Avery Vise
8 Commercial Carrier Journal November 2008 S ecurities backed by tens of thousands of mortgages that never should have been granted in the first place may have sparked the ongoing financial crisis, but the consequences are far broader than the housing market. The situation has direct implications for the trucking industry as one rare public glimpse into the relationship between bankers and trucking companies makes clear. In late September, Wachovia Bank sued Gainey Corp. parent of Gainey Transportation Services for $238 million, claiming defaults on loan payments and other terms of the credit agreement. The struggling Wachovia, which had to be rescued the following week by the Federal Deposit Insurance Corp. and since has been bought by Wells Fargo asked the court to appoint a receiver to secure its collateral, which includes more than 1,300 tractors and more than 3,400 trailers. Wachovia says the trucking company defaulted on vari-ous loan terms and covenants by missing scheduled princi-pal and interest payments in June and July and by firing a firm that had been retained as a chief restructuring officer. The bank goes on to imply mismanagement and poor cor-porate governance by questioning the owner's salary, pay-ments to lease an aircraft he owns and real estate arrange-ments between the trucking company and the owner. Owner Harvey Gainey quickly turned the tables, charg-ing that the financial crisis had compelled the troubled bank to make hasty and ill-advised decisions. He added that Gainey was fundamentally sound, had positive cash flow and operating income, and was performing solidly given inflated fuel prices and economic conditions. As the case developed, Wachovia lost its bid for a receiver but appeared headed toward a favorable court ruling in the near future. Gainey Corp. then filed for Chapter 11 bankruptcy protection, saying that Wachovia's own cash constraints have placed Gainey in a very difficult situation. Gainey continues to operate business as usual, and the court is allowing the company to use its cash and debtor-in-pos-session financing pending reorganization. In a nutshell, Wachovia paints a picture of a faltering truck-ing company in financial disarray partly due to a self-interested owner. Gainey portrays Wachovia as a severely troubled and mismanaged bank so desperate for liquidity that it was calling an otherwise solid loan on trumped-up technicalities. Neither is totally correct. Based on the record, Gainey Corp. clearly has had more financial difficulties than it wants to acknowledge. But would Wachovia have put this kind of pressure on a major debtor if it wasn't in dire straits? After all, surely it is in Wachovia's best interest to work with Gainey as an ongoing enterprise than to take steps that ultimately could force fire-sale liquidation. By Wachovia's own admis-sion, Gainey's depreciating assets are worth a fraction of the carrier's obligations. But for Wachovia especially in late September the long run was a matter of days, not months or years. Wachovia's own complaint points to a problem simi-lar to what occurred with mortgage-backed securities: A lack of sound risk assessment. The bank points to exces-sive compensation and transactions that might line the owner's pocket at the company's expense. But Wachovia hardly was powerless. If were lending a quarter of a billion dollars to someone, wouldn't you address any real concerns in the loan agreement? It appears as if Wachovia really didn't care about these arrangements until it realized it needed its money back. With credit still largely frozen, many trucking compa-nies privately face predicaments similar to that Gainey now experiences so publicly. If any good can come of this mess, perhaps it will be that banks will assess potential transactions more soberly and without unreasonable expectations. And maybe trucking companies will learn from others' mistakes and start conducting due diligence on their banks. n Avery vise is editorial director of Commercial Carrier Journal. e-mail avise@ccjmagazine.com. Mopping up the money mess The financial crisis continues to hurt trucking Avery vise Maybe carriers should conduct due diligence on their lenders.