As expected, Indiana-based American Commercial Lines (ACL) has filed for Chapter 11 bankruptcy protection as part of a debt-restructuring process. ACL is the second-largest barge owner in the U.S., with a focus on dry cargo barges carrying grain and coal.
The bankruptcy case filed in the district court in Houston on Friday was a voluntary “prepack,” meaning the terms of the restructuring have already been agreed to by the majority of the parties and the bankruptcy process merely facilitates the process and prevents customer disruptions. The company announced its intentions to file Chapter 11 on Feb. 4.
ACL was acquired in 2010 by California-based private-equity group Platinum Equity in a deal valued at $777 million; prior to its purchase, the barge owner was listed on NASDAQ.
Under the recapitalization plan, ACL will receive $200 million in new equity capital, $1 billion in existing debt will be converted to equity and the company will obtain $690 million in debtor-in-possession financing.
According to ACL CEO Mark Knoy, “Like many others in our industry, over the last four years, we have been affected by market conditions, the weather and the closure of key areas of the river system for extended periods of time. The actions we are now taking will … enable us to devote even more of our resources to competing in today’s market.”
Stifel analyst Ben Nolan opined that the bankruptcy could have positive implications for the inland barge industry overall. “Rather than operating from a position of financial weakness in which the company may have at times felt it necessary to take contracts at lower rates than optimal levels in order to keep utilization high and cash flow coming in, ACL may now be a more rational competitor, which could help rate inflation across both the tank and dry barge businesses,” he said.
Prior to the bankruptcy announcement, there had been speculation among analysts that ACL might focus entirely on dry cargo and divest its fleet of 409 tank barges to the largest consolidator in that sector: Kirby Corporation (NYSE: KEX).
According to Nolan, “We expect Kirby would have interest in the tank-barge business and we estimate the value would be approximately $1 billion to $1.1 billion.” However, he expressed skepticism that a sale of ACL’s tank-barge business would go forward.
“Particularly in light of the $200 million earmarked for investment in the business, it does not seem to us that ACL investors are ready to throw in the towel. With a strong balance sheet, there is no need to sell anything and any sale would simply be opportunistic,” said Nolan, who concluded, “Ultimately, we continue to view the most likely outcome to be a structuring without a major change in segment ownership, but certainly, the ball is rolling.”