Bankruptcy may be the end of the road for many trucking companies, but it’s becoming a route out of the recession for a few. And for investors willing to pick up a trucking business or its assets at a low price, bankruptcy court can be a fire sale.
Take Jim Palmer Trucking. Saddled with nearly $2 million in debt, reportedly late on loan payments and facing fuel prices pushing $5 a gallon, the Missoula, Mont.-based truckload carrier filed for Chapter 11 bankruptcy protection in July 2008.
A smaller, leaner JPT finally emerged from under its last bankruptcy cloud last month when Milan Kangrga and Blazo Gjorev, Chicago-area owners of a flatbed trucking business, purchased the carrier for an undisclosed amount.
The Croatian immigrants will keep JPT President Lonnie Wallace in place. Jim Palmer, who founded the company 33 years ago, will stay as a consultant. “What we are buying is Jim Palmer’s commitment to its customer service and its respect for customers,” Kangrga told the Missoulian newspaper.
“It’s time for new ideas, and these guys are really smart,” Palmer told the local newspaper. “They know what’s really going on in the industry.”
The sale comes as trucking bankruptcies have declined, even as the freight demand remains far below the levels of three years ago, and capacity remains plentiful, pressing carrier finances to what should be the breaking point. Yet Avondale Partners, an equity investment firm, said the 850 bankruptcies reported in the first half of 2009 were far below the 1,905 reported in the first half of 2008. Industry observers believe the rapid decline in fuel prices in late 2008 gave many troubled companies a reprieve and that banks are reluctant to push companies to the wall and be left with low-assets in a depressed equipment market.
Reorganization was a painful path for Jim Palmer Trucking. Last July, JPT had 425 employees. Now it has about 280. Under Chapter 11, the company restructured leases, cut wages and made operational changes, increasing the share of its fleet handed by owner-operators 72 percent.
JPT also had to tangle with a former business partner that claimed to have loaned the carrier $250,000 shortly before the carrier declared bankruptcy, scuttling an acquisition plan.
“While the bankruptcy was a difficult period for us, the restructuring strengthened our operations and our continued viability,” Wallace said in May, when the company announced it had settled with all but one of its creditors. “Over the last year, we have seen over 7 percent of capacity exit the industry. We are very fortunate to have survived these challenging economic times.”
Wallace was not available to discuss the bankruptcy and sale last week.
Another trucking company to reorganize and emerge from Chapter 11, Gainey Corp. of Grand Rapids, Mich., was sold last month at auction to one of its largest creditors. Wayzata Capital of Minneapolis agreed Nov. 17 to pay $77.8 million for the parent of Gainey Transportation Services, which went into bankruptcy protection in October 2008, reportedly in default on $238 million in loans from Wachovia Bank.
Wayzata outbid Najafi, an Arizona-based private equity firm whose earlier $105 million proposal to buy the company was thrown out by a bankruptcy judge as “a ‘Monopoly’ free pass” to company insiders, including founder and CEO Harvey Gainey, whose financial practices came under fire during bankruptcy hearings. Najafi will get a $1.3 million “breakup” fee.
The investment management company plans to keep the specialized and dedicated truckload operator in business, and may hire Gainey as CEO. “We plan to grow the company,” a spokesman told The Grand Rapids Press after the auction, preserving the jobs of about 1,700 employees.
As JPT and Gainey emerged from Chapter 11, Standard Forwarding entered, filing for bankruptcy protection Nov. 13. A Midwestern regional less-than-truckload carrier founded 75 years ago, Standard has been struggling with health and pension costs that it says placed severe pressure on its operating margins. “One example is union pension contributions that have grown to $7.80 per hour,” as the company pays into a multiemployee pension plan that includes retirees from failed companies.
It’s the same situation confronting far larger Teamster carriers such as YRC and ABF Freight System that belong to multiemployer pension and benefits plans, and which is targeted by legislation introduced last month in the House.
Working with investment banking firm Mesirow Financial, the East Moline, Ill., company arranged a pre-packaged Chapter 11 Section 363 sale to The Anderson Group, a Michigan-based private equity firm, which will purchase its assets. While that transaction moves forward, it’s business as usual, said John Ward, president.
“We have the full backing of our bank,” he said. “Management and the buyer are absolutely dedicated to assuring customers a seamless transition.”
Ward didn’t expect Standard’s 460 employees to lose their jobs, but the fate of their contract and pensions is unclear.
Contact William B. Cassidy at firstname.lastname@example.org.