Sale of Covenant factoring business to Triumph hits a snag

The early July deal to sell Covenant’s factoring business, Transportation Financial Solutions, has hit a snag, according to Covenant’s quarterly earnings report.

Covenant said its deal to sell the business to Triumph Business Capital is being held up because it and Triumph “are involved in a dispute related to the disposition.” The sale was going to take Covenant out of the factoring business.

“The facts are still being gathered, and a solution that is acceptable to both companies may or may not be found,” Covenant said in its statement.

At the heart of the dispute is $66 million in assets. That is more than 50% of the value of the assets in the deal, which Covenant said last month would net $103.3 million.

According to Covenant, Triumph – which is not identified in the release other than being “the purchaser” – has identified $66 million of the assets in the deal that are “related to” advances against the performance of “contractual arrangements” between TFS and its clients, though the services in the advance have not yet been performed. Covenant contrasts these with “advances against future payments for services that had been performed.”

Triumph, according to Covenant, is alleging that “this fact was not disclosed to the purchasers, and the purchase of such advances was not disclosed to [Triumph], and the purchase of such advances was not contemplated by the purchase agreement.”

“The company is engaged in discussions to determine whether this dispute can be amicably resolved and is also evaluating other options should the discussions not produce an amicable resolution,” Covenant said in its statement.

Covenant had recorded a gain on the sale of $26.5 million.

“It is too early to determine the likely outcome of this dispute, any liability or expenses the company may incur, any cash the company may need to pay or invest, any impact on the company’s total leverage, or the gain or loss the company ultimately may record on the transaction,” Covenant said.

On the same day as the release of the Covenant earnings with the news about the Triumph dispute, Triumph filed its 10-Q with the Securities & Exchange Commission. In the filing, Triumph mostly echoed what Covenant said in its statement except to note that the payments in question were to “three large clients and their affiliated entities.”

Triumph also said it is involved in discussions with Covenant to determine whether Triumph’s claims “can be amicably resolved.” The company “is also evaluating all other options available to it should such discussions not produce an amicable solution.”

John Kingston