the East Coast, Our core business, which has always been successful, from the South East to the Midwest, is going to leave its mark there and try to put it back together in the right way with less operating costs. These are the really cost-effective things we have to do to keep it going.”

The company announced on November 4 that it posted a net loss of $3.2 million for the quarter and more than $4.9 million for the six months ended September 30. Rost attributes the loss to more customers delinquent on their loans.

Rost said the company hadn’t considered bankruptcy options. Continue marketing and underwriting loans while Westlake serves his 25,000 customers.

“It’s just a matter of scaling it down a bit and rebuilding it the right way. That’s what we feel we can do,” he said. “It should definitely put us back where we should be.”

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