Synergy Capital Auto Lending - Chapter 11 Case Summary

Business Description

Headquartered in San Antonio, TX, Texas Auto Save, LLC ("TAS") and Synergy Capital Auto Lending, LLC ("Synergy") (together, the "Debtors" or the "Company") operate a used car dealership business utilizing the "in-house financing" ("IHF") model, which provides second and last chance financing to customers in the automobile market.

• Under the IHF model, TAS's customers buy, finance, and pay for their cars through in-house financing offered by affiliated debtor Synergy.
• TAS generates revenue from the down payment received on each vehicle sale plus the funds it receives when it sells the accounts and/or chattel paper to Synergy, which then generates a stream of revenue from loan repayment and interest.

The Company currently has 25 employees, with founder Alex Sinno and his wife working full time in the business. The current ownership of Synergy and TAS is held by Alex Sinno (51%) and Vasireddy Sirdhar (49%).

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Corporate History

Founder Alex Sinno immigrated to the United States in 2005 from Dubai with his American Citizen mother. He joined the United States Army as a lawful permanent resident in 2006 and naturalized in 2007 while serving as a military intelligence non-commissioned officer with special operations during Operation Iraqi Freedom.

• Upon honorable discharge from the Army in 2009, Mr. Sinno started selling used cars with various car dealers, including Nissan.
• In 2012, Mr. Sinno bought his first car dealership, which utilized the IHF model.

Real Estate Acquisitions

In 2019, the Company began acquiring real estate for use in the business, both to eliminate the need to rent land for its lots and IHF business and to act as a developer.

• First Command Bank served as the initial lender for the purchase of lots located at 9410 Old Tezel Road and 8504 Old Tezel Road, San Antonio, TX 78254.
• The Company subsequently switched to Frost Bank for the purchase of land located at 12258 N. IH 35, San Antonio, TX 78223. These loans and the related real estate are held in the name of SAR American Properties, LLC, which serves as the landlord to Synergy and TAS.
• An adjacent lot at 6622 Randolph Blvd was also acquired in 2019, currently financed by Jefferson Bank and titled under TAS.

Houston Expansion

• In 2020, the Company opened a car lot in Houston, TX under a separate entity named A & F Holdings, LLC. Frost Bank initially provided a $900,000 credit facility, which was repaid within three years, followed by a $500,000 credit line with a five-year term and $6,500 monthly payments.

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Operations Overview

The Company currently sells approximately 50 cars per month at an average total price of $15,550 per car (which includes a $150 fee). At any given time, Synergy holds approximately 1,000 car contracts as receivables with an aggregate balance of approximately $11.5 million.

Inventory and Receivables Composition

• Approximately 42 contracts are more than 30 days late, with balances totaling approximately $501,000. Historically, of these 42 contracts, about 2 will result in unsuccessful repossession or total loss, while 30 will be repossessed (10 of which return to terms). Of the 30 repossessed cars, 25 are reconditioned and resold, with 5 sold at auction for typically $2,000 to $3,000.
• The Company typically holds 20-40 cars in reconditioning with an average value of $7,000 and 10-20 cars on lots with retail value of $15,400 per car. Lot inventory varies significantly because weekend sales can rapidly deplete stock that takes several days to a week to replenish.
• Following a recent inventory cleanup to remove cars unsuitable for reconditioning that had been sitting on lots far longer than normal, the Company currently has (or recently had) 103 cars at auction, with anticipated proceeds of approximately $1,500 per car (totaling approximately $154,000), lower than average due to vehicle condition.

Collateral Valuation Methodology

The total collateral base between Synergy and TAS (excluding real estate) at any time can be calculated as: Lot Cars Value + Recondition Cars Value + Auction Car Values + Outstanding Notes + Cash on Hand.

• Fair market value varies by sales method. Cars sold on the lot through the IHF process average approximately $15,550 per car, whereas the same vehicles sold to traditional cash or financed buyers would likely sell for substantially less ($8,000 to $10,000).
• Cars in reconditioning could only be sold at auction or wholesale at deep discount, likely fetching $2,000 to $4,000 per car.

