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August 15, 2019 10:15 AM, EDT

Celadon Gets $165 Million Infusion From Luminus Management

Celadon receives big investment from Luminus Management. (Alan Petersime/Bloomberg News)

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An investor that helped Celadon Group Inc. refinance its debt has acquired nearly half of the company through a $165 million deal that the motor carrier said will help it move forward with its turnaround plans.

Luminus Management had previously owned about 17% of Celadon, but with the new investment will control 49.9% of the company, Celadon CEO Paul Svindland told Transport Topics.

With the new funds and some retired debt, Celadon can continue its business turnaround plan, Svindland said. The investment from Luminus, which has offices in New York and Houston, will retire debt held by Bank of America, Wells Fargo Bank and Citizens Bank, Svindland said.

Celadon receives big investment from Luminus Management.

Another part of the turnaround plan is focused on refreshing Celadon’s fleet. Many of its trucks were approaching the five-year mark, and Svindland said he did not want to have trucks without warranty coverage. The company plans to replace about 1,600 of its 3,200 tractors; it took delivery of 106 new trucks in the spring and expects 95 units this month, Svindland said.

With the extra backing from Luminus, Celadon can focus on what Svindland calls the “core CTSI” business. CTSI is Celadon Trucking Services Inc.

To help refocus on that core truckload and cross-border services, the company has been shedding subsidiaries; in April, Celadon sold its North American intermodal operations to Bison Transport of Winnipeg, Manitoba, and also sold its Celadon Logistics brokerage and third-party logistics subsidiary to Mansfield, Texas-based TA Services. In March, Celadon sold its A&S Kinard and Buckler Transport subsidiaries to Day and Ross of New Brunswick, Canada.

Celadon ranks No. 38 on the Transport Topics Top 100 list of the largest for-hire carriers in North America. Its annual revenue in 2018 was about $1 billion.

Celadon found itself in an accounting scandal in mid-2017, when Prescience Point Research Group alleged that Celadon had overstated the value of trucks donated to an equipment leasing affiliate named Quality Companies Inc. Hundreds of those trucks were held by 19th Capital Group, an entity set up by Celadon and Element Fleet Management to lease vehicles to fleets and owner-operators. Celadon Group stopped issuing financial reports after the disclosure. It was delisted by the New York Stock Exchange in 2018 and now trades over the counter.

In April, Celadon agreed to pay $42.2 million to settle a federal investigation into allegations that a prior management team and a subsidiary company filed false and misleading statements to investors regarding tractors and trailers leased to owner-operators.

The settlement, announced by the U.S. Department of Justice on April 25, was in response to parallel ongoing federal investigations by the DOJ and the U.S. Securities and Exchange Commission that so far have charged that Celadon and Quality Companies misled investors and falsified books in four trade transactions in which asset values were recorded at inflated levels and not at fair market rates, according to a DOJ statement.

According to the SEC complaint, between mid-2016 and April 2017, Celadon avoided recognizing at least $20 million in impairment charges and losses — almost two-thirds of its 2016 pre-tax income — by selling and buying used trucks at inflated prices from third parties.

As a result of the alleged scheme, SEC said that Celadon overstated its pre-tax and net income and earnings per share for the period ending June 30, 2016, and in its subsequent public filings for the first two fiscal quarters of 2017.

Svindland told TT in April that Celadon plans to begin public financial reporting in the fall, reissuing reports for 2016, 2017, 2018 and most of 2019.

Svindland, brought onboard in July 2017 to right the ship, said Luminus has recognized the work Celadon has done to make the company strong again.

“They believe in our story and our management team,” said Svindland. “We’ve done a good job cleaning that stuff up.”