Joseph K. Rensin was living his dream.
He always wanted to build something from scratch, but since he couldn't paint or mold clay into fine sculpture, he did what he knew best: create a company - Creditrust Corp., specializing in the unglamorous business of collecting unpaid credit-card bills.
The company made money one way: buying large portfolios of delinquent Visa and MasterCard loans from banks for pennies on the dollar, and then collecting as much as it could from the card users.
Rensin, 35, whom associates describe as intelligent, energetic, eternally optimistic and aggressive, didn't want Creditrust simply to be successful, he wanted it to be the dominant player in the industry. And he wanted it to be wildly profitable.
Everything went his way. Started 10 years ago in a small College Park office, Creditrust grew from a two-man shop to a company employing 1,200 people at its peak. It swallowed large amounts of office space in Woodlawn and Hunt Valley for its hundreds of employees. Revenue and profit soared and its stock price raced skyward.
But in just seven months, nearly everything Rensin built collapsed. Twelve days ago, Creditrust was forced into bankruptcy protection.
"These are things that happen in the life of any business," Rensin said.
But Creditrust's rapid plunge, one that threatens its very survival, is largely the result of the company's own mistakes, industry experts say.
Those mistakes badly damaged the firm's reputation on Wall Street, helped dry up sources of critically needed capital, and raised doubts of whether Rensin could deliver promised results.
July 29, 1998, Creditrust goes public
"I feel like 100 million bucks. I feel wonderful." - Joseph K. Rensin
Rensin had every reason to be elated. Creditrust's initial public offering was a smashing success, raising $31 million. Money managers and investors couldn't get enough of the stock.
Creditrust initially planned to sell 2 million shares, from $13 to $15 each. But demand was so strong the company added 500,000 shares to the offering and increased the price to $15.50.
Despite the company's strong offering, Wall Street wasn't entirely sold on the industry. "You don't have a lot of proven models," said Joel Houck, senior analyst at A. G. Edwards & Sons Inc. in St. Louis. "You have got a lot of companies that are good operators, but they are small. All it takes is a little blip and they can hit the wall."
If Wall Street was already anxious, it got downright scared five months later, in December 1998, when the industry's biggest player, Commercial Financial Services Inc., of Tulsa, Okla., filed for bankruptcy protection.
Commercial Financial was one of the fastest-growing companies in the country. It made millions collecting on bad credit-card loans, employed nearly 3,900 employees, and its flamboyant founder, Bill Bartmann, and his wife made the Forbes 400 list of wealthiest Americans in 1998.
But if the industry leader couldn't make it, what did that mean for others?
Creditrust for a while actually benefited from Commercial Financial's debacle, buying $546 million in accounts at a steal - less than 5 cents on the dollar.
Creditrust thrived. It landed a $20 million line of credit from Sunrock Capital Corp. of Philadelphia, and its capital ballooned to $95.5 million by October 1998. Revenue more than tripled at the end of the year to $34.3 million, and profit rocketed to nearly $11 million, up from $456,000.
Still, some were not convinced that the company could sustain its success, and at least one industry leader questioned Rensin's grasp of the business.
In March 1999, Creditrust planned to raise $45 million in a secondary offering, and investors met with Rensin to talk about the transaction.
In the meeting, Rensin was asked by a money manager how much money the company would make on a new pool of delinquent credit-card accounts.
Rensin hesitated, then rattled off some numbers, the money manager recalled. After the meeting, the money manager double-checked with Creditrust's chief financial officer, and the figures didn't jibe.
"You can't bid on a piece [pool of loans] if you didn't know it by the penny," the money manger said. "We just said something is wrong. The inconsistency on the numbers was scary."
Rensin said anytime he met with investors he was with Creditrust's CFO, and they used the same numbers. "We have been very forthright and candid with all of our investors," he said.
Creditrust raised the money and bought more portfolios. It then announced plans to open its own bank. Analysts fawned over the company, giving it their highest rating, a "strong buy."
Twelve months after Creditrust went public, its stock more than doubled, reaching a high of $34.125 on July 28.
The heady times didn't last long. Four months later, Creditrust's stock skidded to about $17, and a plan to raise $100 million in a corporate bond offering failed around Thanksgiving.
"The bond market closed down tight as a drum," Rensin said. "It had nothing to do with Creditrust."
Dec. 13, 1999, $500,000 is misappropriated by a Creditrust manager
"We get over 100,000 customer payments a month. Sometimes things happen." - Joseph K. Rensin
News of the illegal transfer of funds was devastating. It didn't matter to Wall Street that Creditrust's internal controls had uncovered the matter, or even that the money had been recovered. What mattered was that the incident had occurred.
It reminded people of Commercial Financial, the bankrupt Oklahoma firm that had been accused of inflating the amount of money that it collected on delinquent credit cards. Wall Street wondered if there could be similar problems at Creditrust.
Fourteen months earlier - in light of the Commercial Financial debacle - Rensin had assured investment bankers and insurers that the company's accounting standards were beyond reproach, proclaiming that Creditrust had a "copy of every check that has come in our door since we started business."
But others worried, and they were stunned by the fact that neither the audit committee of Creditrust's board of directors nor its independent auditors was told of the misappropriated money for seven weeks.
