Major ARM Player Files for Bankruptcy Protection

Debt buyer and collection agency Hudson & Keyse, LLC filed for bankruptcy protection last week. In its Chapter 7 filing, the company claimed more than $63 million in liabilities.

The company effectively shut down operations and terminated its remaining employees in advance of the filing.

The Painesville, Ohio-based accounts receivable management firm had been struggling with mounting debt in recent years. Earlier this year, Hudson & Keyse had restructured most of its bank debt through VION Receivable Investments, which also bought the company’s debt portfolio assets (“Hudson & Keyse Completes Debt Restructuring with VION Receivable Investments,” April 6). But the company still owed money to employees, vendors, and other creditors.

Over the past few months, much of the focus of the remaining Hudson & Keyse management team was on finding work for the company’s employees.

“We tried to work with [Hudson & Keyse] to help those employees find alternative employment,” Stacy Schacter, CEO of VION, told insideARM.com. “And we think we’ve been successful for a good percentage of them.”

Schacter noted that although the bankruptcy filing lists VION as the largest creditor, the firm would not be taking a hit due to the structure of their deal with Hudson & Keyse in April.

The trouble at Hudson & Keyse began when their corporate debt peaked at the most inopportune time: the collapse of the U.S. housing market and subsequent financial system implosion. The company relied on home refinancing activity for a large share of its liquidations, and when the refinance market dried up, so did a large revenue stream.

But the company also made some questionable decisions at the worst possible time, according to acting CEO Mark Finston. Going into 2008, at a time when debt portfolio prices were plummeting, Hudson & Keyse remained locked into forward-flow agreements with creditors that saw it paying as much as twice the going rate for debt portfolios, Finston told Crain’s Cleveland Business.

insideARM.com was not able to reach Finston for comment Wendesday.

Hudson & Keyse was a key player in the debt purchasing sector of the ARM industry. The company, founded by Joe Carroll in 1986, had enjoyed steady growth and a sterling reputation until recently. Revenues had been as high as $120 million before the mortgage market collapse.

Carroll sold a controlling interest in his firm in 2003 and exited the business altogether in 2007.

“Every business has its ups and downs over time and has a lifecycle in the end,” Carroll told insideARM.com. Carroll noted that Hudson & Keyse was once given a Torch Award from the Better Business Bureau and enjoyed one of the lowest turnover rates in the ARM industry.