Customer Service Model

The biggest valuation impact would result from selling notes without continued vehicle service. IHF customers are typically on their last chance, with poor credit and few alternatives for vehicle financing. If a car stops running, customers will stop paying close to 100% of the time.

• Accordingly, when a customer's car breaks down, the Company most often performs repairs for free or at substantially reduced rates. Speed of service is critical, supported by tow trucks operated through affiliated entity 210 Action.
• For example, in a worst-case scenario, a blown engine costing $3,000 to repair on a vehicle with $10,000 in remaining principal (approximately $500 monthly payments) equates to roughly 6 monthly payments. For a customer with a strong payment history, the Company finds it economical to fund the repair.
• By contrast, a third-party note collector would not pay more than 50 cents on the dollar and would never invest $3,000 to repair a vehicle, betting instead that more than 50% of loans will be paid before the cars stop running.
• A similar valuation impact arises if the physical location where customers make payments closes, even if the IHF company continues operating, because customers often assume the obligation has ended.
• Westlake has indicated multiple times that it wishes to take over collections. The Company estimates that a Westlake-led collections process would likely yield approximately $6 million at best, leaving a substantial deficiency that would result in losses for all parties, including Westlake.

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Prepetition Obligations

The Debtors' prepetition capital structure consists of the following obligations:

Westlake Capital Financial

• Approximately $10.3 million is outstanding to Westlake Capital Financial ("Westlake"), collateralized by all Synergy receivables, all vehicle inventory, and second liens on the SAR and TAS real estate.
  • Up until 2024, Westlake provided Synergy with 100% of the capital to fund vehicle purchase contracts.
  • SAR American Properties, LLC used its property to collateralize the Synergy and TAS debt to Westlake.

Jefferson Bank

• The loan balance with Jefferson Bank, secured by the 6622 Randolph Blvd property, totals $450,942.00.

SBA and Tax Obligations

• TAS owes a secured debt to the SBA in the amount of $150,000. The SBA loan appears to be the most senior blanket debt, followed by Westlake's loan as the second most senior blanket debt.
• TAS owes approximately $300,000 to $350,000 to the Texas Comptroller for taxes accrued several years ago.

Merchant Cash Advance Loans

• There are potentially 3 Merchant Cash Advance ("MCA") loans owed by Synergy and TAS, with 2 of the 3 possibly secured. The total of these loans is approximately $1.15 million.
  • The secured status of the MCA loans remains uncertain because two had active UCC filings filed anonymously. The security position of the MCA lenders is tenuous at best.

Other Secured and Unsecured Obligations

• Synergy owes a debt to Creditor's Captive Formation Corporation ("CCFC"), which provides collision insurance to protect the Company's interest in funded car purchases. While the technical balance is close to $400,000, the actual amount owed is likely closer to $100,000 because the Debtors have been resolving their own claims.
• Bexar County may be owed a small secured debt related to the building at 6622 Randolph and inventory.
• General unsecured non-insider debt is approximately $325,000, and affiliate unsecured debt is approximately $1.2 million.

Lease and Payroll Obligations

• Synergy and TAS pay $30,000 monthly to SAR American Properties, LLC for use of part of the SAR land in operations.
• As of April 25, 2026, the Company has outstanding payroll and sales commissions of $32,486, with payroll critical to be made on May 1, 2026. Up until the bankruptcy filing, all employees performing work for both TAS and Synergy were under the TAS payroll; effective the first full payroll occurring during the bankruptcy, payroll is being split so employees are paid from the appropriate work center.

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Events Leading to Bankruptcy

Westlake Credit Line Termination and Industry Downturn

Prior to Westlake, TAS and Synergy were funded by PlainsCapital Bank. The Company moved to Westlake in 2023 after Westlake increased its credit line to $16,000,000. At that time, the business was booming and expanding, with the Company selling 391 cars in the first quarter of 2024.

