It was just over a year ago (December 9, 2019) that Celadon Group filed for bankruptcy protection. In a story reported extensively by FreightWaves and other news outlets, ceasing operations immediately in one of the largest bankruptcy filings for a trucking company in recent memory. Clarissa Hawes was one of the team of FreightWaves reporters who worked on the story a year ago. She wrote an “anniversary” article a few days ago that you can read here.
Before its bankruptcy filing, the company had accomplished a great deal in a relatively short time period.
In 1985, the normally fastidious Steve Russell realized he did not have his usual exact change for a toll booth to cross a New York City bridge. While he waited in line for change to be made, he spotted a former colleague one line over. They struck up a conversation, and the deregulated trucking industry was mentioned.
The former colleague mentioned an opportunity to move freight from Mexico into the United States. Russell made the decision to invest $30,000, substantially more than the $0.50 toll, to found Celadon Group. He pulled the name from a 1973 study by the University of California, Berkeley, that claimed “celadon” to be the prettiest word in all modern languages. Its meaning? Ancient Chinese porcelain.
Celadon began transporting automotive freight for Chrysler between Mexico and Michigan. The company began operations with 50 leased tractors and 100 leased trailers.
Even with a giant like Chrysler as its main customer, earnings were slim. From 1985 to 2001, the company had negative retained earnings. In 1994, the company went public, selling approximately one-third of the company to help fund its rapidly expanding operations. The IPO raised $30 million.
Relocation and a buyout attempt
Two years later, the company relocated its headquarters from New York City to Indianapolis. A few years later (June 1998), the Celadon Group agreed to a management-led buyout attempt for cash, stock and assumed debt. Odyssey Investment Partners LLC, an investment fund based in New York, was set to join Celadon management in the attempt to take the company private, a transaction that was estimated at a cash value of $154 million. The buyout, which would have included an assumption of approximately $99 million in debt, was stalled in September, and was ultimately cancelled by December. However, 1998 was not a total loss for Celadon. That year, the company expanded its presence to Canada by purchasing Gerth Transport Ltd. In 2000, the acquisition was renamed Celadon Canada.
“Buyer of last resort”
In the 2000s, Celadon quickly gained a reputation for being a “buyer of last resort,” something that founder Steve Russell acknowledged. Celadon benefited significantly from this tactic, because with each acquisition Celadon gained the ailing company’s customer base. In 2002, 70% of Celadon’s customer base were the big three Detroit automakers.
The business mix needed to be diversified. However, the company lacked the capital to purchase anything but weak companies. Rather than hiring and training a new team of aggressive sales representatives, Celadon continued to implement the strategy of acquiring distressed companies, relieving owners of their debts and acquiring their trucks and trailers for fair prices. Excess equipment would then be sold through its own retail businesses.
Celadon would typically pay cash for its acquisitions, preferring not to involve banks in its internal processes. The company would offer employment to any of an acquired company’s drivers that met its standards. In the 10 years between 2002 and 2012, all but one of the 11 companies that Celadon acquired were in financial distress.
In 2012, Celadon announced it would expand its Canadian subsidiaries in the same way. In 2013, Hyndman Transport, Hoss Carthage and Yankee Transfer were acquired. The acquired Canadian companies were merged in 2013. The Celadon Canada name was dropped in 2015, and the companies continued under the banner of Hyndman Transport, operating as a subsidiary of Celadon Group. In that same year, Celadon Group was named Innovator of the Year by Commercial Carrier Journal.
Celadon was providing dedicated, expedited, long-haul, regional, local, refrigerated and intermodal services across North America.
Turbulence in 2016-2017
Steve Russell passed away at the age of 76 on April 25, 2016. At the time of his death, Celadon had grown significantly, employing 900 people at its Indianapolis headquarters and approximately 4,000 people nationwide. Since the company’s founding, there had been 35 acquisitions of small- to mid-sized carriers completed. Celadon operated more than 5,000 tractors and 12,000 trailers. The days of financial uncertainty and a small customer base behind the company, it now served several Fortune 500 companies including Walmart, Procter & Gamble and General Electric.
In 2017, Celadon began to have financial and public perception issues. On May 2, the accuracy of Celadon’s financial statements were questioned. On July 3, Celadon announced that it would record an impairment charge after the company’s value was questioned. Celadon Chairman/CEO Paul Will stepped down from those posts just 10 days later on July 13. And then on October 3, Celadon acknowledged that the Securities and Exchange Commission (SEC) was actively investigating the company.
More bad news in 2019
Celadon continued to have financial issues throughout 2019. On April 22, the company sold its logistics group and announced that it hoped to re-start financial reporting in the fall of 2019. Just three days later (April 25), Celadon agreed to pay $42.2 million after admitting to accounting fraud. Four days after that (April 29), Celadon sold its intermodal operations to Bison Transport.
On August 15, Luminus Management, which had previously helped Celadon refinance its debt, acquired nearly half of the company. It invested $165 million in what was left of Celadon. Prior to this cash infusion, Luminus Management had owned about 17% of Celadon; now it controlled 49.9% of the company.
The SEC filed civil and criminal charges on December 5 against Celadon’s former president and former CFO for an alleged securities and accounting scheme in 2016 and 2017. They were charged with inflating the company’s income and earnings per share figures.
The bankruptcy filing took place just four days later.
At that time, Celadon’s current CEO, Paul Svindland, stated, “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.”
Svindland also said, “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, 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.”
In its bankruptcy petition Celadon listed assets of $427 million and debt of $391 million. According to the Federal Motor Carrier Safety Administration’s registry, Celadon had 2,771 power units and 2,553 drivers as of October 25, 2019.