Car Hauler Allied Files Again for Bankruptcy; Cites Weakness in Auto, Light-Truck Business
This story appears in the June 18 print edition of Transport Topics.
Allied Systems Holdings Inc., the largest U.S. car hauler, last week filed for Chapter 11 bankruptcy protection, the second time it has done so, saying it’s continuing to provide service and blaming weakness in the car and light-truck business for the move.
The petition was filed on June 10 after an effort by two minority lenders to force Allied, Atlanta, into bankruptcy involuntarily, based on claims the carrier hadn’t made some payments called for by the earlier reorganization.
Last week’s bankruptcy petition contended that Allied had suffered what were termed “large losses” as vehicle sales dropped, triggering a default on some loan repayment obligations.
Allied also filed a bankruptcy petition in 2005 that took almost two years to resolve as Allied sought — and eventually gained — wage cuts from the Teamsters (6-1-07, p. 4). Since 2007, Allied’s revenue has declined 58% from $822.8 million to $343 million last year, the company’s court filing said.
“The recession has hit the domestic automobile market particularly hard,” Scott Macaulay, chief financial officer of Allied, said in a statement in a June 11 court filing, which also cited growing competition from railroads.
The pace of annual auto sales bottomed out at fewer than 10 million vehicles during the downturn in 2009 and since then has climbed to more than 15 million units. However, that rate is far short of the 17 million annual pace during some months of 2007.
Allied’s move isn’t a sign of worsening health for the car-haul industry, which is benefiting now as auto and light truck sales are rising again, said Robert Farrell, who heads the Automobile Carriers Conference affiliate of American Trucking Associations.
As early as 2008, Allied notified lenders it was defaulting on some of its loan obligations, Macaulay’s statement said, prompting the company to change the structure of its credit agreements.
Lenders Black Diamond CLO and Spectrum Investment Partners L.P. later filed suit against Allied, seeking payments dating back as far as 2009 and followed on May 17 with an involuntary bankruptcy petition, court papers show.
Allied’s revenue fell in 2011 after the company sought and obtained rate increases from major customers such as Ford but lost business from General Motors, Chrysler and Toyota Motor after those companies refused to pay more and switched to other car haulers (4-4-11, p. 35).
The company’s statement last week said its goal was “to eliminate debt and strengthen the Company’s balance sheet while continuing normal operations and serving customers.”
“We believe the financial restructuring will strengthen Allied’s balance sheet and position the Company for a long and profitable future,” CEO Mark Gendregske stated in the company’s press release.
Allied’s majority owner is investor Ron Burkle’s Yucaipa Companies LLC. Haul Insurance Ltd., an insurance subsidiary of Allied, was excluded from the filing along with subsidiaries located in Mexico and Bermuda.
The car hauler had about 2,400 rigs and 1,835 employees at the end of 2011, court papers show.
During the earlier bankruptcy, Allied was able to win a 15% wage reduction from the Teamsters union that continued until 2010, when full wages were restored.
Last year, union workers received a contract pay increase after the Teamsters negotiated a new contract that extends through 2015 with the car haulers’ bargaining unit, the National Automobile Transporters Labor Division.
Allied’s majority lenders offered to provide as much as $20 million to fund continued operations.
Gendregske said the Chapter 11 filing “allows us to move forward with our planned improvements in operations and systems and allows us to achieve our restructuring objectives in a controlled, orderly and timely manner.”
That process includes elimination of debt, consolidation of some terminals and lowering costs to boost profits.
