A local company that specializes in selling gear for triathletes is running under bankruptcy protection after its bank sued for repayment of $1.8 million in loans.
Trisports.com LLC filed for Chapter 11 bankruptcy reorganization in mid-June, listing assets of $4.2 million and debts totaling $4.3 million. Under Chapter 11 bankruptcy, a debtor is protected from lawsuits or other legal action while it comes up with a plan to repay creditors.
Trisports.com has continued to operate with court approval since the bankruptcy filing, and plans to file a formal reorganization plan by early October.
Founded in 2000 by triathletes Seton and Debbie Claggett, Trisports.com employs 31 people and has its headquarters and a retail store at 4495 S. Coach Drive in Tucson. The company opened a second store in Tempe last year but closed that location in May, citing slow sales.
Trisports.com was forced to file for bankruptcy protection mainly because Bank of the West had sued the company in March for payment of the balance on two 2011 loans, Seton Claggett said.
The loans, consisting of a $1 million line of credit and an $800,000 equipment loan, were secured with collateral including Trisports.com's equipment and inventory.
Claggett said Trisports.com had expected Bank of the West to extend the terms of the loans and had verbally agreed to extend and increase the company's line of credit, adding that the company was unable to find another lender.
"Unfortunately, we owed them so much money, we couldn't find anyone else" to extend credit, Claggett said, referring to Bank of the West.
The bank contended that after a period of interest-only payments, the entire loan amounts were due in October 2012. The bank also is pursuing the Claggetts, who personally guaranteed the loans, as part of its state lawsuit.
The company argues that its assets - including inventory with an estimated retail value of $4 million - are worth far more than the loans and that if the bank was allowed to fully collect, it would harm some trade creditors whose debts are secured by collateral.
Bank of the West initially opposed Trisports.com's request to use cash and cash equivalents in the normal course of business - a key step to keep a company operating while in bankruptcy.
However, the bank later agreed to a settlement approved by the court that lets the company use its so-called cash collateral on an interim basis through early September.
Under an order approved Tuesday by U.S. Bankruptcy Court Judge Eileen W. Hollowell, Trisports.com agreed to give the bank new liens securing the loans, and to pay them off as part a bankruptcy reorganization plan to be filed by Oct. 12, according to court documents. The bank will be paid about $6,000 monthly in interest-only payments during the bankruptcy.
Other creditors also will be repaid over time, Claggett said, adding that most of Trisports.com's 273 trade creditors have indicated they support the company's plan. Other secured creditors of Trisports.com include American Express, Cervelo Bikes, K2 Corp. and Orbea USA.
Also on Tuesday, Hollowell granted a preliminary injunction temporarily barring Bank of the West from collecting payment from the Claggetts as guarantors of the Trisports.com loans.
Claggett testified that if the bank were allowed to tap the couple for payment, it would ruin their credit and in turn shut off Trisports.com's only current source of financing.
In court filings, the company said the Claggetts have extended more than $4.3 million in credit lines to Trisports.com since 2010 and intend to contribute substantial capital to repay creditors and help the company emerge from bankruptcy.
Cost-cutting moves including steep salary reductions and a move to new sales channels, including Amazon.com and eBay, will help turn the company around, Claggett testified Tuesday.
But an attorney for Bank of the West argued that the bank is within its right to demand payment from the Claggetts, and cast doubt on the company's chances of survival.
"It's a lot of smoke screen - what we have is a dot.com business ... a business that has been failing for a couple of years," said Philip Mitchell, a Phoenix attorney for Bank of the West.
In bankruptcy documents, Trisports.com reported gross income from sales and services totaling $9.2 million in 2012, down from $9.7 million in 2011. So far this year through mid-June, the company reported gross income of $3.6 million.
Under questioning from Mitchell, Claggett acknowledged that Trisports.com is behind on its lease payments to Bednotes LLC, which is owned by the Claggetts and has a $2.5 million mortgage on the company's warehouse and headquarters property.
Claggett said Bednotes - which refinanced the mortgage on the property with a Small Business Administration loan through Bank of the West - hasn't received a default notice but also will likely file for bankruptcy reorganization.
Hollowell approved the preliminary injunction for 90 days but urged Trisports.com to seek new financing in the meantime.
Contact Assistant Business Editor David Wichner at firstname.lastname@example.org or 573-4181.