Creditors Urge Acme Liquidation, Auction of Allied Bank Stock

Three of the largest creditors of Acme Holding Co. want to see its Chapter 11 bankruptcy reorganization converted to Chapter 7 liquidation.

Chambers Bank and C Holdings LLC, both of Danville, and Hildene Asset Management LLC of Stamford, Connecticut, don’t believe Acme’s flagging fortunes can be reversed and call for its largest asset to be auctioned. Acme’s largest asset by far is its stock ownership of the $119 million-asset Allied Bank of Mulberry, which operates a six-branch network.

During the past four years, Allied Bank has lost more than $9 million, including a loss of $1 million in 2014 revealed in its bankruptcy filings. Its total assets have plunged by $70 million. Acme Holding has lost more than $11 million during the past four years.

The shared downward spiral of the bank and its parent company started in 2010, and the red ink began flowing in 2011. Allied’s declining condition prompted regulators to suspend dividend payments.

According to bankruptcy court filings, Allied is operating under a cease-and-desist order issued by the Arkansas State Bank Department dated Nov. 15, 2011, and amended on Dec. 18, 2012.

The holding company, the bank and its employee stock ownership plan have operated under a supervisory agreement with the Federal Reserve Bank of St. Louis since May 2012. The Acme Employee Stock Ownership Plan owns 41.12 percent of the company.

Without dividends from the bank, Acme can’t service its debt. That financial bind culminated in Acme’s Chapter 11 filing last April.

The bank holding company is controlled by the Lex Golden family of Little Rock. Golden, chairman and CEO of Acme Holding, owns a 21.4 percent stake in the company.

Chambers Bank, Acme’s largest creditor, is owed nearly $4.6 million on two loans dating to September and December 2010. The debt is secured by Acme’s Allied Bank stock.

Hildene Asset Management, with its Hildene Opportunities Master Fund Ltd., is the second-largest creditor, at about $3.3 million. The Hildene debt is tied to principal and interest owed on trust-preferred securities issued for the benefit of Acme Holding on March 26, 2003.

C Holdings, an affiliate of Chambers Bank, is owed more than $1.4 million on loans to Allied’s employee stock ownership plan. C Holdings acquired the loans from Southern Bank of Poplar Bluff, Missouri. Southern entered the picture when it acquired the loans in December 2010 as part of its FDIC-assisted purchase of First Southern Bank of Batesville, a negative $17.5 million transaction.

A wild card among the creditors listed by Acme is Axys Capital Management of Austin, Texas. Acme links Axys with an unsecured claim of $2 million.

However, Axys has made no claim or appearance in the bankruptcy case. According to Acme filings, the loan could be held by someone else.

The Axys debt originated as a loan from Heartland Bank, now based in Little Rock, which was used to help fi-nance the purchase of Community State Bank of Bradley (Lafayette County).

Community State Bank, the smallest bank chartered in Arkansas with $19.7 million in assets, is owned by Allcorp Inc., which is also led by the Lex Golden family. Allcorp bought the bank for $3.15 million in September 2010. It recorded a profit of $307,000 during the first nine months of 2014 and an $18,000 profit for 2013.

According to Acme’s bankruptcy paperwork, Lex Golden and his wife, Ellen, personally guaranteed the Axys debt, the Chambers debt and the debt now held by C Holdings.

Other Golden family members/Acme shareholders are dealing with financial travails related to delinquent loans.

The Federal Deposit Insurance Corp. obtained a summary judgment on Jan. 9 for $324,632 against Amy McCay, individually and as trustee of the Amy McCay Children’s Trust.

McCay, Lex Golden’s daughter, holds a 1.9 percent share in Acme Holding, and the trust has a 1.6 percent stake. McCay was a vice president at Allied Bank until 2013, when she left the bank amid regulatory scrutiny over her duties and her salary.

The FDIC has a motion for summary judgment for more than $911,482 pending against Alex Golden, individually and as trustee of the Alex Golden Children’s Trust.

Alex Golden, Lex Golden’s son and the president and CEO of Allied Bank, owns a 7.3 percent share of Acme Holding, and his children’s trust owns 1.6 percent.

The FDIC filed the lawsuits as receiver of $4.1 billion-asset Silverton Bank of Atlanta, closed by the Office of the Comptroller of the Currency on May 1, 2009. Sources say the loans are tied to the purchase of Acme stock.

Plan Draws Fire

Court filings indicate Chambers Bank believes that Lex Golden’s management has guided Acme and Allied into an irretrievable dive and that an auction of the Allied bank stock is the only sensible thing to do to prevent a more costly financial crash.

“It is readily apparent that [Acme] is in worse position than it was when the bankruptcy case was filed and will be unable to service its debt for the foreseeable future,” Chambers Bank noted in its motion to dismiss the case or convert it to Chapter 7.

