Consolidated Freightways starts auctions
Byline: Terry Brennan
An auction Friday for trailers and office equipment at bankrupt Consolidated Freightways Corp. will kick off about 70 similar sales across the country involving the assets of the nation’s third-largest less-than-truckload (LTL) motor carrier over the next six months.
Blackmon Auctions Inc. of Little Rock, Ark., will stage the first auction Dec. 6 in South Chicago as CF marches toward liquidation.
The Vancouver, Wash.-based trucking company hopes to generate up to $50 million from the court-approved sale of its trailers, tractors and office equipment, the company said.
CF then could raise just as much by conducting auctions for its significant real estate holdings — namely, terminals — throughout the United States.
Judge Mitchell Goldberg in the U.S. Bankruptcy Court for the Central District of California in Riverside gave the go-ahead last week for Blackmon to hold the auctions. He’d have to approve the real estate auctions as well.
CF’s senior lender, General Electric Co.’s GE Capital Corp. unit, as well as the U.S. Trustee’s Office, initially objected to the asset sales on grounds that the auction process contained no guarantees.
“GE Capital supported the auction but was concerned that the auctioneer was going to take the money and hold it for a few days after each sale,” said GE Capital’s attorney, Eric Sagerman at Murphy Sheneman Julian & Rogers in Los Angeles. “GE Capital and the U.S. Trustee objected that an estimated $50 million in sales proceeds would have been in the hands of a third party and not in the hands of the estate.”
Goldberg agreed to require Blackmon to place the sales proceeds in a separate account and to post a bond for a still-unspecified amount that would eventually be acceptable to both GE Capital and the trustee, Sagerman said. The two parties then withdrew their objections, he added.
Blackmon will hold a second auction Dec. 11 in Hayward, Calif., Sagerman said. CF plans to sell its roughly 27,000 trailers, about 6,600 tractors and office equipment in 71 scheduled auctions through May, he said. CF also owns an estimated 300 terminals.
“The company has already sold all its inventory and proceeds from its real estate holdings will almost certainly exceed what they get from the trailers,” he said. “Our involvement has gone from $225 million at filing to south of $100 million due to the sales it’s generated thus far.”
GE Capital provided about $185 million in pre-petition financing and then rolled that over when CF filed for Chapter 11 on Sept. 3 with the intention to liquidate. Of that, $40 million is now a debtor-in-possession loan. The DIP was priced at prime plus 550 basis points.
CF was losing more than $1 million a day after losing $36.5 million in the first quarter on $453 million in revenue. That comes after it rolled up a loss of $104.3 million last year.
The company filed for bankruptcy after additional funding dried up when one of its surety bondholders canceled coverage related to self-insurance programs for worker’s compensation and vehicular casualty.
Debtors typically file for Chapter 11 liquidation to control the disposition of assets instead of placing control of the liquidation process in the hands of a trustee under a Chapter 7 filing.
Michael Lurey, Gregory Lunt and Shira Roth are debtor counsel in Los Angeles at Latham & Watkins.
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