New England Motor Freight – Court Confirms Liquidation Plan of Former Trucking Giant

January 15, 2020 – The Court hearing the New England Motor Freight cases confirmed the Debtors’ Combined Chapter 11 Liquidation Plan and Disclosure Statement (the "Combined Document") [Docket No. 1123].

On February 11, 2019, New England Motor Freight and 10 affiliated Debtors (“NEMF” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, lead case number 19-12809. At filing, the Debtors, providers of less-than-truckload (“LTL”) carrier services in the United States and Canada, noted between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $50.0mn and $100.0mn. The lead Debtor's schedule of assets and liabilities [Docket No. 411] later noted assets of approximately $160.3mn and liabilities of approximately $126.4mn with $69.9mn of the latter comprised of the net book value of equipment (ie the Debtors' aging truck fleet).

From the outset, the goal of the Debtors was to wind-down operations which was accomplished primarily through the auction of its trucking fleet and the $15.0mn going concern sale of two significant Debtors, Eastern and Carrier, to Estes Express Lines ("Estes"). As described further below, the Debtors blamed their descent into liquidation on their inability to meet changes and competition within the industry, particularly noting the competitive disadvantages of having a largely unionized workforce in an industry where competitors are increasingly non-unionized. Upon filing, the Debtors stated that they had "suffered a downward trend over recent years, which was exacerbated in late 2018 by the unexpected loss of key accounts, the shortage of drivers, a new Union contract with onerous retroactive terms, and the L/C Lenders’ [these lenders making available NEMF’s vehicle financing] ultimate unwillingness to restructure the Debtors’ letters of credit obligations under terms acceptable to the Debtors."

Overview of the Chapter 11 Cases

In its memorandum in support of Plan confirmation [Docket No. 1104], the Debtors provide: “The Debtors commenced the Chapter 11 Cases to maximize the value of their assets and to effectuate an orderly liquidation process for the benefit of all creditors. The orderly liquidation of the Debtors has included: (i) the immediate wind-down of nine of the eleven (11) Debtor entities; (ii) the sale of NEMF’s rolling stock and miscellaneous personal property assets through a series of twelve (12) public auctions conducted by Taylor & Martin, Inc. (‘T&M’); (iii) the sale of the Debtors’ two most profitable entities, Eastern and Carrier, as going-concerns; (iv) the orderly collection of the Debtors’ accounts receivables; and (v) sales of the Debtors’ remaining assets (primarily rolling stock, equipment, machinery and inventory), including real property located in Miami, Florida."

As to the Plan's mechanics, the Combined Document gives the standard description for a liquidating Plan: "The Combined Plan and Disclosure Statement constitutes a liquidating Chapter 11 plan for the Debtors and provides for Distribution of the Debtors’ assets already liquidated or to be liquidated over time to Holders of Allowed Claims in accordance with the terms of the Combined Plan and Disclosure Statement and the priority provisions of the Bankruptcy Code. The Combined Plan and Disclosure Statement contemplates the appointment of a Liquidating Trustee, inter alia, to implement the terms of the Combined Plan and Disclosure Statement and make Distributions in accordance therewith. Except as otherwise provided by Order of the Bankruptcy Court, Distributions will likely occur at various intervals after the Effective Date.

According to the Debtors’ liquidation analysis (attached to the Debtors’ combined Plan and Disclosure Statement at Exhibit B), the Debtors project $9.7mn of cash available for distribution, only $3.6mn after payment of administrative and priority claims; leaving the holders of $155.7mn in unsecured claims a 2.32% recovery.

Asset and Equipment Sales

On April 8, 2019, the Court authorized [Docket No. 427] the Debtors to conduct a section 363 auction for affiliate Debtors Eastern and Carrier. Estes was subsequently chosen as a stalking horse bidder and, absent any further bidders, ultimately designated as the successful bidder. The Estes sale closed on May 31, 2019 and the purchase price was just over $15.0mn.

