Thomas Allison, the new restructuring officer for USA Capital, says investors in the company are not "going to lose all of their money." Photo by K.M. Cannon.

Thomas Allison, the interim chief restructuring officer for USA Capital, said he feels a little like a sheriff, albeit a sheriff dressed in pinstriped suits who speaks softly like the banker he once was.

"I'm here as the new sheriff in town," said Allison. "My job right now is to rectify the past and look to the future, turning this business around."

The owners of USA Capital, the $950 million asset private lender that filed for bankruptcy protection two weeks ago, selected Allison to help turn around the insolvent company. Bankruptcy Judge Linda Riegle appointed Allison to run the insolvent private lending company, primarily for the benefit of 3,600 individual investors who plowed cash into mortgage loans originated at USA Capital.

Allison is urging investors to be calm and patient.

"We're taking the steps that are necessary to turn this business around. What we need is some patience now," Allison said. "I understand the angst of the investors. People are going to lose some of their money, but they're not going to lose all of their money."

USA Capital was paying interest on all its loans, although many were delinquent. Before Allison's appointment, USA Capital filed monthly reports with the Mortgage Lending Division, falsely showing that all of its borrowers were making timely loan payments.

USA Capital filed for bankruptcy court protection, because it got to the point where it didn't have the cash to make these interest payments, Allison said.

Allison said he intends to restore the company to financial health, continue operations and bring it out of Chapter 11 bankruptcy as an ongoing concern.

Chapter 11 allows for businesses to reorganize, unlike Chapter 7 bankruptcy, which provides for a liquidation of assets for the benefit of creditors.

Allison cited his and his firm's track record of resuscitating big, troubled businesses. He is executive vice president of Mesirow Financial, the Chicago-based turnaround company that helped United Airlines emerge from bankruptcy as an operating business in February. Mesirow is helping Delta Air Lines with its Chapter 11 bankruptcy.

For a company more similar to USA Capital, Allison pointed to Illinois-based Comdisco Holding Co., a $15 billion leasing company. He helped Comdisco successfully shed bankruptcy in 2002.

Allison started his career dealing with problem loans at First National Bank of Chicago. He served as the partner-in-charge of Arthur Andersen's restructuring practice. He is founder and former chairman of the Association for Certified Turnaround Professionals.

"We're open for business, and we are continuing to evaluate new opportunities," Allison said. "We're working very hard to straighten this business out. We're working very hard to get the investor's money back."

Some industry insiders wonder how USA Capital will be able to raise money from investors, given the credibility the company lost when it filed for bankruptcy.

Private lenders such as USA Capital solicit money from individual investors and use that money to make high-yield, short-term mortgage loans to developers, home builders and others with real estate to secure the loan.

Investors are attracted by the double-digit interest they can earn on these loans and by the relative security of having real estate as collateral, but the loans have risks. The Mortgage Lending Division this week disclosed that 62 of the 107 loans at USA Capital are two months or more behind in payments.

The owners of USA Capital owned stakes in many of the projects that are delinquent, Mortgage Lending Commissioner Scott Bice said.

The next level of protection is the real estate that secures the loans.

Allison said the loans he has reviewed had appraisals suggesting the value of the real estate exceeded the loan amount when the loans were funded. He said he intends to ask the judge for authority to retain Hilco Appraisal Services to reappraise the collateral. If approved, Hilco will be directed to complete the appraisals within 30 days, he said.

Allison said he is working hard and fast to restore USA Capital to financial health. He hopes to file a bankruptcy reorganization plan within a year, but first he intends to sort through the accounts and determine who owns what interest in which loans.

"We're taking time out to sort out each of the investor's positions," he said.