The City of Fort Wayne will have little recourse after Red River Waste Solutions filed for bankruptcy late last week, according to city attorneys.
Red River, a Texas-based solid waste management company, filed for Chapter 11 bankruptcy Thursday and stated it was $31 million in debt. In the filing, Red River cited difficulties during the COVID-19 pandemic, a credit agreement and operational challenges.
Concerns about Red River’s ability to adequately serve the Fort Wayne community became apparent almost as soon as its contract with the city went into effect in January 2018. Missed pickups and driver shortages were blamed for the company’s early struggles, which led to the creation of a task force from Mayor Tom Henry that summer and, eventually, a total overhaul of route maps for garbage collection in November.
Three years since that change, though, Red River has been unable to turn the corner. While misses declined, its financial challenges continued, leading to its bankruptcy filing late last week.
Attorneys for the City of Fort Wayne met with Red River representatives ahead of City Council’s weekly Tuesday meeting at Citizens Square.
Tim Haffner walked the body through Red River’s options.
“They wanted to continue service, I want to be clear on that and they were emphatic on that," Haffner said. "But they’re unclear on whether they would reorganize, whether they would sell assets, whether they would try to bring in other investors And they have the right to present a plan exclusively for the first period of time.”
That period is 180 days from the filing, but that is routinely extended and could stretch as far as six to eight months.
Bankruptcy law supercedes any existing contract language between two entities. Currently, Red River cites its contract with Fort Wayne as an asset. If Fort Wayne wants out of its contract with Red River, the company would have to negotiate that within the court. So for now, there’s little the city can do.
If Red River were to want to relinquish the contract, it has two options through the bankruptcy process. One of those is “rejection,” which would release the city from the contract but is only likely in the event of a failed reorganization and can only be decided via court order. For now, Red River remains required to perform under the terms of the contract and continue garbage collection.
The other is “assumption,” which is explained by Jay Jaffe.
“They can assume the contract, and they can assign the contract once they assume it, notwithstanding any provision in the contract that prohibits assignment," Jaffe said. "One of the key benefits of a Chapter 11 case that’s often utilized by a debtor.”
If the court agreed to the recommendation of a new vendor, it would have to operate under the terms of the current Red River deal, which is in effect through 2024.
Even though the bankruptcy process prevents Fort Wayne from entering a new waste collection agreement, members of Council questioned whether or not the city could put out feelers to other companies as Red River works through the process. Jaffe says that, while maybe sending out requests for proposal would be a step too far...
“It may very well be that before you make the decision to start soliciting interest, you’re going to be besieged by parties looking to contact you," he said. "Because it’s a small industry, and the other major players are aware of the filing of the bankruptcy case by Red River.”
Red River did not have a representative present for Tuesday’s meeting; a scheduling conflict was given as the reason.
6th District council member Sharon Tucker, who also serves on the solid waste board, said she heard that same answer from them “months ago,” when Red River’s financial issues came to light and she wanted to begin on a contingency plan.
“I’m very disappointed that we’re really even kind of here," Tucker said. "Did we know they would file for bankruptcy? Probably not. Could we see there was trouble going on? Absolutely. Should we have had a contingency plan? Yeah, and we should be preparing and talking.”
The city’s legal counsel noted a contingency plan may be one of the few options it has to “force the issue” with the court and potentially regain control of the contract. But, like much of the bankruptcy process, that hinges on where Red River’s case goes.
The bankruptcy process could take as long as 18 months. In the meantime, Red River remains legally required to collect garbage in the City of Fort Wayne.
