CONSENT SOLICITATION STATEMENT
STONEFIELD LOGISTICS GROUP INC.
Solicitation of Consents from Holders of 11.50% Senior Secured Second Lien Notes due June 15, 2025 (CUSIP: 861537 AA 2)
Aggregate Principal Amount Outstanding: $140,000,000
Issued under the Indenture dated December 15, 2017 (as supplemented and amended from time to time, the "Indenture"), between Stonefield Logistics Group Inc. (the "Issuer" or the "Company") and Continental Fiduciary Trust Company, as Trustee (the "Trustee") and Second Lien Collateral Agent
Date of this Consent Solicitation Statement: October 6, 2023
Early Consent Deadline: 5:00 p.m. (New York City time), October 20, 2023 Final Consent Deadline: 5:00 p.m. (New York City time), November 3, 2023
THE CONSENTS ARE BEING SOLICITED UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS CONSENT SOLICITATION STATEMENT AND THE ACCOMPANYING LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL"). HOLDERS ARE URGED TO READ THIS CONSENT SOLICITATION STATEMENT AND THE LETTER OF TRANSMITTAL IN THEIR ENTIRETY BEFORE MAKING ANY DECISION WITH RESPECT TO THE CONSENT SOLICITATION.
Neither the Issuer, the Trustee, the Information Agent and Exchange Agent, nor any of their respective officers, directors, employees, agents, or advisors makes any recommendation as to whether holders of the Notes should deliver consents in response to this Consent Solicitation. Each holder must make its own decision regarding whether to deliver a consent.
The Consent Solicitation and the related Exchange Offer have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state or other jurisdiction and are being conducted in reliance on the exemptions from registration provided by Section 3(a)(9) and/or Section 4(a)(2) of the Securities Act. The equity securities to be received in the Exchange Offer will constitute restricted securities within the meaning of Rule 144 under the Securities Act.
Prepared by:
Calderwood & Harkness LLP Counsel to the Issuer 599 Lexington Avenue New York, NY 10022
Attn: Nathaniel Bower
Matter No. 1012-00002
Issuer: Stonefield Logistics Group Inc. 4200 Commerce Street, Suite 1500 Dallas, TX 75201
Attn: Howard Kessler, General Counsel
Information Agent and Exchange Agent: Continental Fiduciary Trust Company 100 Wall Street, 15th Floor New York, NY 10005
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SUMMARY TERM SHEET
The following is a summary of the principal terms of the Consent Solicitation, the Exchange Offer, and the related restructuring transactions. This summary is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Consent Solicitation Statement, the accompanying Letter of Transmittal, and the annexes hereto. Capitalized terms used but not defined in this summary have the meanings assigned to them elsewhere in this Consent Solicitation Statement. Holders are urged to read this Consent Solicitation Statement, the Letter of Transmittal, and the annexes in their entirety.
The Issuer
Stonefield Logistics Group Inc. is a Delaware corporation (EIN: 83-2457109; Delaware File No.: 6341872), headquartered at 4200 Commerce Street, Suite 1500, Dallas, TX 75201. The Company's Delaware registered agent is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, DE 19801.
The Company operates in the freight brokerage, last-mile delivery, and warehousing services industry, employing approximately 3,800 employees across 26 terminals in 14 states. Stonefield is a portfolio company of Ridgeline Capital Partners Fund III, L.P. (the "Sponsor"), which acquired the Company in December 2017 through a leveraged buyout transaction. The Company's senior management team consists of Marcus Delano, Chief Executive Officer; Priya Sundaram, Chief Financial Officer; and Howard Kessler, General Counsel.
The Notes
The notes that are the subject of this Consent Solicitation are the Company's 11.50% Senior Secured Second Lien Notes due June 15, 2025 (the "Notes"), bearing CUSIP number 861537 AA 2. As of the date hereof, the aggregate outstanding principal amount of the Notes is $140,000,000. In addition, the Company estimates that accrued and unpaid payment-in-kind ("PIK") interest through the expected closing date of December 19, 2023 will total approximately $8,100,000. The Notes bear interest at a rate of 11.50% per annum on a cash/PIK toggle basis.
