Dr. Phil Loan to Bankrupt Merit Street Is Unfair Deal, DOJ Says

A Justice Department unit is pushing back on “Dr. Phil” McGraw’s proposed loan to bankrupt Merit Street Media Inc., calling it an insider deal that must meet a higher standard of scrutiny.

Merit’s proposal to borrow up to $21.4 million from Peteski Productions Inc.—the company’s majority shareholder, controlled by McGraw—should be rejected because there’s no proof it was fairly negotiated or made at a fair price, the US Trustee’s office said in an objection Monday in the US Bankruptcy Court for the Northern District of Texas.

The filing by the Justice Department’s bankruptcy watchdog adds to the friction in Merit’s bankruptcy, which has included a fight with its Christian megachurch broadcasting partner and a dispute with a professional bull riding network.

Merit filed for bankruptcy on July 2. It alleged in a lawsuit filed the same day that its partner, Trinity Broadcasting Network of Texas Inc., didn’t meet its end of the bargain when it failed to distribute MeritTV and McGraw’s programming through its national footprint or provide adequate production services.

‘Roll Up’ Concerns

The US Trustee’s office said it has concerns that the proposed loan by Peteski—of which McGraw is CEO, president, and director—would “roll up” a separate $7.9 million bridge loan the company made to Merit before the bankruptcy filing.

That means the loan would receive the same higher recovery status as the $21.4 million, placing it higher than other creditors.

Peteski, which owns 66.5% of Merit’s equity, has conditioned the financing on the roll-up.

As an insider loan, a stricter “entire fairness doctrine” should apply to examining it and not a looser “business judgment” standard, the US Trustee said.

A Peteski spokesperson called the US Trustee’s objections procedural, limited, and fairly standard, in a statement Tuesday.

“Many, if not all of these limited objections, have been resolved through discussions with the other principal stakeholders, including, most notably, the Official Committee of Unsecured Creditors,” the spokesperson said. “In any event, Peteski is optimistic that the US Trustee’s limited objections will be resolved prior to the hearing.”

Sole Director

The US Trustee noted that, until two weeks before the bankruptcy filing, the daytime television personality was Merit’s sole director, raising questions over whether the negotiations were fair.

“It is unclear if there was an arms-length negotiation if Dr. Phil was representing both Merit Street and Peteski in negotiations,” the US Trustee said.

The US Trustee also raised concerns over Merit’s claims that its restructuring adviser, Portage Point Partners LLC, reached out to eight third-party lenders that were unwilling to lend it money.

There are no details on the types of lenders approached, a timeline of the contacts, or how robust the negotiations were, the bankruptcy monitor said.

The US Trustee separately said that the Peteski loan grants improper liens on the ability to claw back payments from before the bankruptcy filing, as well as transfers of assets that may have been given away at an unfair price.

Those actions don’t belong to Merit and are usually carved out for unsecured creditors, the government said.

The lending agreement also deprives Merit’s ability to recover some bankruptcy expenses, eliminates the court’s ability to adjust Peteski’s post-bankruptcy liens, and prevents junior creditors and lienholders from benefiting equally from any sale proceeds or collateral, the US Trustee said.

A hearing on the financing is scheduled for Aug. 19.

Merit Street is represented by Sidley Austin LLP. Peteski is represented by Jackson Walker LLP.

The case is Merit Street Media, Inc., Bankr. N.D. Tex., No. 25-80156, objection 8/11/25.