• In March 2024, the Company submitted a draw request to Westlake for $340,000, but Westlake only funded $250,000 and then stopped the credit line entirely. In April 2024, Westlake fully cut off the line of credit due to what is now understood to have been the IHF market downturn, as Westlake sought to reduce its risk exposure.
• Westlake insisted on larger principal paydowns, reducing the Company's debt to Westlake from more than $13 million to below $11 million. Without capital to purchase additional cars, the Company shifted to selling only repossessed cars without replenishing inventory.
• Westlake further compounded the problem by using a related entity to place Mr. Sinno's personal name on the "kick out" book, a formal industry blacklist that prevents persons from purchasing cars at auction. This greatly reduced purchasing ability and caused the Company to lose its floorplan. According to the Company, this action was taken because A & F Holdings had problems, although Texas Auto Save was still operating correctly.
• As a result, the Company was forced to change its model to focus on reconditioning repossessed cars and reducing auction purchases, and now sells only 50 cars monthly versus an estimated 70 cars monthly with full credit line access.

Frost Bank Default and Resolution

• As early as August 2024, Frost attempted to default SAR American Properties, LLC due to non-payment issues. The issues were ultimately resolved in Fall 2025, and the Company is in the process of selling a large section of the SAR land (not needed for current operations) to retire that debt.

Charge-Off Methodology Issues and Lending Ratio Dispute

By July 2025, the Company's debt was below $11 million while receivables totaled $17,248,449. Industry standard charge-off practice is approximately 120 days from the date of last payment. However, the Company generally was not charging off cars until the repossessed vehicle was sold at auction or to a new buyer, a practice known to and regularly analyzed by Westlake, which maintains its own in-house collection division and accessed Company data on a near-daily basis.

• In late Spring/Summer 2025, Texas changed the law regarding how and when titles needed to be held by the dealer. The Company requested that Westlake send all titles, and Westlake complied. Shortly thereafter, Westlake demanded the titles back, and the parties entered into a dispute over the lending ratio.
• Both parties initially viewed the lending ratio at approximately 65%, leading to an agreement to return the titles in exchange for Westlake providing the Company until October 2026 to refinance the debt.
• In November 2025, the Company changed accountants to HHM CPAs, one of the country's largest accounting firms in the auto IHF dealer industry. In late February 2026, HHM corrected the Company's methodology because it had far too many accounts over 120 days that were not charged off, revealing that the actual lending ratio in July 2025 was much higher than previously believed (with the corrected loan-to-value ratio approximately 85%), making refinancing by October 2026 impossible by industry standards.
• The Company believes Westlake may have understood the actual ratio was higher than 65% at the time of the agreement but accepted the lower figure to secure return of the titles, knowing take-out financing would be unobtainable.

Operational Stabilization Initiatives

In response to financial distress, the Company implemented several operational changes:

• Replaced its director of operations with Joaquin Bermudez, who has substantial IHF industry experience and has helped revamp systems, remove bad inventory, and improve data analysis. The prior director had worked with a Westlake counterpart to allow additional payment deferments beyond Company policy of 3 deferments, contributing to the receivables aging issue.
• Shifted from the rapid expansion model that operated in early 2024 (which required large capital expenditures) to a focus on maintaining current business, reconditioning and reselling cars, and improving collections through better customer relations.
• Engaged Paul McClintock to revise the charge-off process, removing bad inventory by sending it to auction and implementing a strict 120-day charge-off rule for accounts with no payment.
• Sought to reduce costs by eliminating needless litigation and pursuing terming out the Westlake loan. The relationship with Westlake had effectively become an MCA-style relationship, with the Company paying approximately $350,000 in principal during the first three months of 2026 and over $500,000 in legal expenses in 2025 largely related to dealing with Westlake.

Chapter 11 Filing and Go-Forward Strategy

The Debtors commenced their Chapter 11 cases on April 27, 2026, in the U.S. Bankruptcy Court for the Western District of Texas, San Antonio Division, with joint administration requested. The Company asserts its business is now stabilized and profitable and capable of terming out the entire Westlake debt over an 8-year period, although a take-out loan is not currently feasible.

• The Company plans to spend very little time in bankruptcy. During the case, the Debtors require use of cash collateral to purchase cars, pay employees, pay taxes, pay insurance, and cover other operating expenses, including maintenance of the service department to preserve portfolio value.
• Projected expenses for the first 12 weeks of the case are outlined in Exhibits A1 and A2 of the Joint Motion for Use of Cash Collateral, which was prepared by financial consultant Paul McClintock.