The clock is ticking for all 34 trucking companies that participated in K-Ratio X’s now-defunct fuel hedging program to sign a universal settlement agreement as six carriers continue negotiations with the Chicago-based company and its team of attorneys.
If an agreement isn’t reached with all of the companies, K-Ratio X may be forced to file bankruptcy, which it wants to avoid, a source familiar with the negotiations told FreightWaves.
K-Ratio X estimated that its losses could be more than $10 million if the company is forced to honor participating motor carriers’ open contracts, according to the proposed settlement agreement obtained by FreightWaves.
A caveat of the proposed settlement is that all 34 trucking companies holding open contracts must agree to the “cash-neutral” terms and sign it or the deal is off — and carriers may face legal ramifications if they snub the deal.
“K-Ratio X will have no choice but to pursue alternative legal courses of action to resolve potential significant liabilities under the open contracts, which may require you to repay certain payments made to you,” the proposed agreement states.
A source who spoke to FreightWaves on the condition of anonymity said the settlement to be paid to the carriers will come from K-Ratio X’s ownership, not an outside lender.
“The remaining carriers are trying to work with K-Ratio X and hopefully get this behind us soon,” the source said.
The participating companies were notified in late June that K-Ratio X was abruptly halting its fuel hedging program, but a company spokesperson was vague on the details of what happened.
How the program worked
Motor carriers participating in the fuel swap program outsourced their risk to K-Ratio X, which, in turn, used futures and options to hedge. For some, the practice paid off big for several months prior to the program ending as fuel prices soared and the carriers started receiving settlement checks from K-Ratio X at the end of each month based on the price on the settlement date.
K-Ratio X says it was incorrectly led to believe the program was being handled properly, but an internal audit of its fuel protection program discovered that “insufficient hedging appears to have been conducted,” the company said.
“We continue to discuss the agreement with six remaining unsigned customers,” a K-Ratio spokesperson told FreightWaves. “Based upon the responses received from the unsigned customers to date, further discussions are warranted.”
In late July, K-Ratio X hired Carl Gilmore as a third-party market expert “to conduct a forensic review of its swap options contract trading, assist with the customer resolution process and to provide recommendations on its supervisory and compliance policies and procedures.”
“Mr. Gilmore is completing the forensic analysis as part of the resolution strategy and expects the report to be completed by next week,” a K-Ratio spokesperson said Thursday.
K-Ratio X vague on details of what happened
According to documents reviewed by FreightWaves, K & L Freight Management Inc., one of the companies owned by Russell Gallemore, the main investor in K-Ratio X, also participated in its fuel swap program.
The documents show that K-Ratio X’s futures statements were sent daily from Wedbush Securities Inc., its bank or futures commission merchant (FCM) as it is known in the trading world, to a distribution list that included Kyle Lintner, the former principal and managing director of the company’s fuel swap program, and members of its management team that included Gallemore and Chris Poole, the CFO of Kore 4, the managing entity of Gallemore’s companies.
“I have nothing to hide and I don’t want to sling mud at anyone through the media,” Lintner told FreightWaves. “Every day, the higher-ups at K-Ratio were included on a distribution list that showed all futures transactions.”
Lintner appeared on several of FreightWaves’ media platforms prior to his June 23 firing.
“Kyle Lintner was a regular unpaid contributor to FreightWaves media. He will not be utilized in future FreightWaves media pending final resolution of the matters discussed in this article,” a FreightWaves spokesperson said.
A source said more details will be forthcoming once the National Futures Association, which is conducting an examination of K-Ratio X’s fuel swap program, has been completed.
“We hope to have closure on the resolution agreement in the very near future,” K-Ratio said.
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