DJSP subsidiary defaults on $12 million line of credit from BofA
A subsidiary associated with the Florida foreclosure Law Offices of David J. Stern has defaulted on a $12 million line of credit from Bank of America (BAC) and warned that it may not be able to continue business operations, according to a document filed Monday with the Securities and Exchange Commission. DAL, a subsidiary of DJSP Enterprises (DJSP), defaulted on the revolving credit line from BofA. DAL entered into the line of credit, with an initial term of one year, in March. DJSP also disclosed in the filing that it didn't make November's rent on its Plantation, Fla., offices and has received a notice of default. On Friday, Bank of America agreed not to take any action on the line-of-credit default until Nov. 26 while DAL "develops and presents to the bank ongoing operating plans for DAL and its subsidiaries." DAL hired Gulf Atlantic Capital Corp. to assist management in the development of the operating plans, the filing said. DJSP provides support services to Stern's law firm, the company’s only client. The firm's work has been hit hard by allegations that it has improperly filed court documents related to foreclosure cases. It is one of four law firms under investigation by Attorney General Bill McCollum. Fannie Mae and Freddie Mac, two of the firm's key clients, recently pulled all their existing cases from the firm and quit referring new cases. DAL granted the Bank of America a lien on all of its assets, and its four operating subsidiaries executed security agreements and guarantees to secure DAL’s obligations under the line of credit, according to the filing. In addition, one of DAL’s operating subsidiaries, DJS Processing, "collaterally assigned" to the bank a security agreement that it entered into with the Law Offices of David J. Stern. The law firm granted to DJS Processing a security interest in its accounts receivable and work in process to secure Stern's obligations under a services agreement between the law firm and DJS Processing. DAL received a written notice of the line-of-credit default on Nov. 5. In that notice, the bank said DAL is in default because of its failure to repay an over-advance on the line of credit of $549,412, which arose due to a reduction in the amount available under the borrowing base formula. The bank had demanded payment of the over-advance on Nov. 1. Bank of America also said that recent events "have materially and adversely affected DAL’s financial condition, operations and prospects and its ability to repay the loan," according to the filing. The default on the line of credit also constitutes a default on an equipment note with a current outstanding principal balance of $1.85 million. "DAL intends to seek longer term forbearance agreements with the bank and its other creditors as it implements plans to restructure its ongoing operations to reflect its significantly reduced revenues and operations," the filing said. "There can be no assurance that DAL will be able to obtain forbearance agreements with the bank or its other creditors, develop ongoing operating plans that will be acceptable to its creditors or successfully develop and implement those plans in a timely manner. If it is unable to accomplish any of the foregoing, it will not be able to continue its business operations." Write to Kerry Curry.