Covenant is getting out of the factoring business.
The assets of Transportation Financial Solutions (TFS), the factoring arm of Covenant Logistics Group, are being sold to one of the biggest factoring companies, Triumph Business Capital.
“In short, we have decided to exit the factoring space,” David Parker, chairman and CEO of the truckload carrier, said in a note to its clients. “Fortunately, we know that we have selected a strong partner in Triumph, a company whose reputation of integrity and substantial infrastructure will continue to support your business now and into the future.”
According to a prepared statement by Triumph, TFS had net receivables of $103.3 million. In exchange for transferring those assets to Triumph, TFS would receive cash of $108.4 million and Covenant stock worth $13.9 million. TFS has the opportunity to earn additional cash payments of up to $9.9 million by July 31, 2021.
Covenant released slightly different numbers on the value of the transaction. It said it was getting cash of $107.5 million and that TFS had the ability to earn an additional $9 million. Both companies agreed on the value of the common stock as $13.9 million.
There also is a “referral agreement” between the two companies described as “ongoing.”
Triumph said it expects the sale to be accretive to Triumph’s annual earnings by about 15 cents per share. The trailing 12-months earnings per share for Triumph are 86 cents per share. It posted a loss per share of 18 cents in the first quarter.
Triumph’s stock is down about 7.5% in the past 52 weeks, closing Wednesday at $22.43.
Triumph is expected to move all of TFS’ clients over to the Triumph factoring platform by the end of the month. EFS fuel cards issued through TFS will continue to operate after that transition to Triumph, TFS said in its note to clients.
Derwin Brendle, the general manager of TFS, will move to Triumph and take on the role of vice president of special markets.
The Covenant release about the transaction said it would get a small boost in its third-quarter earnings as a result of the sale. It would post a pretax gain of between $34 million and $38 million from the sale of TFS, which would “modestly exceed” the net total of other gains, impairments and expenses from real estate transactions and downsizing.