Indianapolis-based Celadon Group Inc. says it’s found an investment firm willing to give it a $200 million loan—in exchange for a 19.5 percent ownership stake in the financially troubled trucking company, plus up to two seats on its board.
The arrangement represents one piece of a three-part proposed refinancing agreement announced by Celadon on Monday morning. It’s a significant milestone for the company, which has been working for a year to address numerous financial and accounting issues.
But Celadon hasn’t yet released certain key details—including the name of the proposed term lender—because none of the proposed deals have closed yet. Celadon said it expects closings to occur by June 15.
Celadon announced the possible deals in a press release, but described the lender only as “a sophisticated investment firm that has a good appreciation for the trucking industry.”
“They’re just not ready to have us put their name out there yet,” Celadon Chief Financial and Strategy Officer Thom Albrecht told IBJ. “That’s their call and we’ll defer to them on that.”
Under the proposal, the lender would provide a $200 million term loan that Celadon would use to retire its existing borrowings. The lender would also receive 19.5 percent of Celadon’s fully diluted common stock and could appoint two members to the company’s board of directors. Celadon’s current board consists of six members.
An entity can acquire an ownership stake of up to 19.5 percent without requiring Celadon shareholder approval to do so, Albrecht said, which is why the proposed lender is set to receive that amount of common stock.
It’s not yet known whom the lender might appoint to Celadon’s board or when the appointments would happen, he said.
The proposed refinancing is an important step for Celadon, which launched an internal investigation into its financial reporting in May 2017 after its auditor raised concerns.
Earlier this month, Celadon disclosed that its internal investigation revealed financial reporting problems that were much larger and longer-lasting than previously expected. The company said it found problems dating back to 2014, including the overstatement of some of its earnings by as much as $250 million during a three-year period that ended in 2016.
Celadon said it would not be able to reissue its financial reports by a May 2 deadline imposed by the New York Stock Exchange. In response, the NYSE halted trading of the stock on April 3.
Shares of Celadon now trade over the counter. Shares were trading at $2 at noon Monday, up 44 cents from Friday’s closing price.
Celadon said it does not expect the issuance of restated financial statements to be a condition of closing on the refinancing agreements.
In addition to the proposed $200 million term loan, Celadon said it also expects to enter into a new $100 million revolving line of credit proposed by Bank of America Business Capital and Wells Fargo Capital Finance LLC. The two entities are business units within Bank of America NA and Wells Fargo Bank NA, respectively, both of which are existing Celadon credit-facility lenders.
Under a third part of the proposed refinancing agreement, certain truck-tractor leases will be extended.
To cover its financial needs until the new agreements are signed, on Friday Celadon entered into a ninth amendment to its existing credit agreement. The amendment runs through June 15.