Struggling Mercury Picks New CEO to Appease Creditors
Mercury Finance Co. replaced Chairman and Chief Executive John N. Brincat on Monday in a move aimed at placating creditors of the auto lender, which is struggling to stay in business after disclosing that phony bookkeeping had inflated reports of profit.
Meanwhile, federal agents searched the company’s Lake Forest, Ill., headquarters, seeking financial records related to the scandal.
And Mercury Finance stock, which plummeted 86% on Friday, fell further Monday, losing 25 cents to close at $1.875 on the New York Stock Exchange.
“The company is cooperating fully with federal investigators,” spokeswoman Kate Connelly said. “And there are robust talks going on with creditors, although I don’t clearly have any idea what the outcome of those talks will be.”
Mercury’s new executive team is led by William A. Brandt Jr., a specialist in reorganizing troubled companies. Brandt and an outside team of financial advisors met through the day with creditors to try to extend about $80 million in debt due this week. The company defaulted on $17 million in commercial paper--or corporate IOUs--on Friday.
Last week, Mercury stunned the investment community when it announced its regular annual audit had found phony bookkeeping that overstated its earnings by $90 million over four years. The announcement from what had been a rising star shook the industry, which specializes in providing high-interest loans to car buyers with poor credit histories.
Mercury’s chances of striking a new debt deal improved with the resignation of Brincat, who remains a company director.
Analysts have said that if Mercury wants to persuade lenders to renegotiate its credit lines and debt, Brincat had to be replaced because he is the main beneficiary of the financial misstatements. Brincat received bonuses worth millions of dollars that were tied to 20% annual earnings growth.
The U.S. Attorney’s office in Chicago impaneled a federal grand jury to look into the debacle, while the Securities and Exchange Commission also is investigating the matter.
At least 12 shareholder lawsuits seeking class-action status have been filed in federal court in Chicago against the company and its executives. The lawsuits contend Brincat, his son--who is an executive vice president--and others intentionally misstated results, as they pocketed millions of dollars from the sale of some of their stock.
Mercury is one of many so-called subprime auto lenders that have flooded the market with public offerings in recent years. Some investors have become concerned about the companies’ aggressive growth at the expense of credit quality in light of the rising tide of consumer debt and personal bankruptcies.
