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Financial services company Bread Financial Holdings Inc. and its CEO have asked an Ohio federal judge to toss a proposed investor class action over the alleged "death spiral" of a now-bankrupt spinoff company, saying the suit actually details Bread's "good faith efforts" to establish the spinoff as a successful independent venture.

In a dismissal bid Friday, Bread and CEO Ralph Andretta told U.S. District Judge Edmund A. Sargus Jr. and U.S. Magistrate Judge Elizabeth Preston Deavers that allegations from New York-based financial management firm Newtyn Partners LP should be dismissed with prejudice. Setbacks sustained by Bread spinoff Loyalty Ventures after it became a separate company, the defendants argued, "are not a basis for claiming fraud."

Bread pointed out that it had retained a "significant" 19% equity stake in its spinoff, which was at one point valued at about $50 million, as support for its contention that Bread had a literal vested interest in Loyalty Ventures' prosperity.

Based on that investment, Bread argued, the most plausible inference would be that it "believed that the spinoff would be in the best interests of [Bread] stockholders, and that Loyalty Ventures had sound prospects for success as a stand-alone company."

In the most recent version of the investor suit, filed in March, Newtyn Partners alleges that Loyalty Ventures was in "absolute freefall" at the time that Bread spun it off.

Bread Financial, previously known as Alliance Data Systems Corp., issues credit cards for retailers including the NFL, roadside service organization AAA, and Ulta Beauty. It also offers other financial products, such as personal loans and savings accounts.

Loyalty Ventures was created to operate "data-driven, tech-enabled global" loyalty programs for Bread's retailer clients, according to Bread.

According to Newtyn Partners, the spinoff deal saw Loyalty Ventures raise over $650 million in new debt that allegedly was used to help fund a $750 million cash payment to Bread as Bread was "struggling mightily" to fund its credit card operations.

But only 16 months after the spinoff, Loyalty Ventures filed for bankruptcy in Texas and kicked off insolvency proceedings in Canada, telling the U.S. bankruptcy court that it had $656 million in secured debt and citing the loss of sponsor contracts among the key drivers of its issues. Loyalty Ventures "subsequently liquidated its assets for pennies on the dollar," Newtyn Partners alleges.

At the heart of Loyalty Ventures' troubles was a decision by its second-largest client, Canadian grocery chain Sobeys, to terminate its contract with the company by the end of 2022, Newtyn Partners alleges. The suit claims Bread knew of this for months prior to the spinoff and should have disclosed this to investors.