Celadon Group Inc., operator of one of the nation’s largest truckload carriers and a pioneer of NAFTA cross-border trucking, has voluntarily filed for Chapter 11 bankruptcy, the company announced in the early morning hours of Dec. 9.
The Indianapolis-based company is shutting down its business operations effective Dec. 9, except for its Taylor Express unit in Hope Mills, North Carolina, which will continue to operate as Celadon explores “a going concern sale of its operations.”
Celadon CEO Paul Svindland told HDT that the company’s plan is “to liquidate all of Celadon except for our Taylor Express subsidiary. Our intent is to ensure drivers deliver their last loads safely and will then be instructed on where to deliver their equipment.”
Celadon’s lenders have agreed to provide incremental “debtor-in-possession financing.” Chapter 11 filings typically allow the debtor to continue to operate its business in the ordinary course as the “debtor in possession.” However, the filer loses control over major decisions to the bankruptcy court, such as moving to shut down or expand operations or sell off assets.
"Celadon has faced significant costs associated with a multi-year investigation into the actions of former management, including the restatement of financial statements,” Svindland said in a Dec. 9 statement. “When combined with the enormous challenges in the industry, and our significant debt obligations, Celadon was unable to address our significant liquidity constraints through asset sales or other restructuring strategies.
“Therefore,” he continued, “ in conjunction with our lenders, we concluded that Celadon had no choice but to cease all operations and proceed with the orderly and safe wind down of our operations through the Chapter 11 process."
While Celadon has been experiencing business difficulties for several years and had attempted to restructure without bankruptcy protection, the straw that broke the camel’s back may well have been the federal indictment of two former Celadon top executives in an alleged $60 million fraud scheme, which was unsealed on Dec. 5.
Less than eight months before, the Department of Justice announced that Celadon had agreed to pay $42.2 million in restitution for filing materially false and misleading statements to investors and falsifying books, records, and accounts.
In early 2017, the company posted a $10 million operating loss in the first quarter of the year and was threatened with delisting its stock on the New York Stock Exchange. Current CEO Paul Svindland was named to his position later that year, as Celadon began divesting itself of some of its businesses, selling off its flatbed operations and its driver training business. Earlier this year, it sold its logistics business and its intermodal business.
In late July, Celadon announced that it has refinanced its former revolving credit facility and obtained $165 million in new financing. In the announcement, Celadon said the funding would “provide a platform for the company to engineer a turnaround,” including replacing 2,000 tractors with new units in the next few quarters.
At the date of its shutdown, Celadon was operating a fleet of some 3,300 tractors and 10,000 trailers with nearly 4,000 employees. Estimates of the number of drivers in the fleet range to over 3,000.
Beyond the immediate impact on shippers awaiting loads and, of course, on the Celadon drivers and other employees who will lose jobs, there’s no hard-and-fast equation to compute the aftermath of a large carrier closing.
That being said, Avery Vise, vice president of trucking for freight forecasting and analysis firm FTR, told HDT that, “The truckload freight market is so large and fragmented that the loss of a carrier with even a couple thousand trucks would not have any significant impact on capacity, rates, or the driver supply.
“This is especially true at a time, such as today, when capacity utilization is well below average,” he continued. “Certainly, an abrupt shutdown would cause some disruptions for the defunct carrier's customer base, but those challenges generally would be resolved with a week or so, perhaps even within a few days.”
On the other hand, Vise allowed that, "One unusual factor that could cause some near-term challenges is the very low capacity in the spot market, which typically would be the principal initial recourse following a major carrier shutdown. Spot truck availability for dry-van freight has been below even last year's low levels through most of 2019."