Shuttering of Indianapolis-based Celadon is the largest TL bankruptcy in history

The trucking industry has been rocked by the largest truckload bankruptcy in history – and the second huge closing this year.

Indianapolis-based Celadon, which ranked as the 18th-largest TL concern with $706 million in revenue in LM’s annual rankings, abruptly ceased operations on Dec. 9, giving its more than 3,200 drivers the worst possible gift barely two weeks before Christmas.

The move follows a similarly abrupt closure in February of ten units of the Shevell Group, a $510 million parent of TL carrier Eastern Freightways and New England Motor Freight, the nation’s 20th-largest LTL company.

Celadon’s reasons for entering Chapter 11 bankruptcy were starkly different than NEMF, which became too reliant on online giant Amazon in its freight mix. Celadon was involved in a financial reporting scheme that has caused two senior executives to be arrested on wire and securities fraud charges.

In early December, Josh Minkler, U.S. Attorney for the Southern District of Indiana, charged two former Celadon executives with fraud and other crimes in a $60 million scheme. The pair allegedly concealed millions in losses from shareholders and lenders.

The pair, former Chief Operating Officer William Eric Meek, 39, and Chief Financial Officer Bobby Lee Peavler, 40, were arrested Dec. 5 on nine counts each of wire and securities fraud.

"Celadon has faced significant costs associated with a multi-year investigation into the actions of former management, including the restatement of financial statements," Celadon CEO Paul Svindland said in a statement.

Celadon, which reported more than $1 billion in gross revenue as recently as 2015, had posted $706 million in revenue last year, a 17.3% rise following its acquisition of Landair in July 2018, had run out of financial wiggle room.

Donald Broughton, who closely follows the trucking industry as head of Broughton Capital LLC, said Celadon’s bankruptcy was extraordinary because it once was recognized for its ability to acquire and turn around financially troubled trucking firms.

“It’s unusual because of the size of the fleet and because of its storied history,” Broughton told LM. “It’s extraordinary that it wasn’t that long ago that this company was considered one of the premier saviors of struggling trucking companies,”

That was back when founding CEO Stephen Russell was still alive in the 1990s, he bragged about his “SWAT team” of executives that would go into troubled carriers and rescue that 80 percent of the business that was salvageable and roll that portion into Celadon, Broughton said.

But because of the allegedly shady fraud schemes, Celadon twice was forced to restate earnings—for fiscal year 2016 and two subsequent quarters. It has not announced quarterly earnings since the second quarter 2017.

In late July, Celadon refinanced its former revolving credit facility and obtained $165 million in new financing. At the time, Celadon CEO Svindland said, "This financing provides a solid platform for the next stage of our business turnaround.”

But that capital base was not enough to prevent Celadon’s closure. Technically, lenders pulled the financial plug after the holding company ran aground of its lending covenants.

Shippers will suddenly face the loss of north-south truck capacity in what’s known as the “NAFTA” market. Celadon controlled about 2,600 trucks, including 2,000 in the United States, 360 in Canada, and 335 in Mexico.

Celadon’s bread and butter was as the dominant carrier on the Interstate 35 corridor, running freight from Laredo to the Midwest, and was a major carrier in the automotive sector.

The 40-day General Motors strike this summer did not help Celadon’s finances, analysts say. They predict the major winner would be CFI, a unit of Canada-based Transforce, and third-party logistics companies (3PLs) who specialize in north-south traffic.

Fortunately, for shippers, Celadon’s exit comes as they enter the lowest freight season of the year. Still, analysts said shippers can expect a sudden spike in short-term spot rates unless they have contract rates in place with CFI or another carrier with significant excess capacity.

Celadon was founded in 1985 by the late Stephen Russell and Leonard Bennett. It went public in 1994 and began listed on the New York Stock Exchange in 2009. Its latest management team took over in July.

Back in July, Svindland was quoted as saying, "As a company, we are highly energized by the opportunities ahead.”  But in the cutthroat world of trucking, those “opportunities” can vanish as quickly as the next truck disappears over the horizon.