The Debtors also sold thousands of trucks via a six-week auction process which brought in an aggregate of $45.9mn to the Debtors’ estates. $34.4mn of these proceeds were used to repay the secured loans of ten equipment lenders.

The following is summary of classes, claims, voting rights and estimated recoveries (defined terms are as defined in the Combined Document):

Consolidated NEMF Debtors

Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $333,154 and expected recovery is 100%.
Class 2A (“Lender Secured Claims – TD Bank”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $7,378,313and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2B (“Lender Secured Claims – East West Bank”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $6,329,636and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2C (“Lender Secured Claims – JPMorgan Chase”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $3,638,974 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2D (“Lender Secured Claims – Fifth Third”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $6,796,224 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2E (“Lender Secured Claims – Santander”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $4,351,274 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2F (“Lender Secured Claims – Wells Fargo”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $3,159,000 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2G (“Lender Secured Claims – Mercedes Benz”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $6,026,263 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2H (“Lender Secured Claims – Volvo”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,046,494 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2I (“Lender Secured Claims – Capital One”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,913,407 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2J (“Lender Secured Claims – Webster Capital”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $829,399 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 3A (“Auto Insurer Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is Protective – $9,539,000 U.S. Fire – $2,450,000 and expected recovery is 100%.
Class 3B (“Insurer Secured Claims (WC)”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is Hartford – $14,775,000 Travelers – $46,000 Fidelity – $1,585,000 Arch – $1,000,000 Liberty – $428,000 and expected recovery is 100%.
Class 4 (“Other Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $1,134,534 and expected recovery is 100%.
Class 5A (“General Unsecured Claims- Other than Lender Deficiency Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $12,359,823 to $15,359,823 and expected recovery is 7-11%. Each Holder of an Allowed General Unsecured Claim Other than Lender Deficiency Claim shall receive a pro rata share of funds available for Distribution on account of such General Unsecured Claim.
Class 5B (“Auto Liability Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is unliquidated and unknown and expected recovery is 0%.
Class 5C (“Auto Insurer Unsecured Indemnity Claims”) is impaired and deemed to reject. The aggregate amount of claim is N/A and expected recovery is 0%.
Class 5D (“General Unsecured Claims – Lender Deficiency Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is 5th 3rd – $2,070,654, Capital One – $934,157, Chase – $4,007,818, Mercedes Benz – $2,133,725, EastWest – $8,413,119, Santander – $5,565,071, TD – $8,768,743, VFS – $583,5772, Webster – $74,516 and Wells Fargo – $719,493 and expected recovery is 7-11% of the value of the Pre-petition Lender’s Collateral.
Class 6 (“Intercompany Claims”) is impaired and deemed to reject. The aggregate amount of claim is N/A and expected recovery is 0%.
Class 7 (“Equity Interests”) is impaired and deemed to reject. The aggregate amount of claim is N/A and expected recovery is 0%.

Consolidated Eastern Debtors

Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $7,347and expected recovery is 100%.
Class 2A (“Lender Secured Claims – TD Bank”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $334,230 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2B (“Lender Secured Claims – East West Bank”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $554,740 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2D (“Lender Secured Claims – Fifth Third”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $2,803,401 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2E (“Lender Secured Claims – Santander”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $2,596,168.59 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2F (“Lender Secured Claims – Wells Fargo”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $900,534 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2G (“Lender Secured Claims – Mercedes Benz”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,369,751.02 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 2I (“Lender Secured Claims – Capital One”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $759,464.82 and expected recovery is 100% of the value of the Pre-petition Lender’s Collateral.
Class 3A (“Auto Insurer Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is Protective – $9,539,000 U.S. Fire – $2,450,000 and expected recovery is 100%.
Class 3B (“Insurer Secured Claims (WC)”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is Hartford – $14,775,000 Travelers – $46,000 Fidelity – $1,585,000 Arch – $1,000,000 Liberty – $428,000 and expected recovery is 100%.
Class 4 (“Other Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $0 and expected recovery is 100%.
Class 5A (“General Unsecured Claims- Other than Lender Deficiency Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $524,024 and expected recovery is 3-7%. Each Holder of an Allowed General Unsecured Claim Other than Lender Deficiency Claim shall receive a pro rata share of funds available for Distribution on account of such General Unsecured Claim.
Class 5B (“Auto Liability Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is unliquidated and unknown and expected recovery is 0%.
Class 5C (“Auto Insurer Unsecured Indemnity Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claim is N/A and expected recovery is 0%.
Class 5D (“General Unsecured Claims – Lender Deficiency Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is 5th 3rd – $7,630,028, Capital One – $2,452,213.16, Chase – $14,280,282, Mercedes Benz – $6,097,596.87, EastWest – $15,572,110.74, Santander – $9,916,345, TD – $16,386,372, VFS – $1,677,895, Webster – $74,516, Wells Fargo – $3,325,771 and expected recovery is 3-7% of the value of the Pre-petition Lender’s Collateral.
Class 6 (“Intercompany Claims”) is impaired and deemed to reject. The aggregate amount of claim is N/A and expected recovery is 0%.
Class 7 (“Equity Interests”) is impaired and deemed to reject. The aggregate amount of claim is N/A and expected recovery is 0%.

