Less than two years after its formation, credit card processor, Cynergy Data, filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  According to Cynergy’s Declaration in Support of Chapter 11 Petitions and First Day Motions,  the company processes over $10 billion in credit payments over a twelve month period.  Cynergy’s card volume is the result of transactions with over 80,000 merchants.

Cynergy filed for bankruptcy in order to receive bankruptcy court approval of the sale of substantially all of its assets to the ComVest Group under section 363 of the United States Bankruptcy Code.  Cynergy and ComVest entered into an asset purchase agreement following an auction process wherein Cynergy contacted over 48 different parties that might have an interest in purchasing its assets.  In response to its marketing efforts, 24 parties executed confidentiality agreements allowing them to review Cynergy’s books and records in order to submit a bid.  Three final offers were submitted and ComVest and Cynergy executed an asset purchase agreement on August 26, 2009.

Sale Process

At the same time that it filed for bankruptcy, Cynergy also filed a motion approving bid procedures and the sale of substantially all of its assets.  Included in the sale motion are procedures to designate those contracts that will be assumed and assigned under the asset purchase agreement.  Cynergy proposes sending “Cure Notices” which will identify the contracts to be assigned, as well as the cure amount for any defaults, as provided for under section 365 of the Bankruptcy Code.  The sale motion also spells out how parties can file objections to the Cure Notice.

Creditors whose contracts are assumed and assigned to the purchaser of Cynergy’s assets may stand in a substantially better position than those creditors whose contracts or leases are not assumed and assigned.  Under section 365 of the Bankruptcy Code, a debtor in bankruptcy must “cure” defaults under a contract , or provide adequate assurance that the debtor will promptly cure, before the contract can be assumed and assigned to a third party.

Cynergy’s Financials

According to Cynergy’s Petition for Bankruptcy, the company has assets of $109 million against debts of $186 million.  As stated in the Declaration, Cynergy entered into a senior credit facility for $39.8 million with Comerica Bank as agent, and a junior credit facility for $80 million with Dymas Funding Company as agent (both credit agreements are prepetition).  The company lists its 10 largest unsecured creditors as follows:

  1. Process America … $2.8 million
  2. Paymentech … $2.6 million
  3. TSYS … $1.4 million
  4. wwwmygrantsitenet  … $1.4 million
  5. Second Source … $1.1 million
  6. DJM* … $900,764
  7. … $812,629
  8. Merchant Processing Services … $756,782
  9. Pivotal Payments … $509,068
  10. Fast Transact … $503,110

This bankruptcy proceeding is before the Honorable Kevin Gross.