Benworth - Notice of Default Letter (draft)

Summary

Draft notice-of-default letter dated February 27, 2024 from the Federal Reserve Bank of San Francisco, by Vice President Wallace Young, to Bernardo E. Navarro, President of Benworth Capital Partners LLC, on advances under the Paycheck Protection Program Liquidity Facility (PPPLF). It declares that Events of Default have occurred, citing that the SBA denied guaranty purchase applications for over 3,600 PPP loans pledged as collateral and that, on December 27, 2023, Benworth said an arbitrator's interim award would require it to pay Oto Analytics (d/b/a Womply) over $86 million. It states that Benworth's obligations have become full recourse and reserves all rights, including taking possession of the collateral. The two-page letter was filed August 2, 2024 as Document 146-6 in Case 3:23-cv-01034-GMM and the signature line is blank.

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Full text

1
INTERNAL FR/OFFICIAL USE // EXTERNAL
February 27, 2024
VIA EMAIL
Bernardo E. Navarro
President
Benworth Capital Partners LLC
bnavarro@benworthcapital.com
Re:
Paycheck Protection Program Liquidity Facility
Dear Mr. Navarro,
As you know, the Federal Reserve Bank of San Francisco (the “Reserve Bank”) has made
advances (“Advances”) to Benworth Capital Partners LLC (“Benworth” or the “Borrower”) under
the Paycheck Protection Program Liquidity Facility (the “PPPLF”) pursuant to the Paycheck
Protection Program Liquidity Facility Letter of Agreement dated May 4, 2020, January 14, 2021
and January 30, 2023 (each, a “Letter of Agreement” and collectively, the “Letters of Agreement”)
and also the Federal Reserve Banks’ Operating Circular No. 10 (“Operating Circular” and, together
with the Letters of Agreement, the “PPPLF Agreement”). Except as provided in this letter, terms
defined in the PPPLF Agreement have the same meaning when used in this letter.
We write with respect to various defaults that have occurred under the PPPLF Agreement.
The Reserve Bank reserves all of its rights and remedies with respect to all such defaults, and
generally under the PPPLF Agreement.
Various facts and circumstances have occurred that have caused the Reserve Bank to
conclude that Events of Default, as defined in the PPPLF Agreement, have occurred. Among other
things, Benworth informed the Reserve Bank that the U.S. Small Business Administration (the
“SBA”) has denied guaranty purchase applications for over 3,600 PPP Loans pledged as PPPLF
Collateral which could result in these PPP Loans not being fully guaranteed by the SBA. Moreover,
Benworth has provided various facts to the Reserve Bank regarding the concerning state of
Benworth’s financial condition. On December 27, 2023, Benworth informed the Reserve Bank that
it is in arbitration proceedings with Oto Analytics (d/b/a “Womply”), and that the arbitrator issued
an interim award that would require Benworth to pay Womply over $86 million. Benworth
acknowledged to the Reserve Bank that it may not have access to sufficient funds to pay Womply
the amount of the interim award or any larger amount that may be finally awarded, which assertion
is supported by Benworth’s financial statements provided to the Reserve Bank.
While the PPPLF Agreement does not require formal notice of defaults under the PPPLF
Agreement, we wish to memorialize and provide notice of certain of the Events of Default that
have occurred, without waiver of any other defaults that have occurred or may occur in the future.
Accordingly, we hereby declare and provide notice to Benworth that Events of Default have
occurred, as defined in the Operating Circular, including, without limitation, under sections (ii),
(iii) and (vii) of the definition of an Event of Default. See Operating Circular at 2-3. The failure to
include reference to other defaults or Events of Default in this letter does not constitute a waiver
Case 3:23-cv-01034-GMM     Document 146-6     Filed 08/02/24     Page 1 of 2

2
INTERNAL FR/OFFICIAL USE // EXTERNAL
of any such other defaults or Events of Default, or of any rights or remedies that may be available
under the PPPLF Agreement or applicable law.
In addition to the foregoing, the Letters of Agreement state that “all Advances made to the
Borrower pursuant to the PPPLF shall become a recourse obligation if, in the sole discretion of the
Reserve Bank, the Borrower (i) has breached any representations, warranties, or covenants made
under the PPPLF Agreement or (ii) has engaged in any fraud or misrepresentation in connection
with any Advance or request to obtain an Advance under the PPPLF.” See each Letter of
Agreement at 4. Accordingly, under the terms of the PPPLF Agreement, the Reserve Bank hereby
notifies the Borrower that the Borrower’s Obligations under the PPPLF Agreement have become
full recourse obligations of the Borrower.
While the Reserve Bank hopes to continue to work cooperatively with Benworth as it has
to date, the Reserve Bank has not and does not intend to waive any rights or remedies of the Reserve
Bank under the PPPLF Agreement or applicable law; nor does it waive or acquiesce in any Event
of Default, whether or not referred to in this letter. Without limiting the generality of the foregoing,
the Reserve Bank reserves all of its rights and remedies with respect to Events of Default under the
PPPLF Agreement, including, without limitation, the right to take possession of the PPPLF
Collateral, collect all proceeds received by Benworth in respect of the PPP Loans and apply them
in accordance with the PPPLF Agreement, and the right to assert claims directly against Benworth
without first seeking recourse against the PPPLF Collateral.
The Reserve Bank hopes to continue to work cooperatively with Benworth with respect to
these matters in furtherance of the prompt and orderly repayment of the Advances and the
protection of the PPPLF Collateral.
Please
contact
Avery
Belka
(Avery.Belka@sf.frb.org)
and
Braden
Parker
(Braden.Parker@sf.frb.org) if you have any questions.

Sincerely,

FEDERAL RESERVE BANK OF SAN FRANCISCO
By: ____________________________
Name: Wallace Young
Title: Vice President, Credit Risk Management

cc:

Michael Hantman (Michael.Hantman@hklaw.com) - Holland & Knight LLP
Case 3:23-cv-01034-GMM     Document 146-6     Filed 08/02/24     Page 2 of 2

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