PrimaLend Capital Partners: BHPH Lender Pursues Liquidating Chapter 11 Amid Subprime Auto Crisis

PrimaLend Capital Partners, one of the largest national asset-based specialty lenders financing Buy Here, Pay Here automobile dealerships, filed for chapter 11 protection in October 2025 amid a crisis in subprime auto lending that has seen car repossessions hit levels unseen since the 2008 financial crisis. The Plano, Texas-based lender and its affiliates entered bankruptcy with $286 million in funded debt against a loan portfolio of approximately $280 million, following significant dealer-borrower defaults and a credit facility maturing just two days after filing. The case is proceeding as an explicit liquidation through a joint chapter 11 liquidating plan, with secured lenders CIBC Bank and Amarillo National Bank expected to credit bid for the Debtors' assets at a January 2026 auction. A contested legal dispute over participation agreement characterization—whether agreements with insider-affiliated entity BVY Partners II constitute true sales or disguised loans—represents the defining issue that will shape creditor recoveries.

Case Snapshot

Company Background and BHPH Business Model

PrimaLend Capital Partners was founded in Dallas in 2007 by Mark Jensen as a commercial lender providing lines of credit and inventory floor plans to Buy Here, Pay Here automobile dealerships. BHPH dealerships represent a specific segment of the used car market where dealers finance vehicles directly to customers with poor or limited credit history who cannot qualify for traditional auto loans. The company differentiated itself through a technology platform that integrated in real time with dealers' management systems to monitor inventory, sales, and collections. Industry observers noted that used car dealers faced challenging markets since COVID-19 temporarily shut down automobile manufacturing. PrimaLend positioned itself as providing "graduation" financing—helping dealers establish credit history to eventually qualify for traditional bank financing with lower borrowing costs.

The Debtors consisted of three entities: PrimaLend Capital Partners, LP ("PCP") providing revolving credit lines and term loans based on RISC portfolios; Good Floor Loans LLC ("GFL") offering floorplan revolving lines to finance vehicle inventory; and LNCMJ Management, LLC serving as management company and general partner. Non-debtor affiliates included PrimaLend Real Estate, LLC ("PRE") for real estate-backed loans and PCAP Holdings, LP as holding company.

Two-Tier Lending Model

The Debtors operated a complementary two-tier specialty lending business serving BHPH dealers:

GFL (Floorplan Financing): Good Floor Loans provided revolving lines of credit to BHPH dealerships to finance vehicle inventory purchases. When dealers needed to acquire vehicles for their lots, GFL provided the working capital secured by the vehicle inventory itself.

PCP (RISC-Based Lending): PrimaLend Capital Partners provided revolving lines of credit and term loans based on the value of dealers' portfolios of Retail Installment Sales Contracts ("RISCs")—the consumer loans that BHPH dealers originate when financing vehicle sales. Ninety percent of PCP's loans were first-lien revolving lines of credit to dealer-borrowers.

The two entities worked in tandem: when a dealer-borrower sold a vehicle financed on its GFL line, it would borrow from PCP (pledging the resulting RISC as collateral) to pay down the GFL obligation related to that vehicle. PrimaLend positioned itself as one of the largest national asset-based lenders serving BHPH dealers—serving approximately 30,000 licensed BHPH dealers nationwide generating $20 billion in annual RISC receivables. At filing, PrimaLend held a loan portfolio of approximately $280 million, serviced 30,000 consumer RISCs daily, provided 90% of its loans as first-lien revolving lines of credit, and concentrated approximately two-thirds of its dealer-borrowers in Texas. The segment is characterized by high barriers to entry due to the complexity of independent auto dealer finance, fragmented dealer universe, and significant regulatory requirements.

Path to Bankruptcy: Subprime Auto Crisis Cascades Through BHPH Lending Chain

Consumer Credit Deterioration

The chapter 11 filing occurred against a backdrop of severe stress in subprime auto lending. According to Axios, 6.6% of subprime auto borrowers were at least 60 days past due on loans as of January 2025—the highest level since data collection began. The divergence between prime and subprime performance widened dramatically as lower-income consumers faced disproportionate financial pressure.

