Accounting Fraud & Freight Recession Topple Celadon, Largest Truckload-Carrier Bankruptcy in US History
Creditors trying to repossess trucks over the weekend. Thousands of drivers on the road, some stranded. Employees left in the dark. Shares plunge 93% this morning from nearly nothing to practically nothing.
By Wolf Richter for WOLF STREET.
Celadon Group, one of the larger full-truckload operators in the US with about 3,000 drivers and about 2,700 tractors, said today – confirming days of rumors – that it filed for Chapter 11 bankruptcy and is ceasing operations. This is the largest truckload carrier ever to file for bankruptcy in US history.
The drivers, hauling loads across the US, Canada, and Mexico were apparently among the last to be informed. According to Freight Waves, they received this message in the middle of the night on their telematics devices:
“Fleetwide message: We regret to inform everyone that Celadon Group, Inc. has filed for a Chapter 11 Bankruptcy. We will continue to haul and deliver all loads that we now have in transit. We will have more information in the morning as to where equipment needs to be returned to.
We have been assured that everyone who follows instructions will be paid for the work and miles assigned and completed, and Celadon will not leave anyone stranded away from home. Finally, we truly appreciate your commitment and dedication to this company, and wish you all luck moving forward. Celadon Management.”
Other employees were told to attend a meeting this morning at the headquarters in Indianapolis. Celadon said its North Carolina-based Taylor Express would continue to operate.
The company’s shares [CGIP] plunged 93% this morning from nearly nothing (41 cents on Friday to practically nothing (2.7 cents). The stock had been delisted from the NYSE last year and is trading over the counter.
Celadon CEO Paul Svindland said in the statement reported by the Wall Street Journal: “We have diligently explored all possible options to restructure Celadon and keep business operations ongoing, however, a number of legacy and market headwinds made this impossible to achieve.”
These “headwinds” are multiple and include a federal investigation into accounting fraud, filing fake financial statements, and lying to auditors to hide its losses mostly at its truck leasing business, Quality Companies LLC, leading up to 2016.
In April 2019, the company agreed to settle these allegations for $42.2 million. Among its debts in the bankruptcy filing are $33 million it still owes the Justice Department. And last week, its former chief operating officer and chief financial officer were indicted on allegations of fraud.
The last quarters for which the company has filed financial statements were in 2016. But these are the fake financial statements, and the company has been working on restating these financial statements going back to 2014. So it has been hard to figure out for investors what is going on.
In terms of revenues for 2018, even when the rest of the industry was awash with business during the historic freight boom that peaked in the summer of 2018, Celadon’s revenues fell 11% year-over-year to $762 million, according to SJ Consulting cited by the WSJ. But that boom ended in the last quarter of 2018, and a freight recession has since set in, putting even more pressure on Celadon.
So far this year, the freight recession and other issues have knocked over hundreds of smaller trucking companies and a few regional ones that had already been having trouble. According to transportation data firm Broughton Capital, cited by the WSJ, trucking company failures more than tripled over the first three quarters of 2019 compared to the same period in 2018, to 795 shutdowns. Most of them were small or mid-size. But it also included regional carriers, such as New England Motor Freight which collapsed in February, and major car-hauler Jack Cooper which filed for Chapter 11 bankruptcy in August.
Since the end of Q3, the surge of bankruptcy filings has continued, including family-owned Hendrickson Truck Lines in California, with about 90 trucks and 97 drivers, which filed for bankruptcy at the end of November.
But each time a trucking company ceases operations, such as Celadon, it takes some capacity off the road, in an industry that currently struggles with overcapacity. And the remaining carriers benefit by picking up the business
Freight Waves reported that competitors are reaching out to Celadon’s drivers with offers to assist them and expressing interest in hiring them, and they will likely find jobs in the industry. Employees at Celadon’s headquarters in Indianapolis are going to face the local job market.
Celadon’s difficulties came to a head last week, according to FreightWaves:
- On December 5, amid wild rumors, lenders were reportedly repossessing equipment from Celadon.
- On December 6, a source told Freight Waves about the impending bankruptcy filing.
- On December 7, Friday, Celadon started informing its largest customers to find other carriers but left its own employees in the dark. In the evening, Celadon’s customer service staff found out from customers and driver managers from drivers that Celadon was in trouble.
- By that time, FedEx and others had already cut the company off. Walmart, MillerCoors, and Conagra started to cancel pre-planned loads.
- Over the weekend, Comdata shut off fuel cards, and FreightWaves “heard reports from other carriers’ drivers who witnessed Celadon trucks being repossessed and towed away from truck stops.”
November was supposed to be the second month in what would be the upturn from the historic collapse in 2019 of orders for heavy trucks. But instead, orders plunged again. Read… Trucking “Thrives on Stability, But We’re Now on a Rocky Road”
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