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May 17, 2020 – Comcar Industries, Inc. and 32 affiliated Debtors (“Comcar” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11120. The Debtors, a national truck transportation services company, are represented by Stuart M. Brown of DLA Piper LLP (US). Further board-authorized engagements include (i) FTI Consulting, Inc. as financial advisors (also supplying a Chief Restructuring Officer), (ii) Bluejay Advisors, LLC ("Bluejay") as investment banker and (iii) Donlin Recano as claims agent.
The Debtors’ lead petition notes between 50 and 100 creditors; estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $50.0mn and $100.0mn. The Hinkelman Declaration (defined below) adds "As of March 27, 2020, the Company had total assets of approximately $66.7 million on a net book basis. The Company’s liabilities totaled approximately $85.6 million as of March 27, 2020, consisting of $39.2 million in current liabilities and $46.3 million in long-term liabilities." Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Hilda, Jorge and Claudio Montes ($100.0mn disputed, contingent litigation claim), (ii) Rachel Crust ($12.0mn disputed, contingent litigation claim) and (iii) Violene Ferdinand ($4.0mn disputed, contingent litigation claim).
In a press release announcing the filing, Comcar "announced its intent to sell its various operating companies….As a result of separate agreements, CT Transportation LLC will be sold to PS Logistics, LLC, CTL Transportation LLC will be sold to Service Transport, Inc. and MCT Transportation LLC will be sold to White Willow Holdings. The company has also entered into a letter of intent for the sale of CCC and CTTS Repair."
In concunction with investment bankers Bluejay (engaged March 15, 2020), the Debtors have already run a sales process and identified purchasers for substantially all of their assets. Citing the quality of the bids and the value of an accelerated sales process, the Debtors will eschew an auction process and seek Court approval of four separate private sales.The Hinkelman Declaration provides: "[T]he Company has received indications of interests for all business segments. Specifically, the Company received two indications of interests to purchase substantially all assets, including equipment, equipment lease agreements and real estate owned by CTL; two indications of interest to purchase substantially all assets, including equipment, owned by CT; one indication of interest to purchase substantially all assets, including equipment and leases, owned by CCC and CTTS; and one indication of interest to purchase substantially all assets owned by MCT.
The Company, in their business judgment and in consultation with their advisors, determined that the indications of interest received from Adams Resources & Energy, Inc. and Service Transport Company ('Adams Resources') and P&S Acquisition, LLC ('PSL') were the highest and best of the offers received to purchase substantially all assets of the CTL and CT business units, respectively.
While the Acquired Assets could be put up for auction, the terms offered by the Purchasers are materially superior to the terms that the Debtors could hope to achieve at any auctions for the Acquired Assets. Further, the Purchasers have agreed to consummate the private sale transactions sooner than if the Debtors were required to subject the Acquired Assets to an auction. I believe that it is unlikely that an auction for the Acquired Assets will lead to higher or otherwise better bid for the Acquired Assets. Accordingly, I believe it is in the best interest of the Debtors to proceed with private sales of the CTL and CT, and, separately, the MCT business divisions.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Hinkelman Declaration”), Andrew Hinkelman, the Debtors' Chief Restructuring Officer, detailed the events leading to Comcar's Chapter 11 filing.The Hinkelman Declaration provides: "The Company has experienced a long period of financial distress and liquidity challenges, which have resulted in sub-optimal economic outcomes. Beginning in 2014 with its entry into the Prepetition ABL Credit Agreement, the Company has carried a high debt load…The trucking industry has experienced significant headwinds starting in 2019. During the first half of 2019, the $800 billion American trucking industry began to experience a recession and a reported 640 trucking companies went bankrupt. By mid-2019, the trucking freight market continued to soften. The combination of a decline in overall freight tonnage and excessive truck capacity in the market led to a significant decline in freight rates, and customers began to take bids at lower freight rates. Compared to the year immediately prior, 2019 showed a steady decline in freight rates, including spot freight rates and contractual rates.
In addition to declining freight rates, volumes of loads in freight experienced decreasing numbers for a significant portion of 2019. During 2019, truck volumes decreased for nine consecutive months and the trucking industry braced itself for a decrease in demand through the third quarter of 2020. As a result, spot and contract prices, which increased thirty percent (30%) in 2018, decreased twenty percent (20%) in 2019. The decrease in truckload linehaul rates was driven by (1) spot rates that were below contract rates by unsustainably larger margins than, (2) capacity additions and (3) stalled growth in the consumer and industrial economy. 30.These events left a number of trucking companies in distress.
Though in September 2019, the United States government reported that 4,200 truckers lost their jobs, the Company was experiencing a significant seated truck shortfall in 2019 with a one hundred net driver deficit. In December 2019, Company reported a year-over-year decrease in revenue of approximately twenty-six percent (26%) across all business units…The Company’s four divisions collectively lost a total of $25 million in 2019 and $6.0 million through March 27, 2020.
During this time, beginning in mid-2019, the Company began replacing its C-Suite members by adding a VP, Corporate Counsel, Human Resources & Risk Management in April 2019, a CEO in November 2019 and a CFO in January 2020."
About the Debtors
The Debtors comprise a transportation and logistics company headquartered in Jacksonville, Florida. Through a series of acquisitions in the 1980s, the Company expanded its transportation offerings and Comcar became the parent company of a four-division national truck transportation services company, offering trucking, warehousing, truck parts and truck and trailer repairs. Currently, the Company is one of the largest privately-owned transportation companies with over forty strategically-located terminal and satellite locations across the country.
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