Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda
Summary |
Synrgo provides real estate document recording and post-closing services |
Attributes filing to secured creditor UMB Bank’s refusal to make daily cash advances |
Asserts business is a “very attractive acquisition target” for strategic buyers and a fair market value sale would generate sufficient proceeds to satisfy UMB’s debt |
Requests use of cash collateral to meet ordinary course operating expenses |
Synrgo, Inc., a Brea, Calif.-based provider of real estate document recording and post-closing services, filed for chapter 11 protection on Tuesday, May 18, in the Bankruptcy Court for the Central District of California. According to Synrgo CEO Karl Klessig, the need to file chapter 11 was precipitated by the refusal of prepetition secured creditor UMB Bank, owed “approximately” $40 million, to make a $2.4 million daily cash advance to the debtor on its receivables. Due to the time sensitive nature of the debtor’s mortgage deed recording operations, UMB’s “unexpected” denial of funds put the debtor’s “entire customer base” at risk and threatens to “destroy the Debtor’s business within weeks if not days, since title insurers and escrow companies cannot accept the recording delays,” the debtor says.
For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Synrgo chapter 11 filing Request a Trial here.Stating that its technological platform, position in the industry and attractive customer base make Synrgo “a very attractive acquisition target” for strategic buyers, Klessig says he believes that a fair market value sale of the company should generate sufficient net proceeds to retire UMB’s debt “and possibly the debts owed to other creditors.” Klessig cautions that a liquidation sale “would not generate sufficient sale proceeds to pay the UMB debt.”
The debtor seeks to obtain access to, control over and the use of all of the collections on its accounts receivable that are flowing, daily, into a UMB controlled lockbox, and to obtain control over and the use of all other company cash sources that UMB claims as cash collateral. The debtor stresses that absent the ability to meet payroll expenses, Synrgo “will suffer a catastrophic loss of talent, and customer support.”
The first day hearing is set for today, Thursday, May 20, at 1:30 p.m. ET.
The company reports up to $50,000 in assets and between $100 million and $500 million in liabilities, and its prepetition capital structure includes approximately $40 million owed to UMB Bank, as successor to Marquette Commercial Finance.
The debtor is represented by O’Keefe & Associates Law Corporation in Irvine, Calif. The case has been assigned to Judge Erithe A. Smith (case number 21-11264).
Background
Synrgo is a single-source provider of real estate document recording and post-closing services, with 26 offices nationwide, over 300 employees and more than 42 years of combined experience. According to the debtor, Synrgo is a “pioneer” in the field of document recording and offers a “best-in-the-business” digital platform.
As of April, the debtor was generating $2.6 million of monthly revenue (approximately $30 million annualized), with EBITDA of $285,000 for the month of April.
The debtor says that purported defaults under the UMB loan relate to an “ongoing issue” of “direct collections,” through which approximately 20% to 25% of the debtors’ direct pay customers refuse to forward their account payable checks to the account designated by UMB, and instead will only send their payments directly to the debtor. Klessig says that this is a long-term problem that was in the process of being addressed and that “UMB’s decision not to fund on this basis was unanticipated.”
The debtor’s largest unsecured creditors are listed below:
10 Largest Unsecured Creditors |
Creditor |
Location |
Claim Type |
Amount |
Marquette |
N/A |
Line of Credit |
$ 42,783,698 |
UMB Capital |
Minneapolis |
Line of Credit |
42,783,698 |
Bank of Hemet |
Dallas |
N/A |
3,396,391 |
U.S. Small Business
Administration |
Washington |
PPP Loan |
2,639,000 |
Alameda CA County
Recorder |
Oakland, Calif. |
N/A |
1,739,307 |
Santa Clara CA
County Recorder |
San Jose, Calif. |
N/A |
1,127,099 |
Anthem Blue Cross |
Los Angeles |
N/A |
235,292 |
Sacramento CA
County Recorder |
Sacramento, Calif. |
N/A |
190,610 |
American Express |
El Paso, Texas |
N/A |
142,292 |
Stanislaus CA
County Recorder |
Modesto, Calif. |
N/A |
89,210 |
The case representatives are as follows:
Representatives |
Role |
Name |
Firm |
Location |
Debtor's Counsel |
Sean O'Keefe |
O'Keefe &
Associates |
Irvine, Calif. |
Counsel to UMB Bank |
H. Mark Mersel |
Bryan Cave
Leighton
Paisner |
Irvine, Calif. |
United States Trustee |
Nancy S. Goldenberg |
Office of the
U.S. Trustee |
Santa Ana, Calif. |
Cash Collateral Motion
Synrgo requests (i) the use of cash collateral of UMB, (ii) an order directing UMB to remit to the debtor all funds in UMB’s possession that it received from customers of the debtor on account of prepetition and postpetition services and (iii) to retain its existing cash management system. The proposed use of cash collateral would be used to meet payroll, operating expenses and county recorder fees pursuant to a budget attached
HERE.
Adequate protection for any creditors with valid liens against the cash collateral would be provided in the form of replacement liens “but only up to the principal balance of the Cash Collateral expended by the Debtor after the May 18, 2021 petition date.” The adequate protection liens would exclude avoidance actions. Further, the debtor asserts that it is generating “substantial positive EBITDA from operations” such that, “for every dollar expended on critical operational needs, at least one replacement dollar is being generated,” which the motion submits is the “is all that is required for adequate protection.”
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The most important objective” of the cash collateral motion, the debtor says, is to obtain access to its cash collections to “immediately” pay county recorders, absent which the debtor “will be forced to cease operations and terminate the employment of over 300 people.”
Other Motions
The debtor also filed various standard first day motions, including the following: