Tough times at Westar

Company files for bankruptcy protection

CHRIS CLOUGH, THE OLYMPIAN

TUMWATER -- Westar Financial Services announced Saturday it has filed for reorganization protection under Chapter 11 of the Bankruptcy Code.

The move comes about six weeks after the publicly traded e-commerce company ceased originating automobile leases and said it was actively seeking a buyer.

"A Chapter 11 filing is always disappointing to those involved, but it seems extraordinarily so to those of us who've managed, worked with, or invested in a firm as successful as Westar proved to be," Westar Chief Executive Officer Bob Christensen said in a news release.

Westar calls itself "the leading publicly traded automobile-oriented e-commerce financial portal" and was the first to complete an entirely electronic auto purchase on the Internet.

The Tumwater-based company employs about 100 people. Phone calls to Christensen seeking comment on the status of those employees and more details of the filing were not returned Saturday.

Dennis Matson, executive director of the Economic Development Council of Thurston County, said Westar is the type of knowledge-based business that adds diversity to an area where government drives the economic engine.

"They employ about 100 people, and their business plan called for 200 by the end of next year -- which their Tumwater headquarters could easily accommodate," Matson said.

The Chapter 11 filing -- which protects Westar from creditors while it reorganizes its finances -- comes despite five straight quarters of profitability and revenues of $147 million for the fiscal quarter ending Sept. 30.

However, the company's fortunes suffered a severe blow in the aftermath of the Sept. 11 attacks as capital markets deteriorated and left Westar unable to sell a bundle of leases that was expected to fetch $150 million through the end of the year.

Founded in 1996, Westar had used a system called LASIRpro to handle all aspects of lease transactions.

Westar made lease decisions through direct contact with auto dealers in 16 western states. Agreements with USAA Federal Savings, Mellon Bank and AmSouth Bancorporation -- three of the nation's 25 largest financial institutions -- gave them access to Westar's lease-approval technology.

Once approved, Westar gathered the leases in bundles and auctioned them off to larger financial institutions, a practice widely used with mortgages and credit card accounts. That process is called securitization.

The bundles were sold for less than what Westar would likely make over the full life of the leases, but by auctioning them off at a discount, Westar got an earlier infusion of money to finance more leases.

When one of those securitization sales fell through in November, Westar was left short on cash to pay short-term debt, which brought its origination activity to a halt.

"We've been accelerating for the past year, reached cruising speed, then hit a brick wall," Christensen said Nov. 7. "If you had asked me before if a firm in Tumwater, Wash., would have been so harshly affected by the Sept. 11 attacks, I would have said no."

Without the securitization sale in early November, Bank One refused to make further loans to Westar -- prompting the halt of lease originations and eventually the Chapter 11 filing, Christensen said.

Bank One is attempting to transfer lease servicing from Westar to a third party, Christensen said.

Why filing was made

"We filed to protect Westar's servicing and portfolio interests from the millions of dollars of damage we believe a transfer of servicing would cause," Christensen said in a news release. "Bank One is trying to force a transfer of servicing that would add millions in damages to those Westar has already incurred.

"We will use the protection afforded by the courts to not only arrange an orderly plan to protect all of the creditors of Westar and its shareholders, but also as a first step to recoup the value of Westar's investment in the assets it has created," he added.

Bank One doesn't comment on customer relationships as a matter of policy, spokesman Thomas Kelly said Saturday from Chicago.

Westar's stock, which trades over the counter under the symbol WEST.OB, fell on hard times after Nov. 7.

Friday it closed at 50 cents a share, down 12 cents. It was trading at $22.75 as recently as Oct. 1.

After this month's approval of VeriSign's acquisition of Lacey-based Illuminet, Westar and Heritage Financial Corp. are the only remaining publicly traded companies based in South Sound.

The Chapter 11 filing gives Westar time to find an outside investor or form new strategic alliances.

"It's pretty clear they were able to bring the company into profitability," Matson said. "They have a viable business plan that outside investors can take a look at. That's a reason for hope."

The Olympian Copyright 2001

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