Vestron Sues Security Pacific Over the Loss of Its Credit Line

In an unusual move, financially ailing Vestron Inc. has filed suit against Security Pacific National Bank because the bank last year pulled out of a deal to provide a six-year, $100-million line of credit to the entertainment company.

The bank’s action last October forced Vestron--the producer of the hit film “Dirty Dancing”--to withdraw a $50-million public offering of debt securities and sent the company scrambling for short-term financing. The company fired one-fourth of its employees this summer and is currently trying to liquidate its assets.

The suit, filed in U.S. District Court in Los Angeles, contends that the bank’s abrupt cancellation led directly to Vestron’s current woes. Vestron is seeking unspecified damages for allegations that range from breach of contract and business defamation to fraud.

According to court documents, Security Pacific pulled the line of credit because it decided there had been a “material adverse change” in the company’s financial condition in the two months following its August offer to extend $100 million in credit. Vestron’s suit contends that the bank’s excuse was false.

The situation is unusual because, as one banking industry source observed, “banks will generally do anything not to withdraw a commitment.” The same executive noted that lawyers would generally advise a client not to sue a bank as powerful and prestigious as Security Pacific unless they believed that the suit was well founded.

Security Pacific Executive Vice President Richard A. Warner said: “The Vestron lawsuit is absolutely without merit, and we will defend against it vigorously and successfully.”

New Credit Agreement

Vestron, based in Stamford, Conn., got its start eight years ago as a videocassette company but branched into other entertainment fields after most film studios decided to retain control of the video rights of the movies they were distributing to theaters and television networks.

One of the bones of contention with Security Pacific appears to have been Vestron’s purchase of video stores, although in its court filings, Vestron said the bank had initially applauded the move.

Earlier this week, Vestron finalized a short-term $65-million borrowing arrangement with Chemical Bank and Credit Lyonnais Bank Nederland. The company promptly used $25 million to pay off a Wells Fargo loan on which it had missed a payment last month.

$42.3-Million Dividend

“We’re providing them with working capital while they arrange to liquidate assets,” said John W. Miller, a Chemical Bank managing director.

Vestron shares closed Thursday at $3 on the New York Stock Exchange, up 12.5 cents. When the company went public four years ago, its shares were priced at $13.

The company’s founder, Austin Furst, received a $42.3-million dividend after Vestron went public, and also kept about 85% of the company’s shares for his family. Furst referred a reporter’s calls Thursday to an outside public relations agency.