Roadrunner issues preferreds; company aims to lift capital structure

By Devika Patel

Knoxville, Tenn., July 2 – Roadrunner Transportation Systems, Inc. sold series E-1 preferred stock to an investor for approximately $17.5 million on March 1 and $17.5 million on April 24.

The company had previously issued series B cumulative redeemable preferreds, series C cumulative redeemable participating preferreds, series D cumulative redeemable participating preferreds, series E cumulative redeemable preferreds and series F cumulative redeemable preferreds in May 2017.

“We have focused on maintaining the liquidity needed to run the business,” executive vice president and chief financial officer Terence Rogers said on the company’s full year 2017 and first quarter 2018 ended March 31 earnings conference call on Monday.

“In 2018, that included issuing more preferred stock which generates gross proceeds of $35 million,” Rogers said.

The May preferreds were issued at a higher rate than the company’s bank debt.

“The rates on the preferred stock issued in May is higher than our prior bank financing,” Rogers said.

“Additionally, the company elected to measure the preferred stock using the fair value method and thus recorded the $60.1 million of issuance cost as interest expense.

“We also incurred loss from debt extinguishment of $15.9 million, including $9.8 million from early repayment of the prior senior credit facility in May 2017 from the proceeds from the preferred stock investment and we have $6.1 million early payment premiums on redemptions of series F shares in July 2017,” Rogers said.

The company seeks to improve its capital structure.

“We will also continue to explore ways to improve our capital structure, which we believe will help to ensure a faster and a more resilient business recovery that will benefit our shareholders and reduce our execution risk,” chief executive officer Curtis Stoelting said on the call.

Adjusted EBITDA improved by $6.1 million to $3,125,000 for the first quarter of 2018.

The company currently has $40 million of availability from its ABL facility.

In May 2017, affiliates of Elliott Management, an existing holder of about 8.6% of Roadrunner’s common shares, agreed to purchase $540,500,100 of newly issued redeemable preferred stock from Roadrunner.

The preferreds included $155 million of series B cumulative redeemable preferreds, $55 million of series C cumulative redeemable participating preferreds, $100 of series D cumulative redeemable participating preferreds, $90 million of series E cumulative redeemable preferreds and $240.5 million of series F cumulative redeemable preferreds.

The company paid off and terminated its senior credit facility using proceeds from the preferred stock. Remaining proceeds were earmarked to provide working capital to support current operations and future growth.

The company expected to replace roughly $240 million of the preferred stock investment – series F and, to the extent available, series E – with a new asset-based lending facility with a group of commercial lenders that were to include members of the company’s previous bank group.

The remaining $300 million preferred stock investment was structured in four series – series B, C, D and E – which have terms of either six or eight years and a Libor-based dividend rate of between 8.75% and 16.5%, depending on leverage ratios and other factors.

A portion of the dividends can be paid in kind at the company’s option.

The preferred stock has no financial covenants.

The company may call a $90 million series of preferred stock with proceeds from an asset sale or potentially convert that same amount into a 5½-year second-lien secured note with no amortization. There are redemption and liquidation premiums for series of preferred stock that would increase Elliott Management’s overall return, including a 65% liquidation premium on a $55 million preferred stock series.

Roadrunner is an asset-light transportation and logistics service provider based in Cudahy, Wis.

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