June 1, 2011

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The Refiner’s Fire


The Refiner’s Fire

How Flying J Emerged From Bankruptcy with New Wings

Peri Kinder

June 1, 2011

No one guessed that oil prices would plunge from $145 per barrel to less than $40 per barrel in six months, but that’s exactly what happened between July and December 2008. After hitting an all-time high, the demand for oil dropped significantly, sending prices into a ditch. Oil companies lost billions of dollars, creating a perfect storm for Utah-based Flying J, Inc.

After oil prices crashed, credit markets stalled, leaving Flying J with no cash to work with. Banks weren’t giving out loans and by December 2008, with no cash in hand, executives at Flying J knew bankruptcy was imminent. CEO J. Phillip Adams resigned and Crystal Maggelet—daughter of Flying J founder Jay Call—stepped in to take over as CEO in January 2009.

Back from the Brink
Having served on the company’s board of directors since 1982, Maggelet was no stranger to Flying J leadership. She immediately started doing everything she could to get the company back on its feet. Her intention was to emerge from bankruptcy with creditors paid off and the Flying J reputation restored with as little disruption as possible.

“I knew I was diving in over my head to take on this business,” she says, “which at the time was the 16th-largest private company. I knew the skills I had were to treat people the way I’d want to be treated and to be honest.”

The company, which had recorded $18 billion in sales, began selling assets and finding ways to pay back creditors to the tune of $1 billion. Maggelet started the process to shut down and sell the refinery in Bakersfield, Calif. and to sell the Longhorn Pipeline on the Gulf Coast. The company had 300 million barrels of oil, 250 Flying J travel centers, the Big West oil refinery in North Salt Lake, THC credit card processing and the Transportation Alliance Bank based in Ogden.

“It wasn’t that we didn’t have a viable business going forward,” Maggelet says. “We basically just ran out of cash. What Chapter 11 does, it allows you to draw a line in the sand and move forward, and that’s what we did.”

Part of moving forward included laying off 2,500 employees—17 percent of the company’s workforce, a difficult decision for Maggelet. But after 18 months of bankruptcy, in July 2010, a U.S. Bankruptcy Court approved Flying J’s reorganizational plan allowing the company to resume regular business practices. Now, working under the name FJ Management, the company has used the bankruptcy as an opportunity to improve.

“The better the relationships you can form, when you get in trouble, the more people will stand by you,” Maggelet says. “We had a very stellar reputation and we had a blip. That doesn’t mean [creditors] continued to extend credit to us during bankruptcy. They didn’t and they shouldn’t have, that was understandable.”

Strengthening the Brand
One partnership to rise from the turmoil was a merger with Pilot Travel Centers. Maggelet met with the CEO of Pilot six months into the bankruptcy, and they agreed to join brands, allowing FJ Management a minority ownership in the combined 550 travel centers and bringing in more than $1 billion.

FJ Management did not have the capital to invest in improving truck stop facilities and the merger with Pilot gave them the opportunity to get the centers up to the FJ standard. Pilot invested $150 million of capital into the FJ travel centers, and now trucking companies have the ability, for the first time, to work with one company across the country.

“We kept the Flying J brand the way my dad would have liked it,” Maggelet says. “Pilot has efficient operators very focused on their retail business, and I believed they could take our assets, which were already making money.”

The merger with Pilot created capital to pay back creditors, and as soon as the plan was approved, FJ Management began writing checks, paying creditors in full, with interest—sometimes up to 22 percent.

Cash is King
Now that the company is back on solid ground, experts are amazed at its comeback. Many insolvent businesses are sold off piece by piece to pay off debtors and the majority of companies that do survive take years to rebuild their reputations with investors, business leaders and the public.

“We had to build credibility,” says Andre Lortz, FJ Management CFO. “We had to show progress, make good business deals and restructure operations. As people saw we could focus on cash flow and were managing our business well, we were able to rebuild that.”

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