Pride Group Holdings Inc., once a fast-growing Canadian trucking conglomerate, has filed for creditor protection in hopes of restructuring $1.6-billion worth of debt, after defaulting on more than 40 loans.
Pride Group, based in Mississauga, also disclosed in court filings that a group of bank lenders, led by Royal Bank of Canada, has discovered a number of alleged financial irregularities at the company. These findings, the company says, include some trucks being financed by more than one lender, without the lenders knowing. Because of this, multiple lenders now have competing claims against the same collateral as Pride tries to restructure.
The filings say Pride also hired a financial adviser who found that the company took out loans to purchase new vehicles, but then didn’t make the purchases or repay the funds.
As a conglomerate, Pride has multiple divisions. One arm, for instance, sells new and used trucks, while another leases trucks to independent drivers and provides them with financing.
The company is requesting that a court-appointed monitor facilitate the restructuring. In court documents, Pride co-founder and chief executive officer Sulakhan Johal, who goes by Sam, attributed the company’s financial woes to a “perfect storm” that is plaguing the entire trucking industry. The sector’s headwinds include higher interest rates and an oversupply of trucks and truck drivers now that pandemic supply chain bottlenecks have eased.
As for the alleged financial irregularities, Mr. Johal wrote in an affidavit that Pride had some bookkeeping deficiencies. He said these had arisen, in part, from “strains” on its human resources. Because of higher than normal default rates on truck leases of late, Pride Group has had to repossess “an ever-increasing number of trucks,” which has contributed to delays in transferring assets and liabilities across business lines, he added.
Pride was founded by Mr. Johal and his brother Jasvir in 2010 as a used truck dealership. The company expanded rapidly over the past 14 years into a trucking conglomerate that operates in Canada and the United States. It conducts new and used truck sales, truck leasing and financing, logistics, equipment maintenance, fuel sales and roadside rescue. Its subsidiaries include Pride Truck Sales Ltd. and Pride Group Logistics Ltd.
Like many trucking companies, Pride Group earned substantial profits at the height of the pandemic, because supply chain bottlenecks sent shipping costs soaring. In 2022, the company made $183-million in profit, and in 2021 it made $123-million.
But the global shipping industry is now in what is known as a “freight recession,” because the volume of goods getting shipped has plummeted as consumers purchase less in the face of higher interest rates.
During this downturn, trucking companies and independent truck drivers have been some of the hardest hit. That’s because in some cases the companies did too much hiring during the boom. And some drivers purchased or leased trucks when interest rates were much lower, meaning they must now pay today’s higher rates even as demand drops.
“The same factors that contributed to the Pride Group’s exceptional growth have materially exacerbated its present financial situation,” the company says in court filings.
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Pride is also struggling because its business model largely caters to independent drivers, who make up a “significant proportion” of its client base, according to court filings. Many of these drivers entered the market during the pandemic boom, bought or leased trucks when valuations were peaking, and financed their acquisitions when interest rates were low, the company says.
During this time, Pride was selling these drivers a full-suite service package that included repairs, servicing and rescue operations. Now that the drivers are hurting financially, demand for those services is falling, which means more than one business line is suffering.
Because Pride’s clients are struggling to pay the interest on their loans, Pride itself is now struggling to repay its own lenders.
In total, Pride Group owes $1.6-billion to more than 20 lenders. Since the start of the year, it has received more than 40 default notices in Canada and the U.S. The company’s major lenders include Mitsubishi HC Capital Canada Inc., Bank of Montreal and Daimler Truck Financial Services Canada Corp.
Pride has tried to renegotiate some loans. The company says in court filings that it was forced to file for creditor protection when its most significant lender said it would take enforcement action if insolvency proceedings were not started by April 1. The filings do not name the lender.
To appease the lender, Pride is requesting that an Ontario judge appoint Ernst & Young as its monitor, and the company has also appointed Randall Benson, of RC Benson Consulting Inc., as chief restructuring officer. Mr. Benson has previously acted as chief restructuring officer for companies such as Hollinger Group and Quebecor World.
The Johal family holds all of Pride Group’s equity, and the two brothers personally guaranteed more than $200-million of the conglomerate’s debt, according to court filings. They also recently injected about $18.5-million into the business using money borrowed under a Bank of Nova Scotia personal line of credit.
In Mr. Johal’s case, the personal line of credit was guaranteed by his spouse and secured by a mortgage against a home they are building. Scotiabank has declared a default on the mortgage.
Tim Kiladze