According to court filings, Golden disagrees with that assessment and believes Acme and Allied can be restored to profitability with more time and court-approved forbearance.

However, according to Acme filings, it’s unknown when Allied Bank will return to the good graces of regulators and be in a position to declare dividends to fund Acme’s debt. Dividends from Allied are Acme’s sole source of income, and Chambers Bank is first in line to receive payment.

Acme filings allude to the possible sale of assets by Allied Bank that might benefit Acme creditors.

The list includes two Little Rock bank branches at 1022 W. Capitol Ave. and 4900 Kavanaugh Blvd. that were closed last year and marked for sale. Acme filings place the combined appraised value of the branches at $2.3 million.

Although Allied Bank lost $1 million during 2014, Acme forecast a 2015 profit of $617,000 for the bank, dependent on the sale of a Little Rock branch among other things, and a 2016 profit of $488,000.

Acme’s proposed reorganization plan calls for three of its largest debts to be converted to preferred shares, with no voting rights or representation on the board of directors:

• 250,000 shares of preferred stock in exchange for the trust-preferred securities claim of $3.3 million.
• 300,000 shares of preferred stock in exchange for C Holdings’ claim of $1.4 million.
• 2 million shares of preferred stock in exchange for the unfiled Axys claim of $2 million.

As part of the proposed exchange, Hildene and C Holdings would have to write down their claims but not Axys. The more favorable treatment of the unsecured and unfiled claim of Axys proposed by Acme drew an objection from C Holdings.

Under Acme’s proposed reorganization, preferred shareholders would receive payments before existing shareholders, but neither would receive any payments until all secured creditors are repaid.

Last year, Acme unsuccessfully tried to win bankruptcy court approval for the sale of Allied Bank branches in Mansfield (Sebastian County), Van Buren and Alma.

The three locations are home to an estimated $53.6 million in deposits, representing 43 percent of Allied’s total deposits and half of the bank’s active branch network.

“Unfortunately, due to what Acme and Allied Bank consider ‘tortious business interference’ by Chambers Bank, the buyer withdrew its offer, which immediately led to the Chapter 11 filing for protection,” according to court filings by Acme.

In addition to having problems with the proposed transaction, Chambers Bank, the Arkansas State Bank De-

partment and the Federal Home Loan Bank of Dallas pointed out a fundamental flaw: Allied’s assets aren’t part of Acme’s bankruptcy.

Acme owns the controlling shares in Allied Bank, but the bank owns the branches and isn’t a party to Acme’s bankruptcy. Under bankruptcy law, the bank’s assets are separate from the holding company.

What Happened?

Problems at Allied Bank resulted in financial distress for Acme Holding.

According to Acme filings, the Chambers Bank loan was based on a 2010 valuation of $17.7 million (1.25 times book) for Allied Bank. In 2010, the bank reported year-end high-water marks for total assets ($189 million) and equity capital ($18 million).

However, its profitability already was beginning to wane. Total assets and equity capital were poised to start eroding too.

Net income fell from $1.7 million in 2009 to $764,000 in 2010, the last year Allied finished in the black. As of Sept. 30, total assets have fallen 37 percent to $119 million, and equity capital has plunged 54 percent to $8.26 million.

According to Acme bankruptcy filings, Allied Bank carried more than $22 million of classified assets and other real estate owned as of Sept. 30. Unsold real estate that secured foreclosed loans, known as OREO, accounts for $10.2 million of that total.

Allied has allocated about $3 million to loan loss reserves.

Regulatory exams of Allied Bank in 2010-13 resulted in a “harsh” classification of loans, according to Acme court filings. Accompanying that was regulatory friction with Lex Golden, whose role with the bank changed from chief lending officer to special assets manager.

A funding agreement to provide subprime car loans for Zimmerman Motor Cars of Sherwood drew the ire of regulators, according to sources.

“The full scope exam in 2010 was critical of the credit facility to the automobile dealer saying ‘management and the board had “bet the bank” on it’ and harshly graded other credits in the bank,” according to Acme court filings.

The resulting charge-downs and increased loan loss reserves weakened Allied Bank’s capital position and led to Acme borrowing from Chambers Bank.

A $3.25 million loan to Kevin Lewis secured by bogus special improvement bonds didn’t help inspire regulatory confidence either.

Lewis pleaded guilty in 2011 to defrauding Allied Bank and a string of other Arkansas lenders who failed to verify his collateral.

According to Acme court filings, the bank is still working on two issues in hopes of ending its regulatory restrictions.

“The primary conditions of these enforcement actions remaining unmet are 1) attainment of increased tangible capital levels to 10 percent of total assets and 2) reduction of classified assets to below 50 percent of primary capital.”

Until the bank can satisfy those conditions, there is zero chance regulators will allow dividend payments.

U.S. Bankruptcy Court Judge Ben Barry will decide if Acme’s condition warrants reorganization or liquidation.