Bank claims dealer in default on $18.8 million loan balance
Once the top-selling Formula dealer, Passport Marine was forced to shut its doors earlier this year with company officials citing the weak economy as the reason for its demise.
“In short, the company was a victim of bad timing amid one of the worst luxury goods retail-sales environments in decades,” said Andrew Sturner, who served on the company’s board and whose company, Aqua Marine Partners, was a minority shareholder.
What was most disappointing, Sturner said, is that management had anticipated a downturn and last year, in anticipation of a softening market, introduced a franchising business model. The company planned to unite its own retail stores with dealer and broker franchisees throughout the country, creating a national brand and establishing an innovative business model within the marine industry.
Passport Marine had increased sales to nearly $30 million and appeared well positioned to roll out the new plan, Sturner said. At one time, Passport Marine listed eight locations, including four in Florida, two in Georgia and one each in Connecticut and New York.
“Unfortunately, just as the franchise program was being rolled out, the retail boat sales market suffered worse than anyone could have predicted,” he said. “This negatively impacted operating cash flow and made it impossible to raise the venture capital it needed to sustain the operation and roll out the franchise plan.
“As a shareholder in Passport Marine, Aqua Marine Partners was excited about the company’s potential for long-term success and equally disappointed when a weak retail market short-circuited those high expectations,” Sturner added.
Today, however, Passport Marine is facing lawsuits from Ohio-based KeyBank, which claims the dealership defaulted on loans.
Sturner said he could not comment on pending litigation, as did James Dillon, who last year resigned as president and CEO of the company.
KeyBank officials also would not comment specifically on the pending litigation, except to say that courts in Florida, Connecticut and New York allowed the bank to repossess more than 60 boats.
“This is an unfortunate situation for all concerned,” said Laura Mimura, Key Bank vice president of marketing and communications. “It is never a lender’s intention to acquire assets in this manner. Key will continue to evaluate the repossessed boat inventory and determine the best course of action to dispose of it in an orderly fashion.”
Phil Keeter, president of the Marine Retailers Association of America, said it’s always disappointing when a major retailer shuts its doors.
“Looking at it from dealers that are in those areas, that means that there’s going to be distressed product probably on the market. That’s not good,” he said. “There’s also going to be a large number of customers out there that are now without service.”
Also, he said, it ‘casts a pall’ over good dealers.
“It makes lenders have a knee-jerk reaction, so in the long run it affects the rest of the industry,” Keeter said.
The court case
In papers filed in April in U.S. District Court in Connecticut, KeyBank said Passport Marine failed to make interest payments of about $398,500 due April 15, and orally advised the bank it would be unable to make the payment.
Because of that lapse, Passport owes the bank more than $18 million, which is the entire balance of the loan.
“As a result of Passport’s default, KeyBank accelerated Passport’s obligation under the loan documents, which have rendered the entire loan balance due,” according to court documents. That amount was listed at about $18.84 million as of March 28.
According to court documents, Passport and KeyBank entered into a demand floor plan line of credit in August 2006. In May 2007, the parties amended the loan agreement to add several inventory locations.
In January 2008, KeyBank discovered Passport was in breach of the agreement by failing to remit close to $73,000 in funds that had been received by Passport in connection with boat sales, according to court documents.
KeyBank, in court documents, said Passport also failed to notify it of a material change in its business or financial condition, and failed to provide it with prominent and accurate inventory of its boats.
This article originally appeared in the July 2008 issue.