Events Leading to the Chapter 11 Filing

In a press release announcing the filing, NEMF advised that: “Upon the recommendation of its advisors, the Company has determined that a Chapter 11 proceeding is the best mechanism to maximize the value of its assets for the benefit of its employees and various creditor constituencies. NEMF intends to use these proceedings to facilitate an orderly wind-down of its operations.”

Vincent Colistra, the Company’s Chief Restructuring Officer added, “We have worked hard to explore options for New England Motor Freight, but the macro-economic factors confronting this industry are significant.

In a declaration in support of the Chapter 11 filing (the “Colistra Declaration”), Colistra detailed the events leading to NEMF’s Chapter 11 filing.

The Colistra Declaration states, “Several factors have severely impacted the profitability of the Debtors’ businesses, ultimately prompting the current liquidity crisis that dictated the Debtors’ decision to commence these Chapter 11 Cases in order to conduct an orderly liquidation of their assets. While the company’s operations were profitable for decades since the current ownership group acquired NEMF in 1977, the Debtors have suffered a downward trend over recent years, which was exacerbated in late 2018 by the unexpected loss of key accounts, the shortage of drivers, a new Union contract with onerous retroactive terms, and the L/C Lenders’ [these lenders making available NEMF’s vehicle financing] ultimate unwillingness to restructure the Debtors’ letters of credit obligations under terms acceptable to the Debtors.

Changes and competition within the industry have had an ongoing negative impact on the Debtors’ revenues. The Debtors’ workforce is made up of approximately 3,450 full-time and part-time employees. The Union workforce consists of approximately: 1,425 truck drivers, and 475 dock workers, for a total of approximately 1,900 Union employees….Employee costs for the Debtors are, in the aggregate, substantially above industry norms. Most of the LTL companies competing with the Debtors operate under non-unionized conditions. At the same time, there has developed an industry-wide shortage of drivers, putting the Debtors, with an aging fleet of vehicles, at a severe disadvantage. Due to the above-described factors, among others, the Debtors have experienced severe liquidity constraints. While the Debtors have recently made extensive efforts to reduce costs and re-focus business, such efforts were not enough to effectively reduce losses and stave off a bankruptcy filing.

The Debtors engaged in negotiations with the L/C Lenders in an attempt to renew each of the thirteen Letters of Credit, ten of which have expiration dates in March and April of this year, with corresponding renewal deadlines in February and March of this year. These negotiations were ultimately unsuccessful due to the ongoing losses and the reduction in liquidity.

Beginning in the second half of 2018, the Debtors entered into negotiations with JP Morgan Chase to consolidate all of the Letters of Credit. These negotiations continued for several months and the Debtors believed they would ultimately be successful.