The Federal Reserve documented that auto loan delinquencies concentrated particularly in loans from non-captive auto finance companies—the sector PrimaLend served. Rising interest rates and elevated monthly payments strained borrower budgets across credit tiers, with subprime borrowers paying 21.55% interest on used car loans versus 7.41% for those with excellent credit.

The BHPH Industry Cascade

The consumer credit deterioration created a cascade effect through the BHPH lending chain. As consumers defaulted on RISCs, BHPH dealers lost their primary source of liquidity—the revenue from collecting monthly consumer payments. Simultaneously, delinquent loans became ineligible on dealers' borrowing base lines of credit, limiting their ability to acquire new vehicle inventory. This dual impact created a destructive cycle affecting all industry participants.

According to court filings, the COVID-19 pandemic's effects on the industry were multifaceted. Global supply chain interruptions drove up new car prices, which quickly spread to used vehicles. Government stimulus programs initially helped consumers make auto payments, but when those funds ended, consumer defaults increased significantly. The rapid inflation that followed—reaching 9.1% in June 2022, the highest in over forty years—triggered aggressive Federal Reserve rate increases that made dealer borrowing costs more expensive while simultaneously increasing consumer default rates.

Dealer-Borrower Defaults Hit PrimaLend

Starting in August 2024, PrimaLend experienced significant losses due to dealer-borrower defaults and over-advances on credit facilities, where loan balances exceeded collateral values. The over-advance triggered a default under the CIBC Credit Facility.

The company attempted to address the liquidity crisis by selling partial participations in its loans to BVY Partners II, LLC during the fall and winter of 2024. These participation sales raised over $34 million, enabling the company to cure the over-advance and provide some deleveraging. However, the stress continued, resulting in another over-advance on the CIBC Credit Facility in January 2025, as well as an over-advance on the ANB Credit Facility.

In February 2025, CIBC sent default notices and demanded the company engage a financial advisor. PrimaLend engaged FTI Consulting and Spencer Fane to develop a stabilization strategy. By July 2025, the company was operating "hand-to-mouth", defaulting on a $1.2 million quarterly interest payment on its $75 million senior unsecured notes.

Tricolor Contagion

The September 2025 chapter 7 bankruptcy of Tricolor Holdings—the seventh-largest independent used car retailer in the country—sent shockwaves through subprime auto lending and banking sectors.

The Tricolor bankruptcy left approximately 10,000 vehicles and 100,000 loan accounts as collateral in limbo and caused regional banking stocks to drop significantly. JPMorgan CEO Jamie Dimon characterized the Tricolor and related bankruptcies as signs that corporate lending practices had grown too lax.

PrimaLend's filing came just weeks after the Tricolor collapse. In a press release, the company described the filing as "a strategic step forward in reinforcing PrimaLend's capital structure." Auto Remarketing reported the filing "followed the Tricolor bankruptcy, which sent fears of a subprime lending crash across the country." The PCP Credit Facility with CIBC Bank matured on October 23, 2025—just two days after the chapter 11 filing—with $161.7 million outstanding, and with no refinancing options available, the maturity date created an immediate forcing event.

Prepetition Capital Structure: $286 Million in Funded Debt

Secured debt totaled $186.5 million across three facilities: the PCP Credit Facility with CIBC Bank USA ($180 million limit, $161.7 million outstanding, maturing October 23, 2025), the GFL Credit Facility with Amarillo National Bank ($40 million limit, $16.2 million outstanding, maturing December 31, 2027), and the PRE Credit Facility with PrimaLend Capital Group ($20 million limit, $8.6 million outstanding, maturing May 5, 2026). The PCP Credit Facility represented the dominant secured obligation and had been amended multiple times—in August 2024, January 2025, and September 2025—as CIBC worked with the borrower to address emerging defaults.

Unsecured debt totaled $99.6 million, including $75 million in 6.50% senior unsecured notes due July 2028, $17.5 million in junior subordinated notes to unrelated parties, and $7.1 million in related party subordinated notes. PCAP Holdings, the non-debtor holding company, issued the senior notes in July 2021 and loaned portions of the proceeds to its three subsidiaries—$61.5 million to PCP, $7.5 million to GFL, and $6.0 million to PRE—creating intercompany obligations that added complexity to the capital structure.

PCAP Holdings was owned by thirty-one limited partners, with PrimaLend Capital Group, Inc. holding approximately 36% of limited partnership interests and Ovation Alternative Income Master Fund LP holding approximately 32%. In July 2025, the management company amended its operating agreement to establish a board of managers with an independent manager, Matthew Kahn, and the board formed a Special Committee delegated to assess potential claims against insiders—an unusual governance enhancement that signaled awareness of potential related-party issues.

Liquidating Chapter 11 Process

DIP Financing Evolution

The DIP financing negotiations evolved through three contested iterations:

Original DIP (October 22, 2025):

The DIP faced immediate objections from BVY Partners II (regarding participation agreement treatment) and Amarillo National Bank (regarding adequate protection and collateral issues).

Amended DIP (November 21, 2025):

Final DIP Order (December 16, 2025): A 93-page final order resolved objections from the Official Committee of Unsecured Creditors and other parties. The 3:1 roll-up ratio—converting $21 million of prepetition secured debt into postpetition obligations with super-priority status—became a significant point of contention, with the UCC objecting to the roll-up as overly aggressive and potentially harmful to unsecured creditor recoveries.

In July 2025, the company engaged Houlihan Lokey to pursue refinancing options and initiate a sale process. Houlihan identified and approached over fifty capital sources and strategic parties, executed approximately twenty-eight non-disclosure agreements, hosted diligence calls, and ultimately received four indications of interest. One party emerged as a potential purchaser and discussions progressed toward a binding letter of intent, but the BVY2 participation agreements—and their consent provisions restricting loan modifications—created concerns for prospective buyers, complicating the path to a transaction.

The Joint Chapter 11 Liquidating Plan, filed December 8, 2025, contemplates asset sales through credit bids by secured lenders rather than competitive cash bidding: CIBC Bank USA for PCP transferred assets ($161.7 million secured claim) and Amarillo National Bank for GFL transferred assets ($16.2 million secured claim). The bidding procedures motion was filed December 9, 2025, with a bid deadline of January 7, 2026, auction scheduled for January 9, 2026, and $500,000 minimum overbid increments with no break-up or topping fee. The absence of stalking horse protections, combined with the secured lenders' credit bid rights, suggests the path forward leads to insider acquisition rather than competitive third-party marketing.

BVY II Participation Agreement Dispute: The Central Legal Battle

The case's defining legal issue involves characterization of participation agreements with BVY Partners II, LLC—an entity the UCC characterizes as insider-controlled. During the fall and winter of 2024, PCP sold partial participations in its loans to BVY Partners II in an effort to raise liquidity and cure its over-advance under the CIBC Credit Facility, raising over $34 million. The participation agreements contain provisions prohibiting PCP from unilaterally making certain modifications to loans in which BVY2 owns a participation interest, including reducing principal, increasing credit lines, reducing interest rates, extending terms, or releasing collateral.

The core legal dispute centers on characterization: BVY II's position is that the agreements constitute true sale participations conveying equitable ownership, meaning proceeds are property of BVY II and entitled to immediate remittance; the UCC's position is that they are disguised financing creating only an unsecured claim, meaning proceeds are estate property and BVY II holds only an unsecured claim. The UCC contends the agreements should be recharacterized as disguised loans because the agreements expressly disclaim creation of any trust relationship and only create a right to payment, there is no requirement to segregate participation proceeds, no duty for BVY II to fund future advances, no daily remittance requirement, and PCP retains power over collateral and post-foreclosure rights. The Committee further argues that BVY II's insider status requires heightened scrutiny and that BVY2 must prove equitable interest under Section 541(d) of the Bankruptcy Code—a burden it has not met.

Participation proceeds are segregated pending resolution, with no funds being remitted to BVY II and all parties' rights reserved pending a full evidentiary hearing. The outcome will significantly affect the recovery waterfall: if the agreements constitute true sales, BVY II's interests are protected; if they are recharacterized as loans, BVY II joins the unsecured creditor pool competing for whatever value remains after secured claims are satisfied. The dispute involves potentially hundreds of thousands of dollars in daily cash flow and will shape whether meaningful distributions are available to the general unsecured creditor body.

