A transport truck carries a cargo container at port in Vancouver, on July 14, 2023.DARRYL DYCK/The Canadian Press
Pride Group Holdings Inc., once a fast-growing Canadian trucking conglomerate, is set to be wound down after efforts to restructure its $1.6-billion Canadian debt load failed – an attempt complicated by the effects of a freight recession and allegations of financial irregularities.
In March, Mississauga-based Pride filed for creditor protection after defaulting on more than 40 loans, and pleaded for time to restructure instead of being forced to liquidate. The request was initially granted by the Ontario Superior Court of Justice.
But in a new report filed Thursday, Ernst & Young LLP, Pride’s court-appointed monitor, said it “no longer views a going-concern restructuring plan as a feasible option given the lack of stakeholder support for it.”
Provided it can obtain financing to facilitate this proposal, E&Y will “move forward with a centralized, coordinated and controlled disposition and wind-up of the remaining Pride Entities assets.”
In the spring, when Pride requested a restructuring, it argued that a liquidation would result in “thousands of trucks being sold on the market at once, which would decimate the value of trucks across the North American market.”
In response, the court gave Pride, which was founded by brothers Sam and Jasvir Johal in 2010, two months to come up with a plan. The company also arranged interim financing, known as debtor-in-possession, or DIP, financing, to fund its operations in the meantime.
Pride’s restructuring plan was presented in early June, which called for selling some assets and re-working the business in order to continue on as a leaner company, and Pride had been working with this goal in mind.
On Aug. 1, however, all parties involved in the restructuring were told the DIP lender would not provide any more money, sending the plan into chaos. Seven days later, E&Y recommend a full wind-down.
The court-appointed monitor is also asking a judge to approve the hiring of Nations Capital LLC as an adviser for the wind-down. NCI recently advised Yellow Corp. after the trucking firm filed for bankruptcy protection with US$1.2-billion in debt. Yellow’s sale process was one of the largest dispositions of commercial and industrial equipment ever.
Pride’s restructuring has been complex from the very beginning. In a strong market, its trucks could be sold or re-leased to a competitor, but that isn’t very feasible for any operator in the current environment. After interest rates jumped, consumer spending and, notably, home building and renovations dropped – both of which are key sources of trucking industry demand. The cost of financing a truck has also soared.
As well, Pride’s business model is built around leasing trucks to independent operators, and this segment of the sector has been one of the hardest hit. In addition to falling demand, an oversupply of independent truck drivers has meant shipping rates dropped sharply – and those rates often are not enough for drivers to cover their lease payments.
Because Pride is a conglomerate, it gets hit from all sides. One division, for instance, sells new and used trucks, while another leases trucks to independent drivers and provides them with financing.
In the spring, the company had also disclosed in court filings that a group of bank lenders, led by Royal Bank of Canada, discovered a number of alleged financial irregularities. These allegations made any restructuring even more unusual.
In court filings, Pride said an adviser it had hired found that some of its trucks were being financed by more than one lender, without the lenders knowing. Because of this, multiple lenders had competing claims against the same collateral as the company tried to restructure.
The adviser also found that Pride took out loans to purchase new vehicles, but then didn’t make the purchases or repay the funds.
Mitsubishi HC Capital Canada Inc., one of Pride’s major lenders, is also suing the Johal brothers and alleging fraud.
Late last year, Pride alerted Mitsubishi to some registration issues, such as multiple trucks being assigned as collateral to multiple lenders, but claimed it was the result of bookkeeping issues and promised governance reforms. In an Ontario lawsuit, Mitsubishi said it has since done more due diligence and found a systemic problem.
“Through further investigation following Pride’s initial admissions, Mitsubishi has learned that Pride and the defendants have employed various related methods of fraudulently defeating or diminishing Mitsubishi’s ownership and security interests in leases, trucks and equipment in a manner known as ‘double VINing,’” the lender alleged. (VINs are vehicle identification numbers.)
Mitsubishi is suing the Johal brothers because they personally guaranteed some of the money borrowed. In total, the lender is owed $93-million in Canada for direct loans to Pride and another $255-million for financing leases that are packaged and sold off.