Celadon Group Announces Operations Update, Credit Agreement Amendment Term Sheet, and Termination of Previously Announced Term Loan Term Sheet

INDIANAPOLIS, July 3, 2018 /PRNewswire/ -- Celadon Group, Inc. ("Celadon," the "Company," "we," or "us") (OTCPink: CGIP) today announced several corporate updates.

Chief Executive Officer, Paul Svindland, stated, "From an operating perspective, I am very pleased with the progress our team has made.  Over the past year, with our new senior management team we have disposed of non-core business units, dramatically improved our operating metrics, and made significant progress toward issuing restated financial statements. Our customers, vendors, and financing sources have been highly supportive, in large part due to improved customer service and the ability to deliver substantial asset based and logistics solutions in a market environment of tight capacity."

The Company provided the following operating results for May 2018 compared with May 2017. Total revenue was essentially constant at approximately $83.5 million, excluding from each period the Quality Companies business unit that was discontinued in November 2017 and is expected to be reflected in "discontinued operations" in the Company's financial statements when issued. Average revenue per seated tractor per week, excluding fuel surcharge revenue, was approximately $3,619 for May 2018, compared with $3,107 for May 2017.  Average seated tractor count declined approximately 16%, as we focused a right-sized fleet on more profitable opportunities in more tightly defined regions and continued to experience a competitive market for professional truck drivers. Average revenue per total mile, excluding fuel surcharge revenue, improved approximately 20%, while average variable cost per total mile, net of fuel surcharge revenue, increased approximately 5%. The Company believes these operating metrics provide useful insight into core operating performance of the business.  However, they are not necessarily indicative of net income or operating cash flow in accordance with generally accepted accounting principles due to certain fixed costs, as well as substantial fees, expenses, and interest payments associated with the investigations and financial statement restatement, the refinancing process, and other activities outside trucking operations.

Mr. Svindland continued:  "In relation to our refinancing efforts, the previously disclosed term loan financing term sheet is no longer being pursued and exclusivity has been terminated.  We would have been pleased to afford our stakeholders the certainty of having completed the refinancing process.  However, both the Company's performance and the industry backdrop have improved since the proposed terms were negotiated, and we are optimistic about our ability to source alternative financing. We are immediately re-engaging with alternative sources of capital as well as the lenders and lessors in our existing capital structure, and we have engaged a globally recognized investment bank to support us in this process. 

"We are grateful for the confidence displayed by our existing revolving lenders, Bank of America, Wells Fargo, and Citizens Bank, who immediately stepped up with a proposed increase in liquidity and extended covenant relief to support a refreshed capital raising process.  The vast majority of our equipment lenders and lessors have been equally supportive during our past efforts while we have remained current in our regular monthly payments.  We will require the continued cooperation of these groups in future periods as we re-start the refinancing process and review other alternatives to reduce our total debt and lease obligations.  We expect the process to be ongoing through much if not all of the remainder of 2018."

Bank Amendment Term Sheet

On July 3, 2018, our existing lenders and we agreed on a term sheet to increase liquidity and extend the covenant package under our existing line of credit.  The material terms of the term sheet are summarized below:

The amendment is expected to close by July 13, 2018, the expiration date of the existing covenant package under the line of credit.

Liquidity/Existing Financing Update

Our primary financing consists of our revolving line of credit and existing equipment notes and leases.  The line of credit currently has $180 million of maximum borrowing capacity plus $30 million in letters of credit capacity. Under the amendment, the maximum borrowing capacity will rise to $195 million plus $35 million in letters of credit.  At June 30, 2018, our outstanding borrowing under the line of credit was approximately $161 million, and outstanding letters of credit were approximately $23 million.   Based on our current cash flow forecast, the liquidity provided by the amendment is expected to be sufficient through the amendment period assuming our customers, vendors, lenders, lessors, and other counterparties continue to transact with us in a similar manner as during the previous amendment periods.