Industry Context: Broader BHPH Sector and Private Credit Stress

The Federal Reserve Bank of New York reported total household debt reached $18.59 trillion in Q3 2025, with auto loan balances holding steady at $1.66 trillion and the average American with an auto loan owing $24,602. New car monthly payments averaged $750+, used car payments $540, with subprime used car interest rates reaching 21.55% versus 7.41% for prime borrowers.

The PrimaLend bankruptcy reflects broader pressure on lower-income consumers—the primary borrowers from BHPH dealers. The Minneapolis Fed documented that the poorest households saw prices rise approximately 2 percentage points more than the richest, with lower-income families having less flexibility to adjust spending. McKinsey's consumer research found income stratification intensified dramatically, with higher-income households seeing spending grow 2.7% year-over-year in October 2025 while lower-income households managed only 0.7% growth, and three-quarters of consumers reported trading down in Q1 2025.

After significant used car price increases through 2023, prices normalized, with CARFAX data showing used car prices dropped from nearly $33,000 in December 2022 to under $26,000 by the end of 2024. This normalization created additional losses for dealers experiencing repossessions, as recovery values on collateral declined alongside rising default rates.

PrimaLend's filing occurred amid a broader surge in business bankruptcies in the Dallas-Fort Worth region. The Dallas Morning News reported the Northern District of Texas recorded 256 new business bankruptcies during H1 2025—a 64% increase from H1 2024—with 349 business chapter 11 filings in 2024 (a 140% jump over 2023), the highest levels since the Great Recession. The PrimaLend and Tricolor bankruptcies drew broader scrutiny to the private credit market, with CNBC reporting that specialty finance funds grew nearly tenfold from $28 billion in 2008 to $275.8 billion in 2023. First Brands Group's chapter 11 filing amid allegations of fraud and double-pledging of collateral, combined with Tricolor's collapse, prompted JPMorgan CEO Jamie Dimon to characterize the failures as evidence of lending practices that "had grown too lax."

Key Disputes and Contested Matters

The Official Committee of Unsecured Creditors, appointed November 10, 2025, has objected to virtually every major relief request: the 3:1 DIP roll-up ratio, the servicing motion on property of estate grounds, Spencer Fane's employment alleging conflicts of interest, and BVY II treatment arguing participation proceeds are estate property. The Committee's aggressive posture—contesting even the Debtors' counsel retention—signals an adversarial dynamic unusual for a liquidating case where recoveries for unsecured creditors are uncertain at best. The UCC objection to Spencer Fane's retention was ultimately overruled, with the court approving retention on December 18, 2025.

The amended operating agreement and appointment of independent manager Matthew Kahn included authority to investigate potential claims against insiders and affiliates. Katten Muchin Rosenman was engaged as independent counsel to conduct this investigation, which remained ongoing as of the petition date. The investigation's scope and any claims it may identify against related parties could affect distributions and add complexity to the liquidation process.

Professional Retentions

The Debtors engaged Spencer Fane LLP as lead counsel (approved over UCC objection), Katten Muchin Rosenman LLP and Willkie Farr & Gallagher LLP as special counsel, FTI Consulting, Inc. as financial advisor with Tanya Meerovich as Chief Restructuring Officer, Houlihan Lokey Capital, Inc. as investment banker, and Stretto, Inc. as claims agent. The UCC retained Vartabedian Hester & Haynes LLP as counsel and Portage Point Partners as financial advisor. Meerovich, a Senior Managing Director at FTI with over twenty years of restructuring experience including roles at Reverse Mortgage Investment Trust, First Guaranty Mortgage Corporation, and Ditech Corporation, brought significant financial services sector expertise to the engagement.

Key Timeline

Implications for BHPH Industry and Specialty Lending

The PrimaLend bankruptcy carries significant implications for the broader BHPH financing ecosystem. With one of the largest national BHPH lenders in liquidation, remaining specialty lenders face both opportunity to acquire dealer relationships and risk from heightened lender scrutiny of the sector; the credit bid structure suggests the loan portfolios will likely transfer to the secured lenders rather than being marketed to third-party specialty lenders who might continue the business model.

