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.
