Celadon Group, one of the US’ largest full truckload providers has entered Chapter 11 administration. Triggered by a breach of banking covenants, the bankruptcy protection follows the arrest of senior managers at the company on allegations of fraud. It appears to be the largest failure of a US road freight provider.
Based in Indianapolis, Celadon Group has an own account fleet of over 3,000 vehicles with a significant presence in Mexico as well as being the leading full truckload provider in Indiana, Ohio and Michigan. Strong on north-south routes, it is believed to be a key provider for vehicle manufacturers with supply chains spanning both the US and Mexico. The company was founded by a former senior manager at Ford.
The problems of the group really started in 2016 when auditors pointed out issues within the company’s accounts, resulting in financial instability. The company appears to have struggled to clarify its true accounting position and has had to turn to distressed debt specialist hedge-funds to manage its liabilities. It is suggested that the refusal of these funds to offer further liquidity led to the group being forced to apply for Chapter 11. In August Celadon agreed a debt for equity swap valued at $165m for 49.9% of the company with Luminus Management, a financial services company.
The Wall Street Journal is reporting that Taylor Express, which is subsidiary of Celadon Group, is not included in the Chapter 11 filing, however it is unclear if this is correct.
The moderating of growth in the US domestic economy has generally resulted in a tougher market for US trucking companies and the pain felt in the automotive sector over the past eighteen months may have made the situation for Celadon worse. Yet it is hard not to think that the problems for the group are predominantly self-inflicted.
Although the supply side in road freight is generally infinitely flexible, taking a large provider out of the centre of the US trucking market may well have short-term benefits for Celadon’s competitors especially in the automotive logistics segment of the market. Equally major vehicle manufacturers and component suppliers with facilities in the US and Mexico will be scrabbling to find new trucking providers.
Source: Transport Intelligence, December 10, 2019
Author: Thomas Cullen