Covenant Resolves “Dispute” in $100 MILLION Deal to Sell Off Its Factoring Business
Chattanooga, TN – Covenant Logistics Group has resolved a dispute with Triumph Business Capital (TBC) over its previously announced agreement to sell off its factoring business in a deal initially worth up to $142 million.
In July, the Chattanooga, TN-based mega carrier announced the completion of the sale of Transport Financial Solutions (TFS) to TBC for approximately $132.2 million, including contingent consideration of approximately $9.9 million.
However, in August, the deal hit a snag.
In its 2nd quarter (Q2) earnings report, Covenant informed that TBC claimed, 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.
Following more than a month of negotiations, the two parties have reportedly come to a resolution.
“We are pleased to reach an amicable resolution of our dispute with Triumph Bancorp and its affiliates concerning the sale of our TFS factoring division,” Covenant Chairman and CEO, David Parker, said on Wednesday. “The resolution will result in lower total value and more risk sharing for Covenant, while providing a clear path forward and a fair outcome.”
The two parties amended the purchase agreement and related funding arrangements.
The terms of the new agreement reduces the purchase price to approximately $108.4 million.
Approximately $62 million of specifically identified assets in dispute were placed in a loss sharing pool to be repaid with proceeds other than those generated from ordinary working capital factoring.
Covenant also agreed to indemnify TBC on a dollar for dollar basis for up to the first $30 million of losses, and on a 50 percent basis for up to the next $30 million of losses, for total indemnification exposure of up to $45 million.
In return, TBC is providing Covenant with an up to $45 million line of credit that can be utilized through September 2025 to fund Covenant’s portion of any loss sharing.
Covenant previously disclosed it would achieve a $26.5 million estimated gain on the sale, but is now expected to be reduced to only a modest third quarter gain, and perhaps even a loss.
Parker indicated that putting this dispute behind the company was in Covenant’s best future interest.
“At the end of the day, we will have sold the most stable portion of the TFS portfolio for a premium to net asset value while sharing the risk on the balance of the portfolio with a leading provider of factoring and other financial services to the transportation industry,” Parker commented. “Just as important, resolving the dispute allows our management team to remain intently focused on executing our strategic plan.”