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STG Clears Litigation Hurdle in Push to Exit Chapter 11
Intermodal, Drayage Carrier Sought Court Protection in January
Key Takeaways:
- STG Logistics reached a settlement April 27 over litigation tied to its 2024 liability management transaction.
- The company says the agreement clears a key obstacle to a restructuring that would cut more than $1 billion in debt.
- STG plans to seek court approval of its recapitalization, which would shift majority ownership to lenders led by Fortress and Invesco.
Intermodal and drayage services provider STG Logistics took a major step toward emerging from Chapter 11 bankruptcy in recent days.
Dublin, Ohio-based STG and 64 affiliates filed for court protection Jan. 12 in the U.S. Bankruptcy Court for the District of New Jersey.
The company said April 27 it had reached a settlement on litigation related to STG’s 2024 liability management transaction (LMT).
The LMT involved a $300 million debt restructuring. Minority lenders, including Axos Financial and Siemens Financial Services, challenged the LMT in New York state court.
That restructuring was due to STG carrying debt from a major expansion. In March 2022, STG bought XPO Logistics’ North American intermodal operations for $710 million.
STG entered Chapter 11 proceedings to carry out a more drastic debt restructuring.
The company argues settlement of the LMT paves the way for it to emerge from bankruptcy in the near term.
In January, STG arranged $150 million of debtor-in-possession (DIP) financing from some existing lenders to allow finances to be rearranged. DIP loans are intended to see a company through bankruptcy proceedings.
STG also signed a restructuring support agreement (RSA) with equity backers and lenders who held a majority of the carrier’s debt.
STG is owned by Wind Point Partners, Duration Capital Partners and Oaktree Capital Management.
The RSA was expected to eliminate around 91% of STG’s outstanding debt obligations, slash interest expenses and boost the company’s liquidity.
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When filing for protection, STG’s largest creditor was Union Pacific Railroad, which was owed more than $13.4 million. Other creditors owed more than $1 million comprised CSX Intermodal, Kansas City Southern de Mexico, Personal HR Services and ABF-FBO Vitality Staffing Solutions.
STG said it intends to seek approval of a recapitalization transaction outlined in its RSA in the coming weeks.
The RSA will see a reduction of more than $1 billion in outstanding debt obligations and up to $150 million in new capital.
Before that could take place, however, STG undertook a formal marketing process to confirm the recapitalization transaction “represented the best outcome for the company and its stakeholders.”
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Geoff Anderman, CEO of STG, noted in an April 27 statement: “The completion of our marketing process and resolution of the LME litigation are key milestones that unlock our expected emergence from chapter 11 in the near future.”
When STG exits bankruptcy protection, the company will be majority-owned by a group of financial institutions led by funds managed by Fortress Investment Group and Invesco Senior Secured Management.
STG in January told customers it intended to continue operating as normal through the bankruptcy proceedings and confirmed April 27 that operations remain on a “business as usual” path throughout the process, with full continuity of port-to-door service offerings.
While a number of carriers or their owners — such as Paladin Capital and Montgomery Transport — entered bankruptcy proceedings during the freight market downturn as a precursor to asset liquidation, historically, Chapter 11 has been a tool for indebted companies to reorganize their finances.
