Red River bankruptcy proceeding continues as GFL Environmental takes over Fort Wayne contract

Diving Brief:

  • Texas-based Red River Waste Solutions may soon be sold in bankruptcy proceedings to a division of private equity firm Platform Capital for a proposed price of $12.6 million. It comes after a sale process, which the presiding bankruptcy judge called one of the longest he has ever been involved in, generated no further interest beyond the offer of purchase of Platform.
  • A hearing to consider the sale is scheduled for July 8. A series of creditors have been engaged in the process, including several financial institutions and equipment suppliers, the metropolitan government of Nashville and Davidson County in Tennessee, the Solid Waste Disposal Authority of the City of Huntsville in Alabama, Santek Waste Services (subsidiary of Republic Services) and others.
  • Several local governments have recently struggled with Red River’s inconsistent service, leading Fort Wayne, Indiana to terminate its contract. GFL Environmental will begin waste and recycling collection in July, under a new eight-year contract worth an estimated $11.1 million per year.

Overview of the dive:

The Red River bankruptcy has caught the industry’s attention because of the resulting service problems, but also because there are few recent examples of a large waste company going bankrupt.

The company’s court filings cite the pandemic as a key issue, given the ‘substantially increased volume of waste’ which has resulted in ‘higher costs and unexpected wear and tear on trucks, employees and line shortages’. supply of parts and labor for repair and maintenance. He then faced “a refusal by some municipalities to increase the prices paid for rising costs” and “substantial fines” for failing to meet service standards. A sharp decline in C&D waste levels also affected its roll-off business. A first filing from October also refers to problems with insurance claims due to two “significant” accidents.

A court filing estimated that Red River’s gross revenue grew from $42.3 million in 2019 to $33.4 million in 2020 and nearly $27 million as of Nov. 24, 2021. In October, it was doing state of approximately 200 non-union employees and 184 trucks.

Red River took out a $35 million loan in April 2020 to help maintain operations, but the resulting debt service payments would have affected fleet spending. By October, the company had accumulated a deferred maintenance backlog of about $2.6 million, including $1 million of work required by the U.S. Department of Transportation. He also received a $2.3 million federal loan in 2020, which has since been cancelled.

The unexpected increase in residential volumes at the start of the pandemic had a financial impact on many carriers. Those unable to absorb losses or successfully renegotiate municipal contracts have struggled, but have largely found ways to carry on. Representatives for Red River did not respond to requests for comment in recent weeks.

According to its previous documents and profiles, the origins of the third-generation company date back to 1953, when Weldon Smith started a road building and waste collection business in Oklahoma after returning from World War II. The company has grown through several contracts for military bases and other sites over the years. The current incarnation of the company began in 1988, followed by a name change in 1993. It began to expand into municipal contracts around 2000 and was recapitalised, led by Ironwood Capital and Patriot Capital in 2014. It is currently led by Smith’s son Jim as CEO and grandson Weldon James as chairman.

The company’s footprint eventually expanded to six states, including multiple acquisitions in Tennessee to take advantage of the growing population around Nashville. It also later sold assets to Waste Connections in South Dakota and Lewis Clark Recycling & Disposal (owned by Waste Connections) in Iowa. According to a recent court filing, it currently holds collection contracts for municipalities in Alabama, Kentucky, Tennessee and Texas, as well as several federal contracts.

Two of Red River’s most high-profile contracts, Nashville (awarded in 2004) and Fort Wayne (awarded in 2017), have seen some of the biggest disruptions.

Nashville had to suspend recycling service for several months, provide assistance through public sector entity Metro Waste Services, and engage in legal wrangling to ensure continued service for the estimated 125 routes operated by Red River. In February, Nashville brought in WM and Waste Pro through emergency contracts to help make up for what Mayor John Cooper called “the failures of Red River.” In May, a Nashville representative said about 81% of the area’s residential waste collection was handled by contractors. Red River was previously responsible for the vast majority of this work.

In Fort Wayne, local leaders had to pass a state law (signed into law by Gov. Eric Holcomb in February) to update bidding procedures for early contract termination after months of problems. . They also agreed to pay $1.9 million to Red River in March to keep the company’s local operations solvent through June 30. Since then, board members have focused on potential taxpayer refunds and creating provisions to avoid similar issues under a contract finalized in May.

Huntsville ran into trouble with Red River earlier this year, forcing its local waste management authority to “use city and county resources to collect approximately 361 tons of pending collections” in February and hire an outside contractor .

If the Platform acquisition is approved, the next steps for Red River remain unclear. According to the Colorado-based company’s website, its platform waste portfolio includes two smaller Illinois carriers – TNT Hometown Disposal and AAA Disposal – as well as a lead-acid battery and e-waste recycler based in Canada. The platform declined to comment.

Court records indicate that GFL was contacted about the potential acquisition of Red River’s assets in Fort Wayne last fall, but that didn’t happen. GFL did not respond to a request for comment.

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