Greatwide Logistics to be sold through bankruptcy process
A weak economy and a heavy debt load forced Greatwide Logistics Services on Tuesday to announce it has filed for Chapter 11 bankruptcy and that it plans to sell the company to lenders holding its first lien.
Dallas-based Greatwide is the third-largest, non-asset-based trucking company in the United States, with annual revenue of about $1.2 billion and major customers such as Wal-Mart, Target and IBM. Its business model relies on using independent agents rather than owning its own trucks to move freight.
The move essentially means that two hedge funds holding Greatwide's primary debt, Centerbridge Capital Partners and D.E. Shaw, forced out private owner Investcorp and will now have the first opportunity to own the company.
The company said the financial restructuring will allow it to reduce its debt and interest burden with no disruption to its operations and customer service. Selling the company through the bankruptcy process means that second lien and tertiary debt holders will likely lose their money, as will equity owner Investcorp and minority shareholders. Employees, drivers, suppliers and owner-operator drivers are not expected to be affected by the financial maneuvering.
'We have been pursuing measures to substantially strengthen our capital structure, and we believe the planned acquisition will accomplish those objectives,' Chief Executive Raymond B. Greer said in a statement. 'Greatwide's fundamentals are solid. We believe the proposed transaction is a prudent and necessary step to significantly reduce our debt and interest burden in order to enhance our flexibility to continue to invest and grow.'
In June, the company sought forbearance from its lenders on repaying debt and interest to give it time to restructure its balance sheet, Dick Metzler, Greatwide's chief commercial officer, told American Shipper.
'We come out of it a much stronger company in the process,' he said. 'There's no change in terms of how we run the business, no change in management.'
Under Section 363 of the bankruptcy code, Greatwide filed a motion with the court to give it time to work through the sale process. The first lien holders will make the first offer and then other parties will be allowed to come forward with better offers in the court-supervised process in an effort to obtain the best value for the company.
Greatwide said it expects to complete the sale by the end of the year.
Centerbridge and D.J. Shaw will loan Greatwide $73.6 million to help carry it through the sale process.
In late 2006, Fenway Partners sold Greatwide to Investcorp and Hicks Holdings LLC for $730 million. Investcorp became the majority shareholder, with Hicks owning a significant piece and Fenway retaining a small stake in the company. The new owners used a small portion of their own money for the deal and financed the rest.
The deal was based on a certain set of cash flow projections at the time, but as the U.S. economy soured in the past year, worsening a pre-existing downturn in the trucking market, Greatwide's owners found it difficult to meet debt repayment schedules. As the debt covenants continued to ratchet down the pressure on Greatwide mounted. Loan agreements typically have covenants requiring the borrower to reduce the ratio of debt to operating earnings over time. A company with seven times debt to EBITDA (earnings before interest, taxes, depreciation and amortization), for example, may have to get its debt multiple down to six times EBITDA by a certain time. As revenue and cash flow slowed down, Greatwide couldn't pay down its debt fast enough and was forced to give up the company to its debt holders.
Greatwide was founded in 2000 and became a logistics portfolio company under Fenway, which made a series of acquisitions to build the company and add complementary services.
Greatwide has four primary lines of business: dedicated transport, truckload management, truckload brokerage and warehouse/distribution logistics.
Greatwide Dedicated is ranked fourth among dedicated carriers by industry publication Transport Topics and is the largest dedicated refrigerated carrier in the nation. Major retail clients include Pepsico, Nordstrom, Wal-Mart and Sysco.
The company also provides truckload service by managing freight dispatch in 32 states for its fleet of independent truck drivers and customers such as Ford, GM, UPS, Wal-Mart and Dow.
Its freight brokerage operation, in which it matches freight with any available carrier, serves customers such as Coca Cola, Kraft, Wal-Mart, Kroger and General Tire.
Greatwide Distribution Logistics provides distribution service through 3.6 million square feet of warehouse space for Coca Cola, Walgreens, Pier 1 Imports, Hill's Pet Nutrition and other companies. ' Eric Kulisch