Covenant sells freight factoring assets for $ 132.2 million
Covenant Logistics Group, Inc. is selling its factoring business for $ 132.2 million to help reduce the overall debt of the Chattanooga-based trucking giant.
The deal announced Wednesday is expected to generate a pre-tax third-quarter gain for the company of between $ 34 million and $ 38 million.
Covenant said it has sold the transportation factoring assets of its Transport Financial Solutions segment to Triumph Business Capital, a subsidiary of Triumph Bancorp, Inc. in Dallas.
Freight factoring is when a carrier sells the invoice for a load that they transported in order to get cash immediately, instead of waiting several days which the broker typically takes to pay. Since its inception in 2011, Covenant has grown its factoring business “and has generated consistently high margins and returns,” said Covenant CEO David Parker.
“With a critical mass of over $ 100 million in capital deployed and strong growth opportunities, it was time to transition the business to a loan-oriented owner and in-depth knowledge of the transportation industry. Parker said. “We are convinced that Triumph is the ideal partner for TFS customers in the future. The ability to repay over $ 120.0 million in short-term debt is in line with our goals of significantly reducing our indebtedness and focusing our business model on services and areas where we can add significant added value to. our partner clients in the logistics industry in the United States. “
The transaction was structured as a sale of TFS factoring assets, consisting primarily of $ 103.3 million in net accounts receivable and transportation-related factoring assets. In exchange, Covenant received cash proceeds, net of transaction costs, totaling approximately $ 107.5 million, plus common shares of Triumph valued at $ 13.9 million and the opportunity to earn contingent cash consideration. up to $ 9 million per year from now.
The parties have also entered into an ongoing removal agreement.
The third quarter gain from the sale of the business unit is expected to slightly exceed the net amount of multiple second quarter gains, impairments and expenses that Covenant takes due to the sale or disposal of certain real estate, curtailing operations. unprofitable, reallocating fleet assets, outsourcing logistics operations and other actions consistent with the strategic plan.
Ahead of Wednesday’s announcement, shares of Covenant Logistics rose 10 cents per share, or 0.7%, to close at $ 13.95 trading on the Nasdaq stock exchange.