This year does not appear to be starting out on the right foot for Flying J as it tries to emerge from bankruptcy.
Rumors abound that the synergistic merger between Flying J’s truck stops and Pilot Travel Centers is experiencing serious resistance from government antitrust authorities, fueled in part by concerned customers, suppliers and competitors who fear the potential market power of the 800-pound gorilla that will have a 20-percent market share of the on-road diesel market.
And is there a culture clash between these two very different organizations from different parts of the country, each owned by strong willed families?
And is this an issue in completing the merger?
Flying J’s bank, Transportation Alliance Bank (TAB), which is not involved in the merger, has been defrauded by Arrow Trucking Co. by at least $12 million, according the litigation papers filed by TAB.
But TAB may have a hard time collecting on the fraudulent receivables since Arrow filed for bankruptcy and is being liquidated, possibly increasing the loss as Arrow customers refuse to pay their invoices.
And even then, the Internal Revenue Service may jump to the head of the line because Arrow failed to pay its trust fund taxes, a very serious crime that pierces the corporate veil and makes the officers and owners personally liable.
Flying J’s bankrupt subsidiary, Big West Oil, appears to have completed a financing for a term loan that will allow it to exit bankruptcy. But it was very costly. The interest rate is 9.5 percent over LIBOR (London Interbank Offered Rate), priced at a 3 percent discount, which implies an interest cost in excess of 13 percent. But then again, bankruptcy is also very costly.
On a positive note, it appears that Pilot Travel Centers has arranged the financing to complete the merger.
However, if the merger is not completed, there will be considerable costs as potential investors will be entitled to commitment fees.
And of course, do not forget the investment bankers and lawyers. They always get paid, just not as much.
[Note: At press time, Flying J announced that it entered into an Asset Purchase Agreement with Paramount Petroleum, a Los Angeles-based asphalt refinery owned indirectly by Alon Israel, to sell its Bakersfield Refinery for $40 million plus the value of the inventory. While Flying J has taken a bath on the purchase of this bucket refinery, the good news is that it ends a very bad dream that broke the company.]