Bankrupt Freight Hauler NEMF Wins Approval to Tap Cash
Date: Friday, February 15, 2019
Source: The Wall Street Journal
Banks say NEMF owner should finance bankruptcy
New England Motor Freight Inc. settled a court fight with banks worried they would be left unpaid in the trucking company’s bankruptcy, while longtime Chairman Myron P. Shevell still owes the company millions.
One of the largest trucking companies in the Northeast, the Elizabeth, N.J., freight hauler filed for bankruptcy protection Monday, blaming the loss of customers, high labor costs and lack of cash to refurbish its aging fleet.
The collapse of NEMF after more than a century of operations came after efforts to renegotiate credit agreements with its lenders failed amid mounting debt and a projected 2019 operating loss of $24 million, according to bankruptcy court filings.
To repay creditors owed tens of millions of dollars, NEMF plans to sell two businesses and liquidate the rest of its assets. To start rounding up 9,000 vehicles and trailers for a bankruptcy auction, NEMF sought permission to tap its cash, including money held as collateral in TD Bank N.A. and JPMorgan Chase & Co. accounts.
The banks fought back Wednesday during a hearing in the U.S. Bankruptcy Court in Newark, N.J. If the trucking company needs money to finance its chapter 11 wind down, it should collect from Mr. Shevell, and leave the money in its bank accounts alone, they said.
“Why is it our money and not the owner’s money that should be used?” asked Alan Brody, lawyer for JPMorgan, at the hearing where NEMF asked Judge John Sherwood to authorize the spending.
The judge pushed the banks and the company to reach a compromise, commenting that NEMF needs immediate cash, but it will ultimately have to pay TD Bank and JPMorgan.
Mr. Shevell couldn’t immediately be reached for comment.
The $9 million loan is recorded in court documents as a loan to NEMF’s owner. Mr. Shevell and a family trust own the company. NEMF said Mr. Shevell began repaying the loan before it filed for bankruptcy. As part of a deal that will allow the company to use $3 million of the bank account cash until March 4, Mr. Shevell has agreed to pay back another $1.5 million in the coming weeks, a lawyer for the company said.
Mr. Shevell is the father-in-law of musician Paul McCartney, and his daughter, Nancy Shevell, has held various roles in the company, including vice president.
NEMF is the 19th-largest U.S. carrier in the less-than-truckload sector, where operators combine shipments from multiple customers on each truck, according to industry research group SJ Consulting Group Inc.
Profitable for decades, the company ran into trouble at the end of 2018, when it lost some major customers. Surprisingly, its financial difficulties followed one of the strongest years in recent memory for the broader trucking industry, as surging freight volumes, strong economic growth and tight capacity fueled record earnings for many carriers.
But NEMF’s fortunes were sliding as it burned through cash and logged an estimated operating loss of $20.9 million in 2018, according to court filings. Revenue also dropped, with the company and its affiliated businesses projected to generate $370 million in gross revenue last year, from $373 million in 2017.
Employee costs for NEMF’s workforce—more than half of which is represented by the International Association of Machinists and Aerospace Workers—is also “substantially above industry norms,” according to court papers.
Instead of attempting a turnaround, NEMF decided to sell two divisions, Eastern Freight Ways Inc. and Carrier Industries Inc., as operating business. The rest of the company will be liquidated.
The union didn’t immediately respond to requests for comment. On Monday NEMF and the union reached an agreement, which requires court approval, on a severance package for terminated union employees. Wrapping up the trucking company’s affairs presents a logistical challenge, lawyers said at Wednesday’s court hearing. NEMF is working to deliver the loads now on its trucks, then stage thousands of vehicles for auction, a lawyer for the company told Judge Sherwood.
That is why it needs money immediately despite decisions to idle much of the operation and layoff people.
NEMF’s trucks pay hundreds of thousands of dollars in tolls, for example, and failure to keep up with those payments could cause problems.
Judge Sherwood signed off on interim orders authorizing the company to make payroll and pay essential bills. The proposed settlement with the union representing many NEMF truckers and other major items in the case will be worked out in future court hearings.