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What a mess: Triumph details problems with big factoring client acquired from Covenant

Triumph says it laid out money to a company that served the U.S. Postal Service, but the agency paid the trucking company, not the bank

Image: Jim Allen/FreightWaves

The Triumph Bancorp (NASDAQ: TBK) acquisition of the TFS factoring division of Covenant Logistics earlier this year was delayed once because of disputes, but since the transaction was completed for roughly $105 million, it has become a headache for the acquirers.

While Triumph laid out some of the problems in the sale in a clinical way when releasing its fourth-quarter 2020 earnings late Thursday, it was on the earnings call with analysts a day later that CEO Aaron Graft could spell out in detail the problems that have bedeviled Triumph with the TFS purchase. 

As Graft said, the TFS acquisition “continues to present challenges.”

Graft tackled the issues with TFS at the top of the call on Friday, saying the company wants to be “as transparent as we can.”


There are two issues that Triumph has run into with the TFS acquisition. One is what the company described as “overadvances,” where factoring customers were granted more money than they were supposed to get. Because of that, Graft said, Covenant has provided Triumph with “protection from loss” of as much as $45 million on $62 million in over advanced receivables. That $62 million is more than 50% of the $108 million in portfolio value announced when the Triumph acquisition was first announced in July.

The overadvances led to a reduction in the value of the portfolio and Covenant paid Triumph $10.9 million as compensation for the reduced value, Graft said. 

“Our plan has been to work with each of the acquired TFS clients to recoup the over advanced amounts with an appropriate workout plan while continuing to factor their current business in the ordinary course with the Postal Service,” Graft said on the conference call, a transcript of which was supplied by SeekingAlpha. The reference to the Postal Service is because two large clients are among the small group of trucking companies that the agency uses for outside transportation services.

But the overadvances aren’t the entire problem with the purchase, according to Graft. As he said: “We have encountered a new twist.”


Graft on the call went on to describe a situation with a client and the Postal Service that appears to be something even Covenant could not have foreseen. Graft said in the fourth quarter — after the Sept. 30 close of the TFS acquisition — Triumph purchased about $19.6 million of accounts receivable from an unidentified trucking client. He also said the client was the largest in the TFS portfolio. That client is also a major carrier for the Postal Service.

Normally in the factoring world, the factoring bank like Triumph would instruct a shipper using the factoring client’s services to remit payment to the bank, since it already ponied up cash to the trucking company. 

But according to Graft on the call with analysts, the unidentified trucking company — already in possession of the money it was sent by Triumph — told the Postal Service to send it the money instead. The company was now holding both the factoring advances and the payment by the agency for services rendered.

The Postal Service took the steps it did “in direct contravention to the written notice of assignment we delivered them … and ended up paying $19.6 million of what was due to us directly to our client.” 

Graft said Triumph has tried to get the money back from the client but has been refused. According to Graft, the Postal Service is defending its actions by saying Triumph had “deficiencies” in its notices.

Graft was highly critical of the unidentified client and the Postal Service. “These facts can only suggest that the U.S. Postal Service and our client worked in concert to violate our agreement and applicable law in order to ensure timely mail delivery during the holidays and the election season,” Graft said. “There were other and better ways to have handled this, but they did not give us the opportunity to be part of the solution. “

More specifically, Graft told FreightWaves on a call after the session with analysts that he believes the carrier may have told the Postal Service that it needed the funds to be able to continue operating during a contentious election, when the Postal Service was front and center in the battle over mail-in voting, and with the holidays coming right after that. 

Graft said on the conference call that Triumph is confident of recouping the funds and that taking reserves against this particular almost $20 million is not necessary because of that confidence. But there are more over-advances than that, and Graft said in the quarter, Triumph put aside an additional $11.5 million in reserves to account for this one client. 


During the question-and-answer session with analysts, Graft said he “never dreamed” that the post office would undertake such a diversion. But “I get it,” he said. “There was an election, a highly contested election, the mail needed to run, but you would expect someone to pick up the phone and call you.” In his earlier comments on the call, Graft said the Postal Service did not inform them that they were ignoring the Triumph request and sending the money straight to the carrier.

The unidentified carrier will no longer be a Triumph client, Graft said. Of the five trucking companies that the Postal Service uses, Graft said two are Triumph factoring clients. That the agency is a larger user of trucking services doesn’t matter to Triumph after this series of incidents. “Growing our exposure to the post office is so low on my priority list, I can’t even see it,” Graft said.

Graft pulled no punches, calling what happened “theft,” which he said “you can never predict.” 

“I mean, frankly, we deal with misdirection of funds on a regular basis in our factoring business,” Graft said. “The difference there is we’re talking about, it’s $50,000, not $19 million.”

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.