Celadon amends credit agreement for more flexibility during refinancing

By Marisa Wong

Morgantown, W.Va., July 7 – Celadon Group, Inc. amended its amended and restated credit agreement dated Dec. 12, 2014 with Bank of America, NA, Wells Fargo Bank, NA and Citizens Bank, NA on June 30 to increase the maximum borrowing amount and amend financial covenants, according to an 8-K filed Friday with the Securities and Exchange Commission.

This amendment to Celadon’s primary credit facility is expected to grant the company liquidity during its refinancing process, according to a company update on July 3.

The maximum outstanding amount available under the facility was increased by about $26 million to provide additional operating flexibility. The maximum amount was increased to $226.3 million, which includes a $192 million sublimit for loans and a $35 million sublimit for letters of credit.

Financial covenants were reset based on expected cash needs and asset coverage, and testing of the lease-adjusted total debt to EBITDAR ratio and fixed-charge coverage ratio covenants has been waived until Sept. 30.

Interest rates on borrowings were also increased by 50 basis points, according to the filing.

In addition, the amendment

• Permits up to $27 million of additional third party debt to be secured by Canadian rolling stock;

• Limits the extent to which defaults under some other agreements, including vehicle leases and financings, create cross-defaults under the credit agreement;

• Adds a provision requiring lender consent for dispositions or financings of U.S. real property;

• Adds a provision providing that, in the event of any real property disposition or financing, the maximum amount of debt under the credit agreement will be reduced by an amount equal to (a) with respect to any U.S. real property, the net proceeds of the disposition or financing and (b) with respect to any Canadian real property, the amount by which the net proceeds of the disposition or financing exceed $25 million;

• Adds a financial covenant requiring the company to maintain a minimum level of adjusted revenue at some of its subsidiaries;

• Adds more financial reporting requirements;

• Amends the asset coverage ratio financial covenant to a ratio of 0.70 to 1.00 for periods prior to Sept. 22 and 1.50 to 1.00 for each week ending after that;

• Adds a financial covenant requiring a minimum level of adjusted EBITDAR be maintained, which will be tested monthly on a trailing 12-month basis, beginning with adjusted EBITDAR for the 12 months ending July 31;

• Places a limit on the amount of disbursements that can be made during each roughly one-month period between the date of the amendment and Sept. 30;

• Places limitations on the company’s ability to modify the terms of its financial adviser and investment banker engagement and added a July 31 deadline for delivery of documents intended to facilitate a refinancing of the credit agreement;

• Requires an amendment fee of $2,263,000, of which 25% is payable upon closing the amendment and 75% upon repayment in full of the obligations under the credit agreement;

• Adds a provision requiring that the proceeds of some permitted real estate or equipment dispositions or financings involving Canadian assets be used to repay outstanding loans, provided that those proceeds can be reborrowed as long as the existing conditions to borrowing are satisfied; and

• Adds a requirement that the company’s Canadian subsidiaries pledge substantially all of their assets as security for the credit agreement, subject to some exceptions for real property and assets encumbered by third party liens.

In connection with the amendment, the company is pursuing a refinancing plan. The company said it has engaged a leading middle market financial advisory firm and investment bank to assist in its refinancing process.

The previously announced term sheet for an asset-based revolver to be provided by the existing lending group remains under consideration, but the size, collateral and terms of the facility, or any alternative financing, could differ from the term sheet, the company noted.

In addition, the refinancing will call for the cooperation of some of the company’s equipment lenders and lessors to extend maturities and take other actions.

Paul Will, Celadon’s chairman and chief executive officer, commented in a press release, “All of us at Celadon appreciate the continued support of our bank group, led by Bank of America, NA. We believe the inherent value of our assets and franchise is recognized by the amendment’s terms, which increases our access to capital and provides runway for pursuing a capital structure that will benefit all of our stakeholders.”

Celadon said it currently expects to defer releasing financial results for the quarter ended March 31 and subsequent periods until the conclusion of a previously announced audit committee process.

The Indianapolis-based company provides long-haul, full-truckload freight service across the United States, Canada and Mexico.

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