The Red River Bankruptcy, COVID, and Nashville’s Garbage

What a time for Nashville’s curbside recycling to get disrupted. I’m not sure I bought any Christmas gifts in-person this season. Instead, I relied on Santa’s elves, dressed in FedEx and UPS uniforms, to deliver the gifts in cardboard boxes.

It’s something I’ve been doing since March 2020, when COVID first disrupted everything.

And, based on the Statement of Background Information in the Red River Waste Solutions, LP Bankruptcy Case, all of us staying at home and generating more residential garbage is, basically, why it filed bankruptcy.

The case was filed on October 14, 2021. The full bankruptcy docket can be found here.

The circumstances behind the filing of the bankruptcy are laid out in the Declaration of James Calandra, the proposed Chief Restructuring Officer of Red River, and the Statement of Background Information.

Red River alleges that the COVID pandemic resulted in more residential waste (and less commercial waste), putting additional burden on Red River (which serviced the residential waste, but generally not the commercial). This resulted in more employee costs and additional wear-and-tear on Red River’s equipment and vehicles. The goals of the bankruptcy are to restructure debt and, possibly, sell the business in parts.

In today’s Axios Nashville newsletter, they report that Nashville “is waiting for the bankruptcy court to determine what happens to its contract, and it’s possible Metro will be allowed to search for a new trash collector.” Well, sort of.

Based on my review of the docket, Nashville has hired a local Texas lawyer, but the real shots are probably being called by the Nashville law firm Bass Berry Sims, which was allowed to appear on behalf of the city “pro hac vice” (which means that an out of town lawyer who is otherwise not licensed in a jurisdiction can appear in a case).

After the entry of that Order on November 29, 2021, Nashville hasn’t filed anything to formally press Red River as to whether it will assume or reject the waste services contract. Instead, my guess is that the city’s very competent counsel are in negotiations behind-the-scenes for Red River to decide whether it can continue to provide the services or whether it’s going to walk away from its obligations.

So far, only one party is really pressing this issue. In its contract, Fort Wayne, Indiana required Red River to enter into a $4,900,000 performance bond and took affirmative steps to make sure that bond was renewed. Fort Wayne issued a default under the bond on December 8, 2021, asking for $1,718,569 in damages for missed collections. On December 14, attorneys for the bonding company filed an Emergency Motion to force “the Debtor to immediately assume or reject the Solid Waste Contract.”

Despite initially being set for December 23, this Emergency Motion has been taken off the docket indefinitely. In the Motion, the insurance agency references testimony showing that many of the municipalities that held bonds allowed them to expire (not Fort Wayne, though).

The next round of hearings in the case are set on January 7, 2022, when Red River will ask the Bankruptcy Court to grant a number of procedural and administrative orders. This includes: the ability to use “cash collateral” (i.e. spend money that a secured lender otherwise has the ability seize and retain); to grant its secured lender (probably the same one holding the cash collateral) a “superpriority” lien on post-bankruptcy assets; to hire all the bankruptcy-related attorneys and professionals; and to set the system by which all of those attorneys and professionals get paid.

And, of course, the orders approving the debtor’s attorneys’ employment and fees will be a big part of getting this case moving. And, wow, bankruptcy lawyers aren’t cheap: Red River’s primary counsel are to be paid hourly rates of $800 (Partner) and $575 and $450 (Associates).

My guess is that, until Red River gets (forces?) its lenders to agree to release its cash for use in business operations (and to fund the bankruptcy), Red River can’t meaningfully determine whether it can assume or reject the contracts. The hearings this Friday will be step one in that process.

As an aside, it bodes poorly that it has taken this long for the debtor to get these administrative motions approved. These are generally referred to as “first day” motions and, yes, they are generally considered and approved early in a case.

Aside from that, Red River will also have to show some ability to actually service the contracts in order to retain those contracts. A big part of chapter 11 bankruptcy is the ability to retain (and assume) the good contracts and reject (and walk away from) the bad contracts. Then, the “reorganized” debtor can either continue to perform the profitable contracts or, if it so choses, “sell” those contracts to somebody else.

Here, if Red River isn’t able to perform or provide a reasonable basis to believe it can perform under the Nashville contract, there will be cause for the city to ask the Bankruptcy Court to force it to decide. The fact that Red River isn’t currently servicing these contracts doesn’t make me feel optimistic about their chances.

The longer my cardboard boxes sit behind my house may be the best indication of where it’s all headed. I’ll update this post when I can see the pile over my fence.

Author: David

I am a creditors rights and commercial litigation attorney in Nashville, Tennessee.

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