Only on RGJ.com: Pet leasing co. filed for bankruptcy over $11.3M loan default
Mike Higdon
Reno-based firm Bristlecone Holding's recent Chapter 11 bankruptcy stems from defaulting on an $11.3 million loan, according to testimony in Nevada Bankruptcy Court.
The default follows a string of bad luck for the company that was once held up as a shining example of Reno's tech startup culture.
Bristlecone grew from Wags LLC, which financed expensive dogs through lease-to-own contracts. When Dusty Wunderlich joined the company in 2013, he turned Wags into the larger leasing company that now finances wedding dresses, furniture, hearing aids and car parts through various subsidiaries.
But now, Bristlecone faces a dog pile of lawsuits from customers who claim shady dealings, a lawsuit from a competitor, bad press and layoffs. Wunderlich also recently resigned and the Nevada Legislature even passed last-minute language aimed specifically at curbing its business practices.
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Bristlecone and its subsidiaries service 3,000 small businesses and 40,000 customers who use their leasing products across the country, according to previous news releases from the company. The company is valued at more than $100 million, with all of the high-ranking employees earning more than $102,000 a year, according to court documents.
Here's a breakdown of what's happening:
The $11.3 million bankruptcy
Bristlecone is in the middle of a Chapter 11 bankruptcy to reorganize — not liquidate — after one of its loan underwriters notified Bristlecone that it defaulted on an $11.3 million loan.
To understand how that happened, it's important to understand how Bristlecone leases products to people.
How to lease from Bristlecone
- A customer wants to buy a product from a retailer that offers a leasing contract from Bristlecone or its product-niche subsidiaries.
- Bristlecone takes out loans, which they use to buy the product from that retailer.
- The customer leases the product from Bristlecone so they don't actually own anything.
- During a set time period, the customer pays rent and reimburses Bristlecone for the depreciation of that product. Yes, dogs depreciate as they age just like cars and furniture.
- Bristlecone makes money from those two payments, which it uses to pay down the loans. Sometimes it sells or buys contracts from competitors to generate capital.
- Customers have an option to buy out the lease in the middle or end of the lease period with an additional payment.
Example: A $5,000 dog could cost $9,000 after 30 months of leasing, according to the Wags Lending calculator. A customer can pay the current fair market value of the product to buy out the lease early or at the end of the contract in some cases.
Their websites spell this process out and provide calculators, too.
Bristlecone took out the $11.3 million loan in 2015, attorney Amy Tirre, who represents loan company Westminster Capital, told Nevada Bankruptcy Court during the first hearing.
Westminster Capital is a New Jersey loan company. Westminster's parent company notified Bristlecone of default in April this year, Tirre said.
Default can mean Bristlecone either did not pay the loan back or violated a contract agreement with the company.
Tirre gave this prepared statement to the court despite the hearing's unrelated agenda. The court and Bristlecone were not required to respond to any allegations she made until Westminster Capital files its own claims against Bristlecone later this year.
In her statement, Tirre told the court Bristlecone did not accurately report its finances in order to secure that loan, but would not clarify to the RGJ or the court.
Tirre and her co-counsel in New Jersey did not respond to the RGJ's requests for clarification.
Before receiving the default notice, founder and CEO Dusty Wunderlich resigned in late March. It's unclear if the default and his resignation are related. Wunderlich told the RGJ he has no comment on pending litigation until it's all over. (Wunderlich is also a non-staff contributing columnist to the RGJ.)
Also in March, Bristlecone laid off half of its staff, from about 45 to 23 employees, according to previous press releases and bankruptcy documents.
Bristlecone filed for bankruptcy soon after.
The Chapter 11 filing will allow Bristlecone to reorganize the company, pay off creditors and determine who is in the wrong for the loan default.
The bankruptcy case is ongoing and not all parties have filed claims.
Civil suits against Bristlecone
Before the bankruptcy, two civil suits were launched against Bristlecone in March and April.
One proposed class action suit attempted to identify New Jersey customers who thought they were taken advantage of by Bristlecone's pricing structure and inconsistent use of "lending" and "leasing" — a common refrain in other lawsuits against its competitors and in news reports in other states.
It named Wunderlich as a defendant because his name was on the bottom of the contract. But Wunderlich successfully petitioned the court to dismiss the claims against him.
Another case by Nextep Funding, a competitor, accused Bristlecone of stealing technology and proprietary information during a failed acquisition. Nextep Funding was founded by the same people who also founded Wags then eventually left when Wunderlich took over.
Both cases were paused by the bankruptcy. The original plaintiffs are now listed as creditors in the bankruptcy and might receive any remaining money from the Chapter 11 reorganization.
New CEO Kyle Ferguson previously told the RGJ he has no comment on pending litigation or bankruptcy until it's all over.
Bob Jordan, a reporter at the Asbury Park Press in Monmouth County and Ocean County, NJ, contributed to this story.
Mike Higdon is the city life reporter at the RGJ and can be found on Instagram @MillennialMike, on Facebook at Mike Higdon, Reno Life and on Twitter@MikeHigdon.