BHPH dealers relying on PrimaLend for working capital financing face uncertain futures—while the company emphasized it was "not going out of business" at filing, the liquidating plan structure and credit bid path forward suggest the lending platform as it existed will not survive, forcing dealers to secure alternative financing sources in an environment of tightened underwriting across the specialty finance sector. The BVY II participation agreement dispute may establish important precedent for how similar structures are characterized in future cases, as participation sales have become increasingly common in specialty finance and the outcome could influence structuring of future transactions. The cluster of subprime auto finance failures—Tricolor, PrimaLend, and others—has drawn regulatory attention to the private credit markets funding this sector, and enhanced scrutiny of underwriting standards, collateral monitoring, and related-party transactions seems likely.

Frequently Asked Questions

What is PrimaLend Capital Partners?

PrimaLend is one of the largest national asset-based specialty lenders financing Buy Here, Pay Here automobile dealerships—used car dealers that provide direct financing to customers with poor or limited credit history who cannot qualify for traditional auto loans. Founded in 2007, the company held approximately $280 million in loans to dealer-borrowers at the time of filing.

Why did PrimaLend file for bankruptcy?

The company filed after experiencing significant dealer-borrower defaults and over-advances starting in August 2024, combined with rising interest rates, a maturing $161.7 million credit facility, and industry-wide stress from the subprime auto lending crisis. By July 2025, the company was operating "hand-to-mouth" and defaulted on a $1.2 million quarterly interest payment on its senior unsecured notes.

What is Buy Here, Pay Here (BHPH)?

BHPH dealerships finance vehicles directly to customers who cannot qualify for traditional auto loans, typically charging higher interest rates (up to 20%+) and requiring weekly or biweekly payments. PrimaLend provided the warehouse financing that enabled these dealers to purchase inventory and originate consumer loans.

Is PrimaLend going out of business?

While CEO Mark Jensen stated "We are not going out of business" at filing, the company has filed a joint chapter 11 liquidating plan contemplating asset sales to secured lenders rather than reorganization. The credit bid structure suggests the assets will transfer to CIBC Bank and Amarillo National Bank rather than continuing as an independent lending platform.

Who will buy PrimaLend's assets?

Secured lenders CIBC Bank USA (for PCP assets) and Amarillo National Bank (for GFL assets) are expected to credit bid, using their secured claims as purchase consideration rather than cash. This effectively means the lenders will acquire the loan portfolios to either wind down or manage themselves.

What is the BVY II participation agreement dispute?

The case's central legal issue is whether participation agreements with insider-affiliated entity BVY Partners II constitute "true sales" (giving BVY II ownership of loan proceeds) or disguised financing (making BVY II merely an unsecured creditor). The outcome will significantly affect available recoveries for general unsecured creditors.

How does PrimaLend relate to the Tricolor bankruptcy?

PrimaLend filed weeks after Tricolor Holdings—the seventh-largest independent used car retailer—filed chapter 7 bankruptcy in September 2025. The Tricolor collapse caused $370 million in combined losses at JPMorgan and Fifth Third Bank and triggered broader fears of a subprime lending crash that affected financing availability for the entire BHPH sector.

What is the sale timeline?

Bids are due January 7, 2026, with an auction scheduled for January 9, 2026 if multiple qualified bids are received. The initial overbid increment is $500,000, with no break-up fee or topping fee for any stalking horse bidder.

How much does PrimaLend owe creditors?

Total funded debt is approximately $286.1 million, including $186.5 million in secured debt (primarily to CIBC Bank) and $99.6 million in unsecured obligations (including $75 million in senior notes and $24.6 million in subordinated notes).

What is the state of the subprime auto lending market?

The industry is experiencing severe stress, with car repossessions at 1.73 million in 2024 (highest since 2009), subprime 60+ day delinquencies at record highs (6.6%), and the auto loan default rate at 3.13%—exceeding Great Recession levels. Subprime auto loan ABS losses reached 9.44% in January 2025.

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