More NYC Taxi Bankruptcies- The Uber Effect?

Yesterday, thirty-six bankruptcies were filed that involved New York City taxis.  (The cases are being jointly administered under two cases Brownie Taxi, LLC and Wrestler Taxi, LLC).  All of the companies are managed by Evgeny Freidman.  These filings are only the latest taxis serving New York that have filed for bankruptcy.  In the past few years there have been more than 100 bankruptcies involving taxi companies.

New York City, like most major US cities, tightly controls the number of cars allowed to operate as taxis.  According to Wikipedia, in 2016 the number was 13,587.  This number is controlled by the city by issuing “medallions” which have to be affixed to the car.  The medallions are transferable which has resulted in an active secondary market.  For most of the twentieth century, medallions were viewed as a valuable commodity.  Prices increased year over year and there was a group of commercial banks and specialty lenders that would advance loans that were collateralized by the medallions.  As recently at 2014, medallions were trading for more than $1,000,000 with fleet medallions trading for as much as $1,300,000.

Now all that has changed.  The New York Post reported in April that a single medallion traded for as low as $241,000.  As many as 46 medallions are being auctioned off in September as part of a bankruptcy sale (see auction site).  The collapse in pricing is being blamed on the rise of ride sharing services such as Uber and Lyft whose drivers are not required to have a medallion.

The collapse of the medallion market mirrors that of the housing crisis.  Individuals that borrowed against their medallions now find that they owe significantly more than their medallion is worth, companies are struggling to refinance their debt, and  credit unions and other financial institutions who have portfolio exposure are suffering.  One creditors that has been hit the hardest is Medallion Financial Corp. (Nasdaq: MFIN).  Once a darling, the company is now trading at only 3.18 times its trailing twelve months earnings.

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