Our equipment notes and leases have remaining obligations in excess of $350 million, and we have remained current on the required monthly payments.  A substantial portion of these notes and leases reached their original maturities over the past year and have been extended during our refinancing effort to date, and most of the notes and leases have non-payment defaults such as failure to timely deliver GAAP financial statements.  For approximately the past year, the vast majority of our equipment lenders and lessors have been highly supportive by extending maturities and waiving or not acting on defaults in exchange for receiving ongoing monthly payments. None of our lenders or lessors has accelerated the maturity date or obligations under its agreements. We are optimistic that our equipment lenders and lessors will continue to see the mutual benefit of continuing this position, as our ongoing liquidity and refinancing efforts rely on their continued cooperation.

Audit Committee/SEC Investigation/DOJ Investigation

As previously disclosed, our Audit Committee has overseen an independent investigation concerning certain transactions and accounting practices under the prior management team. The investigation, conducted by a nationally recognized independent law firm, has included the collection of millions of pages of documents, extensive forensic accounting review and analysis, and numerous interviews.  To address the anticipated accounting issues and adjustments identified in our April 2, 2018 press release, we are preparing restated financial statements as well as audited financial statements for our 2017 and 2018 fiscal years and expect to issue those financial statements and file them with the SEC during the fourth calendar quarter of 2018 or the first calendar quarter of 2019.

The Company is aware of investigations by the U.S. Securities and Exchange Commission and the Criminal Division of the United States Department of Justice into events and circumstances related to the previously announced restatement. The Company is cooperating with these ongoing investigations, including responding to subpoenas and meeting with investigators through counsel.

About Celadon

Celadon Group, Inc. (www.celadongroup.com), through its subsidiaries, provides long haul, regional, local, dedicated, intermodal, temperature-protect, and expedited freight service across the United States, Canada, and Mexico. The Company also owns Celadon Logistics Services, which provides freight brokerage services, freight management, as well as supply chain management solutions, including logistics, warehousing, and distribution.

This press release contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995, as amended. Such statements may be identified by their use of terms or phrases, including "expects," "expected," "will," "would," "could," "intends," "believes," "anticipates," "future," and similar terms and phrases. Forward-looking statements are based upon the current beliefs and expectations of the Company's management and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.  In this press release, statements relating to the expected amendment to our existing credit facility, the occurrence and expected timing of a refinancing, the adequacy of our resources and liquidity during the refinancing process, the extension of equipment lease maturities, and our future liquidity, among others, are forward-looking statements.   Actual results may differ from those set forth in the forward-looking statements.  Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the risk that we are unable to refinance our existing credit agreement or do so on terms that are more detrimental to us or dilutive to our stockholders than the terms described in previous press releases; the risk that the fact or outcome of the investigations by the SEC and DOJ could impede or prevent our ability to refinance; the risk that customers, vendors, lenders, lessors, employees, or stockholders could take actions that could be detrimental to us, including actions by equipment lenders and lessors to declare or enforce remedies for defaults under their agreements; the risk that costs, judgments, settlements, fines, or other negative results of the ongoing stockholder litigation, financial statement restatement, SEC investigation, refinancing and amendment process, and  DOJ investigation could impair our liquidity, ability to refinance, or ability to operate; the risk that we fail to complete the amendment to our credit facility contemplated by the term sheet described herein and our obligations to the lenders are accelerated; the risk that the currently strong freight market weakens before our operating turnaround is complete or that we fail to execute our turnaround plan, either of which could negatively impact our liquidity and financial condition; the risk that our financial condition delays the replacement cycle of our revenue equipment and other assets, which could result in increased operating costs, lower reliability, and impaired driver recruiting and retention; the risk that the restatement and issuance of financial statements is delayed. Readers should review and consider these and other factors that could impact results as provided in various disclosures by the Company in its press releases, stockholder reports, and filings with the SEC.

For more information:
Thom Albrecht
Chief Financial and Strategy Officer
(317) 972-7030
talbrecht@celadontrucking.com

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SOURCE Celadon Group, Inc.