Deal could face financial insolvency after backing family business

By Alan Judd

The Atlanta Journal-Constitution

In the midst of his campaign for governor, Nathan Deal faces such dire financial troubles that he must sell his home to avert foreclosure or bankruptcy.

Even if Deal liquidates all his assets, however, he still might be unable to repay a nearly $2.3 million business loan, documents reviewed by The Atlanta Journal-Constitution indicate. The loan comes due in full Feb. 1 — less than one month after Deal hopes to take office.

Deal’s troubles center on a failed business venture by his daughter and son-in-law. Deal and his wife, Sandra, invested about $2 million, but lost their entire stake when the business failed. The Deals also guaranteed a series of bank loans to the business as its debt doubled and then quadrupled.

Finally, the daughter and her husband declared bankruptcy, leaving the Deals solely responsible for an obligation that exceeds the net value of everything they own.

Officials with Deal’s campaign confirmed that the candidate is in a precarious financial position. They described the debt as a sensitive matter for Deal and his wife and their three grown daughters.

“There’s some financial sacrifice, and there’s some financial heartburn there,” said Chris Riley, Deal’s campaign manager.

In a statement late Tuesday, the campaign said: “Like most Americans, Nathan Deal has suffered financial losses over the last four years. He has obligations, and he will meet them.”

Nevertheless, the looming repayment deadline presents a set of unattractive options for Deal, a Republican from Gainesville: He could declare bankruptcy and ask a judge to void the debt. He could sell as many assets as possible and ask the bank to write off the loan’s balance. Or he could default on the loan, forcing the bank to seize property he used as collateral and possibly sue him for the remainder.

Any scenario could leave Deal effectively insolvent.

Deal has publicly addressed the loan’s effect on his financial standing just once: in his written response to an ethics investigation that began before he resigned from the U.S. House of Representatives in March.

Deal was accused of using his congressional staff to pressure state officials to continue a vehicle inspection program that had paid hundreds of thousands of dollars to an auto-salvage company in which he is a part owner. He told investigators he was forced to tap into his equity in the salvage firm — at a rate of $75,000 a year — because of his daughter and son-in-law’s failed business.

“I provided some capital to them to start the business and also co-signed a commercial loan for the business,” Deal wrote to the investigators. “Despite their best efforts, the business did not succeed.”

“The vast majority of my investment,” he said, “has been lost.”

‘No assets — No value’

It must have seemed an ideal spot for a sporting-goods store focused on hiking, hunting and other outdoor pursuits: 1-1/2 
acres beside Ga. 365, the busy main highway leading from Gainesville through Habersham County into the mountains of northeast Georgia.

Carrie Deal Wilder and her husband, Clint, went to her parents — Nathan Deal, then the area’s congressman, and Sandra Deal, a retired teacher — for financial help in starting their business in 2005, according to public records and interviews.

In addition to investing about $2 million, the Deals signed papers in December 2005 guaranteeing payment on the first of what would become a series of loans: $506,000 from Gainesville Bank & Trust. Construction began on a 14,000-square-foot metal building, the front of which would be decorated to look like a log cabin.

The loan, backed by the property on Ga. 365, was scheduled to mature in September 2006. But that June, the Deals and the Wilders refinanced, pushing the due date back into the next year.

And in October, they went to another financial institution — Community Bank & Trust of Cornelia — for a second loan of about $1 million, according to documents filed in the Habersham County Courthouse. The Ga. 365 property again served as collateral, along with the Wilders’ home in Demorest.

Wilder Outdoors opened for business on Nov. 24, 2006.

The next summer, the business needed more cash. The Deals signed papers in June 2007 that increased the loan from Community Bank by $252,000. By the time it had been open seven months, the store had accumulated debt totaling almost $1.8 million.

Early in 2008, Wilder Outdoors needed even more money. Community Bank approved a new loan of $2.4 million, with which the Wilders and the Deals paid outstanding debts and provided the business with more capital. They were to make monthly payments of $15,000 for 23 months, according to loan documents, and then pay the remainder — almost $2.3 million — no later than Feb. 1, 2011.

Community Bank, founded in 1900, had come under scrutiny from federal regulators. In the three years since its long-time chief executive had died, the bank’s lending practices had devolved into disarray, the Federal Deposit Insurance Corp. would later report. Bank officials failed to sufficiently analyze the finances and cash flow of commercial borrowers. They didn’t adequately appraise property used as loan collateral. They didn’t keep track of construction projects their loans were financing. The FDIC would later list numerous instances of what it called “questionable lending activity.”

Regulators shut down Community Bank this January.

When the bank increased the loan for Wilder Outdoors in 2008, it required that the store’s inventory and equipment be listed as additional collateral. The property on Ga. 365, however, remained the primary security, even though it was valued at only about $700,000 — less than one-third the amount of the new loan.

The repeated cash infusions couldn’t keep the store afloat. On March 31, 2009, Wilder Outdoors closed.

In July, Carrie and Clint Wilder filed for bankruptcy, listing the business loan among their debts.

Their description, in court papers, of Wilder Outdoors: “No assets — No value.”

‘He lost a lot of money’

Last November, a federal bankruptcy judge wiped out the Wilders’ debts, including their obligation to Community Bank. The Deals, however, got no relief.

The bankruptcy of one borrower “will not alter the liability of another party,” said Frank Alexander, who teaches bankruptcy law at Emory University.

A liquidation sale brought in enough money to persuade the bank to forgo the $15,000-a-month payments called for in loan papers. Still, being required to assume full responsibility for the loan clearly has devastated Nathan Deal’s finances.

“He lost a lot of money,” said Brian Robinson, a spokesman for Deal’s campaign. “He lost $2 million off the top, and there’s another $2 million he’s on the hook for.”

Deal earned a relatively modest income over the past three decades — an average of $150,000 a year since 1981, according to tax documents he released in early September. Deal’s Democratic opponent, former Gov. Roy Barnes, has averaged about $1 million a year in income since 1984, his tax records show.

For Deal to repay the Wilder Outdoors loan, aides said, he has no choice but to sell his most valuable asset: his home in Gainesville.

Deal bought the property seven years ago for $430,000, according to public records. On 5 acres, it features a main house of about 4,000 square feet, a 1,900-square-foot guest house and a pool. Deal listed the property for sale about a year ago for $985,000, its assessed market value, but has not found a buyer.

He owes about $200,000 on the house, according to a financial disclosure he filed in May, so any sale would net substantially less than the asking price.

Deal also offered the Wilder Outdoors property, valued at about $700,000, for sale. The building sits empty, its parking lot secured by padlocked gates, its once-landscaped front entrance overrun by weeds. A large for-sale sign offers the property to passersby.

The only significant asset Deal plans to keep is a cabin in Habersham County, aides said. That property, too, is assessed at about $700,000; on the financial disclosure he filed in May, Deal said he owed $610,000 on the mortgage.

The disclosure listed Deal’s net worth as slightly less than $2.1 million, including retirement accounts.

Any way Deal tries to resolve the outstanding loan carries negative political or financial consequences. Howard Rothbloom, a bankruptcy lawyer in Marietta, said in an interview he would advise Deal to sell his home and the commercial property, give the bank the proceeds and then ask the lender to write off the balance.

A South Carolina bank, SCBT, acquired Community Bank’s assets and deposits when the latter failed in January. As part of that deal, the FDIC agreed to share losses with SCBT on some of Community’s old loans. That arrangement — in essence, government help in paying off the debt — could work to Deal’s advantage, Rothbloom said.

“Everything is negotiable,” he said. “He could settle with the bank — pay them less than the full amount due in satisfaction of the debt. It’s not unusual.”