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, drew no other interest beyond the platform auction.
  • A hearing to consider the sale is scheduled for July 8. A range of creditors have been engaged in the process, including several financial institutions and equipment vendors, the Metropolitan Government of Nashville and Davidson County in Tennessee, the City of Huntsville Solid Waste Disposal Authority in Alabama, Santek Waste Management 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 annually.

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.

Company court records cite the pandemic as a key issue, given the “substantial increase in the volume of waste” which has resulted in “higher costs and unexpected wear and tear on trucks, employees and supply chain shortages of parts and repair and maintenance labour. It 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. First October filing also refers to insurance claims issues due to two “significant” accidents.

A case in court Red River’s estimated gross revenue increased from $42.3 million in 2019 to $33.4 million in 2020 and nearly $27 million as of November 24, 2021. In October, it reported an estimate 200 non-unionized employees and 184 trucks.

Red River entered into 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 forgiven.

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 deposits and past profiles, the third-generation company’s origins 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 had a recapitalization, led by Ironwood Capital and Patriot Capital, in 2014. He is currently running 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. He also later sold assets to Waste Connections in South Dakota and Lewis Clark Recycling & Disposal (part of Waste Connections) in iowa. According to a recent court filing, he currently holds collection contracts for municipalities in Alabama, Kentucky, Tennessee and Texas, as well as multiple 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 the recycling service for several months, providing assistance through the public sector entity Metro Waste Services and engaging in legal wrangling to ensure continued service for the estimate 125 courses managed by Red River. In FebruaryNashville brought in WM and Waste Pro through emergency contracts to help make up for this Mayor John Cooper called “Red River Chess.” 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 by Governor Eric Holcomb in February) to update the bidding procedures for an early end to the contract after months of problems. They also agreed to pay Red River $1.9 million. in March to maintain the solvency of the company’s local operations until June 30. Since then, board members have focused on potential refunds to taxpayers and create provisions to avoid similar problems under a contract finalized in May.

Huntsville ran into trouble with Red River earlier this year requiring 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 Waste Portfolio Platform includes two smaller Illinois carriers – TNT Hometown Disposal and AAA Disposal – as well as a Canadian-based recycler of lead-acid batteries and e-waste. The platform declined to comment.

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