On December 20, 2018, the Debtors retained Phoenix to assess the situation, analyze the Debtors’ liquidity position, and take over the negotiations with the L/C Lenders to implement a debt consolidation and restructuring plan. Shortly thereafter, NEMF released its results for the third quarter of 2018. Unfortunately, after JP Morgan Chase reviewed those results, it determined not to proceed under the original terms it had proposed to the Debtors with respect to the debt consolidation and restructuring proposal that had been under negotiation.”

Voting Results

On January 13, 2020, the Debtors’ claims agent notified the Court of Plan voting results [Docket No. 1108], which were as follows:

NEMF Debtors

Class 2A (“Lender Secured Claims – TD Bank against Consolidated NEMF Debtors”) 1 claim holder, representing $7,378,313.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2B (“Lender Secured Claims – East West Bank against Consolidated NEMF Debtors”) 1 claim holder, representing $6,329,636.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2D (“Lender Secured Claims – Fifth Third against Consolidated NEMF Debtors”) 1 claim holder, representing $5,313,153.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2E (“Lender Secured Claims – Santander against Consolidated NEMF Debtors”) 1 claim holder, representing $4,351,274.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2F (“Lender Secured Claims – Wells Fargo against Consolidated NEMF Debtors”) 1 claim holder, representing $2,732,155.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2H (“Lender Secured Claims – Volvo against Consolidated NEMF Debtors”) 1 claim holder, representing $1,094,318.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2I (“Lender Secured Claims – Capital One against Consolidated NEMF Debtors”) 1 claim holder, representing $1,432,250.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 5A (“General Unsecured Claims- Other than Lender Deficiency Claims against Consolidated NEMF Debtors”) 171 claims holders, representing $14,980,537.09 (or 99.97%) in amount and 97.71% in number, accepted the Plan. 4 claims holders, representing $3,871.50 (or 0.03%) in amount and 2.29% in number, rejected the Plan.
Class 5B (“Auto Liability Claims against Consolidated NEMF Debtors”) 15 claims holders, representing $16.00 (or 84.21%) in amount and 83.33% in number, accepted the Plan. 3 claims holders, representing $3.00 (or 15.79%) in amount and 16.67% in number, rejected the Plan.
Class 5D (“General Unsecured Claims – Lender Deficiency Claims against Consolidated NEMF Debtors”) 7 claims holder, representing $29,857,725.74 in amount (or 100%) and 100% in number, voted in favor of the Plan.

Eastern Debtors

Class 2A (“Lender Secured Claims – TD Bank against Consolidated EASTERN Debtors”) 1 claim holder, representing $334,230.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2B (“Lender Secured Claims – East West Bank against Consolidated EASTERN Debtors”) 1 claim holder, representing $554,740.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2D (“Lender Secured Claims – Fifth Third against Consolidated EASTERN Debtors”) 1 claim holder, representing $2,803,401.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2E (“Lender Secured Claims – Santander against Consolidated EASTERN Debtors”) 1 claim holder, representing $2,596,168.59 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2F (“Lender Secured Claims – Wells Fargo against Consolidated EASTERN Debtors”) 1 claim holder, representing $900,534.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 2G (“Lender Secured Claims – Mercedes Benz against Consolidated Eastern Debtors”) no votes were received.
Class 2I (“Lender Secured Claims – Capital One against Consolidated EASTERN Debtors”) 1 claim holder, representing $759,464.82 in amount (or 100%) and 100% in number, voted in favor of the Plan.
Class 5A (“General Unsecured Claims- Other than Lender Deficiency Claims against Consolidated EASTERN Debtors”) 1 claim holder, representing $670.37 (or 100%) in amount and 100% in number, voted in favor of the Plan.
Class 5B (“Auto Liability Claims against Consolidated EASTERN Debtors”) claim holder, representing $1.00 (or 100%) in amount and 100% in number, voted in favor of the Plan.
Class 5D (“General Unsecured Claims – Lender Deficiency Claims against Consolidated EASTERN Debtors”) 1 claim holder, representing $56,960,734.9 0in amount (or 100%) and 100% in number, voted in favor of the Plan.

New England Motor Freight – Court Confirms Liquidation Plan of Former Trucking Giant

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