Information for Creditors of Matheson Flight & Matheson Postal
Jointly Administered Under Case Number 22-21148 in the United States Bankruptcy Court for the Eastern District of California
New Information (5/23/2022): MFE and MPS have filed some new papers in the case, including a request that they be allowed to use their cash to continue operating their businesses through the bankruptcy case. These papers have revealed that the Debtors’ finances are even more entangled with those of their non-debtor affiliates than we previously knew. They are asking for protections for their secured lender that may not be appropriate due to these entanglements, and they are doing it on very short notice. Yet, there is no cohesive plan for continued operations past June 17th. Since creditors must wait until June 2nd to get a more detailed view of the Debtors’ finances by the filing of their schedules and June 6th to ask questions of the Debtors’ representative at the 341(a) meeting of creditors, the fact that the Debtors have no plan to continue past June 17th is a concern.
THE DEBTORS’ BUSINESS HISTORY AND OPERATIONS
The Debtors in the jointly administered bankruptcy case are Matheson Flight Extenders, Inc. (“MFE”) and Matheson Postal Services, Inc. (“MPS”). The Matheson companies provide services primarily to the United States Postal Service, or USPS. The relationship between the Matheson companies, which include non-debtor companies, and the USPS began in 1964 and is ongoing. In fact, the Matheson companies rank 11th in the Top 100 USPS Suppliers nationwide in terms of revenue, having generated over $194.5 million in revenues in the last calendar year.
MFE and MPS provide related but different services for the USPS. MFE operates mail sorting stations at airports, called Terminal Handling Stations, and in various cities across the United States, called Surface Transfer Centers. MPS provides ground transportation for mail, including by operating a fleet roughly 280 tractor trailers. Together, the companies employ nearly 3,000 full and part-time employees. MFE derives roughly 85% of its revenue from USPS contracts, while MPS gets 99% of its revenues from USPS contracts.
The Debtors work together with Matheson Trucking, Inc. (“MTI”) and other Matheson family companies to provide services to the USPS. The companies are partly owned and controlled by Joe Garrett, Inc. It is possible that MTI or other Matheson companies will join the two Debtors in bankruptcy.
DEBTORS’ CHALLENGES WITH USPS
As with most companies, the Debtors faced revenue shortfalls and increased costs as a result of the COVID-19 pandemic. In late 2021, MFE was asked by USPS to take over two additional Surface Transfer Centers from a competitor of MFE that was not performing up to USPS’s expectations. When MFE accessed the facilities in Atlanta, Georgia and Brandywine, Maryland, however, they discovered that there was a lot of non-operational equipment and non-functional parts of the facilities that needed extensive repairs.
According to the Debtors’ Chief Restructuring Officer, or CRO, Charles Mellor, the Debtors invested substantial time and money into fixing these facilities. Additionally, the Debtors had to spend substantial money on temporary employees to overcome the shortfalls in the facilities. For example, the Debtors hired dozens of temporary workers to sort mail by hand because many of the facilities’ sorting machines were not operational. According to the Debtors, all of these extra expenses were taken at USPS’s request in order to ensure that the holiday mail was delivered on time. However, USPS did not pay for the expenses.
The Debtors ultimately suffered from supply chain issues in getting the materials needed to fully outfit the two new facilities. According to them, the Debtor companies spent around $24 million on these “extraordinary” costs, which have still not been repaid by USPS.
UNSECURED CREDITORS HAVE AN OPPORTUNITY
In an effort to avoid bankruptcy, MFE and MPS tried to negotiate with USPS to get it to repay the $24 million that the Debtors had to spend in order to get the Atlanta and Brandywine facilities ready to operate at capacity. Instead, the USPS gave the Debtors a $15 million loan, which would have to be repaid within 3.5 years. The Debtors state that they agreed to this loan “under duress.” Before agreeing to extend the loan, USPS required the Debtors to give up some over-the-road transportation contracts and to cede control of some sorting facilities. This will cost the Debtors millions per year in revenues.
The USPS loan also called for the Debtors to make payments of $300,000 per month, beginning in July 2022, plus a balloon payment at the end of 3.5 years to pay off the balance of the loan. The Debtors also have significant secured debt owed to various banks and equipment finance lenders.
PRLT does not represent Matheson Flight Extenders, Inc. or Matheson Postal Services, Inc.. The content on this page is provided for informational purposes only. Nothing on this page or this website creates an attorney/client relationship between you and PRLT. Nothing on this page is legal advice. If you have any questions about the jointly administered Matheson bankruptcy cases or anything discussed on this page, please contact us.