Pride Group creditors are increasingly frustrated over a lack of access to the vehicles to which they lay claim, as a bankruptcy Monitor continues to support a going-concern sale to the founding family and an orderly wind-down of other operations.

These details and more were disclosed in the 14^th Monitor’s Report, posted Aug. 28 by Ernst & Young.

PGL going-concern sale

The 14^th report from the Monitor outlines terms of a going-concern sale of the Pride Group Logistics (PGL) business to the Johal family that founded the company. This would include Pride’s logistics, brokerage and delivery businesses including some 1,459 trucks and trailers, 1,383 of which are owned directly by PGL. At any point in time, 1,100 of those trucks are engaged in active transit with customer orders, many hauling perishable goods, the Monitor reported.

The division employs about 110 office staff and 95 drivers in addition to 120 driver subcontractors (through driver agencies) and 140 owner-operators.

The Johal family submitted the “only viable going concern” bid totaling $54.5 million, and has made a 5% deposit of $3 million. It will extend offers of employment to all existing PGL employees. The sale agreement was finalized and executed on Aug. 27, the Monitor reported.

The Monitor says it supported the sale because it “provides a higher recovery than a forced liquidation” among other reasons, including the retention of existing employees.

The alternative to a going-concern sale – if the sale does not proceed – is an orderly wind-down of PGL operations “to avoid a chaotic situation where trucks and trailers are in transit and no funding or coordination is in place to ensure they are returned after completing customer deliveries in a safe and organized manner.”

An initial PGL wind-down plan presented July 31, and to be orchestrated by Hilco/Gordon Brothers – a third party with experience in wind-downs including that of Yellow Corp. — was not supported by PGL financiers, and a revised wind-down plan has been developed.

On Aug. 15, Pride Group issued a press release stating it was business as usual for PGL and that the Monitor continues to support the going-concern sale to the Johal family.

“At this time, the Pride Group has sufficient liquidity to continue to operate and it is business as usual,” the Aug. 15 release said. “The Pride Group continues to seek a going-concern sale of the PGL business, which is in the best interest of PGL’s employees, contractors and business partners… For clarity, as at the date of this letter, PGL is not being wound down. As it stands currently, the Monitor is recommending the continuing pursuit of a going-concern sale transaction supported by the Johal family.”

TruckNews.com reached out to the Monitor at the time to confirm the details contained within the press release, but was unable to verify those claims.

OEMs band together to reclaim assets

Meanwhile, Pride Entities (including its dealerships) continues to hold about 4,000 vehicles in Canada and the U.S., including 600 at its Milton, Ont., lot alone. The Monitor’s 14^th report described a challenging environment for turning those assets over to financiers.

“That requires employees, drivers, logistical support, coordination with individual financiers, their advisors and agents, and professional assistance to ensure order and safety and the turnover responsibility for vehicles…to those entitled,” the Monitor wrote.

An unfunded hard shutdown would not allow for “a safe and orderly marshalling and turnover of collateral,” it continued. While individual financiers have requested access to Pride Entity books and records as well as meetings with Pride personnel, the Monitor said those resources are “stretched to the limit and cannot reasonably be expected to be able to accommodate all information requests simultaneously, and yet are criticized for failing to do so.”

In an Aug. 26 letter, equipment financiers said they have lost confidence in the Monitor while also raising concern over the going-concern sale agreement.

“Simply stated and with respect, the financiers have lost confidence in the Monitor’s and the CRO’s (chief restructuring officer’s) ability to advance a wind-down in a manner that the financiers are prepared to support,” said a letter from law firm Aird & Berlis LLP, representing financiers.

“This is compounded by concerns over the fact that the Monitor has continued to engage in discussions and efforts to advance a going-concern sale to a related entity, despite seemingly universal creditor opposition. This is the case notwithstanding that it is now over one month following the outside closing date set out in the court-ordered sale process.”

Multi-collateral vehicles, ‘historic mismanagement‘

Further complicating the proceedings, there are multiple collateral vehicles (MCVs) within Pride’s fleet, those to which multiple lenders have laid claims.

“Whether through carelessness of the Johals, or something more deliberate, the financiers continue to be told that the existence of MCVs, which was thrust upon the financiers by a desperate ownership group, is the partial justification for the Monitor’s continued pursuit of an insider bid that the financiers do not support,” said the legal letter from financiers.

The financiers – which have filed lift stay motions, seeking to lift certain protections for Pride and give them access to the vehicles to which they lay claim — said they would bear the cost of the wind-down themselves if given access to their vehicles.

“The historic mismanagement of PGL by the Johals cannot continue to bar the financiers from seeking the relief they have requested for months,” the letter said, adding that the mismanagement cannot justify the continued prejudice to the financiers. “PGL has benefitted from the use of the collateral without payment for the entirety of the CCAA [Companies’ Creditors Arrangement Act] proceeding, and the financiers have simply had enough.”

The financiers say they have lost eight months in missed lease payments, while their assets have depreciated in value.

A separate letter on behalf of OEMs Paccar, Volvo and Daimler, raised similar concerns, stating: “No third party will be in a better position to repossess and market the idle units and to take over servicing the leases than the OEMs.” 

The letter noted the OEMs have the networks and infrastructure in place to do so cost-effectively and efficiently.

The OEM letter said that “none of the OEMs have been meaningfully consulted or engaged about an orderly wind-down proposal for the Pride Group as it relates to OEM vehicles. The OEMs appear to have been excluded from that process. At the same time, as the OEMs are being excluded from this process, their idle financed and leased trucks – which could be returned at little or no expense – are being held hostage so that unjustifiable and unwarranted wind-up expenses can be extracted from them for the benefit of other lenders.”

It added the OEMs have incurred considerable cost due to the Pride Group’s inability to restructure, “which realistically was never going to be possible given the justifiable mistrust of the Pride Group’s stakeholders in light of the Pride Group’s conduct and their failure to present a coherent and viable plan stakeholders could support.”

Allowing OEMs to access their assets will benefit the process by reducing insurance and maintenance expenses as well as the administrative costs associated with having a third party manage the process, and clearing space on overcrowded Pride Group lots.

Overcrowded lots

The Monitor indicated overcrowded lots make it difficult to access the vehicles in question.

“The vast number of trucks and trailers currently held on Pride lots have caused significant congestion issues on Pride lots and are not segregated by the financier to facilitate turnover,” the Monitor wrote.

In one instance, a “securitization party” wrongfully retrieved four MCVs from a Fontana, Calif., lot, which it subsequently returned when demanded by Pride.

“The mistaken retrieval illustrates that expediency of turning over financiers’ collateral must be balanced with the need for a coordinated and harmonious plan for the return of the vehicles,” the Monitor wrote.