$142 MILLION Deal to Sell Covenant’s Factoring Business in Jeopardy After Buyer Cries Foul
Chattanooga, TN – Covenant Logistics Group’s previously announced deal worth up to $142 million to sell off its factoring business is in serious jeopardy.
Last month, the Chattanooga, TN-based mega carrier announced the completion of the sale of Transport Financial Solutions (TFS) to Triumph Business Capital (TBC) for approximately $132.2 million, including contingent consideration of approximately $9.9 million.
However, the deal is now in “dispute” according to both parties.
In its 2nd quarter (Q2) earnings report, Covenant informed TBC claims that, subsequent to the closing, it identified approximately $66 million of the assets acquired in the deal related to “advances against future payments to be made” to TFS’ clients for services that had not yet been performed.
According to TBC’s 10-Q filed with the Securities & Exchange Commission (SEC) on Monday, the payments not yet rendered are to “three large clients and their affiliated entities.”
Additionally, TBC asserts Covenant did not disclose this information, and thus, TBC was unable to properly evaluate the terms of the disposition before finalizing the agreement.
Both parties advise they are in ongoing discussions in the hopes of arriving at an “amicable solution,” but if such an agreement cannot be reached, each say they are “evaluating other options.”
“The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found,” Covenant said in a statement.
At the time of the initial sale announcement, Covenant estimated the deal would provide a net gain of $26.5 million and much of the capital would be used to “pay down over $120 million of debt in the near term.”
However, that is very much in question at this moment as Covenant now acknowledges “it is too early to determine the likely outcome of this dispute.”
$22.3 Million Net Loss in Q2
Covenant reported a net loss of $22.3 million in Q2 on $191.7 million of total revenue (a revenue decrease of 11.7 percent compared with Q2 of 2019).
“In the second quarter, we made significant progress in our efforts to restructure our business units, terminal network, and management team to focus our talent, time and capital on areas where we believe we have the ability to grow and produce a consistent, acceptable margin,” said Covenant CEO David Parker. “The changes are extensive, and we expect them to be ongoing through the end of the year.”