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July 6, 2017 12:45 PM, EDT

Jack Cooper Negotiates to Retire Debt, Avoid Chapter 11

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Jack Cooper Holdings Corp., North America’s largest autohauler, successfully completed negotiations with two groups of debtholders allowing the carrier to avoid a Chapter 11 bankruptcy proceeding and retire $429.2 million worth of debt.

The Kansas City, Mo.-based company, which ranks No. 48 on the Transport Topics Top 100 list of North American for-hire carriers, announced the completion of negotiations June 29. The twin deals involve two issues of debt and two Jack Cooper companies.

“This deleveraging event is a critical milestone in the company’s efforts to create a healthy and sustainable balance sheet for all of our constituencies — including our lenders and investors, employees, unions, owners and, most importantly, our customers,” CEO Michael Riggs said in the statement.

The larger tranche of debt was $375 million in senior secured notes, issued in June 2016, from Jack Cooper Holdings Corp. It owns operating companies Jack Cooper Transport and Jack Cooper Logistics. These senior secured notes paid 9.25% per year and were due in 2020.

Among the Jack Cooper Holdings’ debtholders, 99.71% agreed to sell back their notes at a rate of $550 per $1,000 in face value. For each $550, $500 will be in cash and the remaining $50 in warrants to purchase common shares in Jack Cooper Enterprises Inc., which owns the holding corporation.

The second tranche, worth $150 million at issue in June 2014, was from Jack Cooper Enterprises. These senior payment-in-kind toggle notes were due in 2019 and paid 10.5% or 11.25%. Toggle notes provide firms with a way to raise debt while staying afloat during times of strained cash flow. When cash is at a minimum, the firm can use the toggle to defer an interest payment.

Debtholders of Jack Cooper Enterprises, holding 94.3% of the notes, approved a buyback at $150 for each $1,000 in face value. Within each $150 payment, $11.50 is classified as a “consent payment and forbearance fee.”

The combined approval rate for the two groups of debt is 98.97%.

The company’s statement said the new arrangement will reduce interest expenses by about $9.8 million a year.

A debt analysis by Bloomberg News said the three major holders of the Jack Cooper Holdings notes were JPMorgan Chase & Co., with $53.94 million; mutual fund Northeast Investors Trust Co. of Boston, $20 million; and Italian financial firm UniCredit SpA, $11.9 million. All other debtholders had less than $5 million each, Bloomberg said.

Among Jack Cooper Enterprises noteholders, Japanese investment house Nomura Group held $2.24 million, and all others held less than $1 million each, Bloomberg said.

Riggs said previously that unless Jack Cooper could reach a strong consensus, the company would have to file a limited, prepackaged request for Chapter 11 relief before a federal bankruptcy court. Chapter 11 cases are for business reorganization rather than liquidation.

The completed negotiations made that unnecessary, Riggs told TT, saying Chapter 11 is “off the tables,” and the “need and desire [for it] is extinguished.”

He also said the transaction would be recorded as a cancellation of debt and will not be considered as taxable income.

The company said that the high rate of approval means the new terms will apply to all noteholders in the two debt groups, not just those who voted to approve.

A new debt series will replace some of the older issues, the company said in a statement.

“The company intends to fund the cash portions of the exchange transactions with the proceeds from an issuance” of new debt: $227.5 million worth of 13.75% senior secured notes due in 2023, giving the company another three or four years to pay, compared with the two tranches just retired.

Although Jack Cooper common stock is not traded publicly, the company’s debt is so that it has filed quarterly financial statements with the Securities and Exchange Commission.

During this year’s first quarter, Jack Cooper had an operating profit of $5.38 million on revenue of $161.4 million. Net interest payments of $12.8 million were more than twice the size of the profit and led to a net loss of $6.89 million.

As of March 31, the company had long-term debt of $477.8 million, much of which has now been reduced, and a shareholders’ deficit of $357.4 million.

Also in March, Jack Cooper won approval of a contract with the International Brotherhood of Teamsters, providing labor stability through May 2021. The previous labor pact had lapsed 19 months earlier.

The Riggs family owns a majority of Jack Cooper Enterprises.