"The fact is this thing wasn't reported timely, that is what I think got the Street nervous," said Thomas Maguire, manager of Safeco Growth Fund in Seattle, which invested in Creditrust stock. "The fact something like this could happen, that it was swept under the rug, this all bothers you."
The incident, experts say, damaged Creditrust's reputation and hurt its chances of raising money in the public markets.
"I think we have seen this play book before and I want no part of it," said an executive at an investment banking company, who asked not to be named. "The only thing acceptable to the marketplace was perfect execution of the business plan. When there wasn't perfect execution, people didn't even care what the facts said. Investors said, 'Get me the hell out of here.' It was just a pounding."
The beating was brutal.
The day after the announcement about the misappropriated funds, Tuesday, Dec. 14, Creditrust's shares slipped 12.5 percent. The next day, Standard & Poor's withdrew the company's "above average" ranking as a credit-card servicer. The stock tumbled another 21 percent, to $11.4375.
Rensin remained upbeat. "I think this is the same good company that it was 120 days ago when we hit a 52-week high. We just have to keep our eye on the ball," he said.
Five days later, on Dec. 20, Creditrust hired Goldman, Sachs & Co. to advise it on "strategic alternatives," including finding a partner to help Creditrust grow.
But a partner never emerged, and with the new year, everything began falling apart. By late February, Creditrust's fourth-quarter profit slipped partly because it had to cut back on its purchases of credit-card loans. The company said it was on the verge of getting a $55 million injection. A month later, the deal fell through.
"This is unfortunate, but it's hardly cataclysmic," Rensin said.
To Derek Derman, an analyst at Wedbush Morgan Securities, his response was vintage Rensin - making promises, but not delivering.
"He has done that consistently," said Derman, who stopped covering the company in December. "He told me to my face, 'I will not let you down.' He said he was going to get financing. He said he was going to find a strategic partner. He wasn't able to do any of that. You just don't make promises like that unless you can deliver."
Analysts, who embraced the company as it soared, began changing their minds. Their warnings about Creditrust's problems were too little too late for many investors.
Anna Dopkin, a financial services analyst at T. Rowe Price Associates Inc. of Baltimore, said many analysts whose firms have raised money for a company they cover are reluctant to issue critical reports.
"In many cases firms are willing to support the company until it is no longer clear that there is a viable business," she said. "It is common."
Things got worse for Creditrust. In April it defaulted on a $20 million loan from its lender, Sunrock. By now, its shares had plunged to the $2 range. Creditrust sued its insurer April 5, seeking $520 million in damages.
The suit claimed that Asset Guaranty Insurance Co., which insured three Creditrust asset-backed bond pools, and a senior executive of the company posted "maliciously false and disparaging statements" about the company on the Yahoo! message board.
The messages were designed to foil Creditrust's efforts to raise money in March 1999 and drive down its stock, the company alleged.
Asset Guaranty struck back two weeks later, terminating Creditrust's right to collect servicing fees on two of the pools. The move was devastating. Overnight, Creditrust lost half its accounts and $600,000 a month in servicing fees. Rensin slashed the company's work force by more than half, from about 900 to 350.
Rensin compared Asset Guaranty's move to a nuclear bomb going off in the middle of the ocean. The fallout and the tidal wave are "all coming ashore."
June 21, 2000, Creditrust files for Chapter 11 bankruptcy protection
"We think that this is the really final step necessary for Creditrust to regain its footing and to continue to grow. We are looking forward to ... measurable and sustainable steps." - Joseph K. Rensin
Creditrust's bankruptcy filing shouldn't have been a shock. The signs had been there for months: a plunging stock price, hiring Goldman Sachs to find a partner with deep pockets, the inability to raise fresh capital, the loss of servicing fees.
Still, some people were surprised. After all, just six months earlier, Rensin told The Sun that the company was "still hiring" and doing well.
The question now, as it is with every company that files for bankruptcy protection, is: Can Creditrust succeed?
Rensin has no doubt of the company's future. He says bankruptcy protection will give Creditrust time to rebuild and work out of its problems. It will also protect the company from creditors' lawsuits and enable it to negotiate better prices with vendors.
Rensin expects the company to emerge - possibly before the end of the year - with creditors paid in full. "We think it is a wonderful fresh start for us," he said.
John B. Keefe, an analyst at Ferris, Baker Watts Inc., one of Creditrust's underwriters, said he sees no reason why the company can't quickly emerge from bankruptcy and thrive, although he anticipates it growing more slowly.
He already sees progress. Creditrust has more money coming in than going out. It has slashed jobs and cut costs, and $5 million in financing from Sunrock could help it buy more portfolios and begin growing.
But others are more skeptical. Companies that collect delinquent credit-card loans need large slugs of money to grow, and the purse strings have cinched.
"Do I think it comes back? No, I don't think it comes back," said a money manager.
Dopkin said the chances are not impossible, but slim. "In this industry ... I can think of one exception of a company that has gone this far down that has recovered."
Derman expects a vastly smaller company, more like it was years ago when Rensin began creating it.
"I don't think his company has any real long-term chance of success," Derman said. "I just see him running this little mom-and-pop company, and there are hundreds of those in this business."
That is certainly not what Rensin envisioned. Always the optimist, he sees a bright future for Creditrust.
"We have a saying here in our office, that as long as people go to the mall and overspend, we will always have a job."