To satisfy the objections of unsecured creditors, Trailer Bridge Inc. is filing a new Chapter 11 reorganization plan that could wipe out its current shareholders after all if there isn’t enough cash to pay most of those creditors’ claims.
The Jacksonville-based marine and truck freight company filed for Chapter 11 in U.S. Bankruptcy Court in Jacksonville in November as it faced a deadline to pay $82.5 million in senior notes.
Two weeks ago, it filed a reorganization plan that called for those noteholders to be issued new shares equal to 91 percent of the company’s stock.
The remaining 9 percent of the shares would be issued to current stockholders, who also would be given a choice of receiving a cash payment of 15 cents per share instead of new stock.
But during a court hearing Friday, Gregg Galardi, a New York attorney representing Trailer Bridge, said the company reached an agreement with the committee of unsecured creditors on a new plan that will give that 9 percent of the stock to the creditors if they are not paid at least 85 percent of their claims.
If that happens, existing stockholders will end up with nothing.
Trailer Bridge is hopeful that it will be able to pay off the unsecured creditors and still pay the existing stockholders in new shares or cash.
The unsecured creditors had objected to the original plan because of the overhang of an ongoing antitrust investigation that could result in tens of millions of dollars of claims against the company.
If Trailer Bridge does have to pay off any antitrust claims, that would dilute the payments made to other unsecured creditors.
The committee’s objection said that existing shareholders, who are normally last in line to be repaid in a bankruptcy case, shouldn’t get any payments if the unsecured creditors are diluted.
But the committee will support the revised plan, said Richard Thames, an attorney at Stutsman Thames & Markey in Jacksonville who represents the committee.
“We’ve got ourselves to a comfortable place as to where the plan is going,” Thames said during the hearing.
Trailer Bridge still is facing a fight with a group of “antitrust customer creditors,” who are part of the class of unsecured creditors but have their own attorneys working on the Chapter 11 case.
The antitrust issues involve an investigation by the U.S. Department of Justice that began in 2008 involving alleged anticompetitive practices by ocean carriers that provide freight service to Puerto Rico. Trailer Bridge transports freight between Jacksonville, Puerto Rico and the Dominican Republic.
Roy Kobert, an Orlando attorney for the antitrust customers, said he represents a group of more than 50 major companies, such as The Coca-Cola Co. and The Procter & Gamble Co., who are customers of Trailer Bridge. These are the companies that could file claims against Trailer Bridge worth $110 million or more, according to court filings.
Trailer Bridge has not faced any charges from the Justice Department investigation and says in its reorganization plan that it doesn’t expect to have to pay any of those claims.
“We believe those claims are worth zero,” Galardi said at the hearing.
But in a court filing, the antitrust customers said Peter Baci, a former executive of Sea Star Line LLC who pled guilty to conspiracy charges in the Puerto Rico case, “will admit to having illegal discussions regarding price fixing” with a former Trailer Bridge executive.
“This is a real conspiracy that went on for six years,” said David Eddy, a South Carolina attorney who is also representing the antitrust customers.
“We don’t think that any of that is true,” Galardi said.
Whether true or not, the antitrust investigation will be a major factor in the outcome of the reorganization plan.
“This is a white elephant that has to be addressed,” Thames said.
At Friday’s hearing, Trailer Bridge asked U.S. Bankruptcy Judge Jerry Funk to schedule a combined hearing to approve the company’s disclosure statement and reorganization plan.
Normally, a hearing is held on the disclosure statement, which describes details to creditors who have to vote on the plan, before the hearing to confirm the plan.
But Trailer Bridge has been pushing to move its Chapter 11 case through the court quickly and get out of bankruptcy by the end of March.
“This will have a positive effect on business operations,” Galardi said.
The antitrust customers objected to that, saying they don’t see the need to rush the case.
“I don’t understand why they’ve created this fire drill to put your honor in a box,” Kobert told Funk.
Funk assured him that he will not be pressured to confirm the plan quickly if there are major unresolved issues at the combined hearing.
“I’m not in any box,” he said.
Funk approved Trailer Bridge’s motion to hold the combined hearing on the disclosure statement and reorganization plan on March 16.
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