The Notes were issued under the Indenture dated December 15, 2017 between the Company, as Issuer, and Continental Fiduciary Trust Company, as Trustee and Second Lien Collateral Agent. The Notes are secured by a second-priority lien on substantially all assets of the Issuer and its subsidiary guarantors.
The Consent Solicitation
The Company is soliciting consents (the "Consent Solicitation") from holders of the Notes to: (i) approve and consent to the Exchange Offer (as described below) pursuant to which the Notes will be exchanged for equity securities of the Company, and (ii) adopt the Proposed Exit Consent Amendments (as described below) to the Indenture by means of a First Supplemental Indenture to be entered into between the Company and the Trustee.
The required consent threshold is holders of not less than 66⅔% in aggregate principal amount of the outstanding Notes. As discussed further herein, holders representing $134,500,000 (96.1%) of the outstanding Notes have already committed to deliver consents pursuant to the Restructuring Support Agreement dated June 30, 2023 (the "RSA").
The Early Consent Deadline is October 20, 2023, at 5:00 p.m. (New York City time). The Final Consent Deadline is November 3, 2023, at 5:00 p.m. (New York City time). Consents are irrevocable once delivered, subject to certain limited exceptions described in "Procedures for Delivering Consents — Revocability of Consents" below.
The Exchange Offer
Holders who deliver valid consents and tender their Notes in the Exchange Offer will exchange their Notes for the following consideration (the "Exchange Consideration"):
(a) A pro rata share of Series A Preferred Stock of Stonefield Logistics Group Inc. (the "Series A Preferred Stock"), with an aggregate liquidation preference of $35,000,000, bearing a PIK dividend rate of 10.00% per annum, and ranking senior to common stock in liquidation; and
(b) A pro rata share of 47.5% of the pro forma common equity of Stonefield Logistics Group Inc. (the "Common Equity").
As part of the exchange, all accrued and unpaid PIK interest on the Notes (estimated at $8,100,000 in the aggregate through the expected closing date) will be waived and cancelled. No additional cash consideration will be paid to exchanging holders.
Based upon the analysis performed by Hargrove Advisory Group LLC, the Company's financial advisor, the total implied recovery to exchanging mezzanine holders is approximately 40 to 55 cents on the dollar, depending on the equity valuation assumptions employed. This analysis is discussed further in "The Exchange Offer — Valuation and Recovery Analysis."
The exchange will be consummated pursuant to the Exchange Agreement (the "Exchange Agreement") to be entered into between the Company and each exchanging holder. The closing of the Exchange is contingent upon the simultaneous closing of the broader restructuring transactions described herein, including the amend-and-extend of the first lien debt and the funding of the super-priority term loan.
The Exit Consent Amendments
Consenting holders will, by delivering their consents, also deliver exit consents to adopt certain proposed amendments (the "Proposed Amendments") to the Indenture pursuant to a First Supplemental Indenture (the "Supplemental Indenture") to be entered into between the Company and the Trustee.
The Proposed Amendments will eliminate from the Indenture substantially all restrictive covenants (including limitations on indebtedness, liens, restricted payments, asset sales, affiliate transactions, and mergers and consolidations), substantially all events of default (retaining only payment defaults and bankruptcy events), and all reporting and information delivery obligations. Certain definitions and cross-references rendered moot by the foregoing deletions will also be removed.
The purpose of the Proposed Amendments is to incentivize non-consenting holders to participate in the Exchange. Notes remaining outstanding after the Exchange will have been stripped of their covenant protections, rendering them materially less valuable to holders who decline to participate.
The Proposed Amendments will become operative upon execution of the Supplemental Indenture, which is expected to occur on December 8, 2023, contemporaneously with the consummation of the Exchange.
Treatment of Non-Consenting Holders
Holders of Notes who do not deliver consents and do not tender their Notes in the Exchange Offer (the "Non-Consenting Holders") will not receive the Exchange Consideration. Their Notes (estimated at up to $5,500,000 in aggregate principal amount, being the difference between $140,000,000 outstanding and $134,500,000 committed under the RSA) will remain outstanding but will be subject to the stripped Indenture following effectiveness of the Proposed Amendments. As a result, Non-Consenting Holders will lose the benefit of substantially all restrictive covenants, events of default (other than payment default and bankruptcy), and reporting obligations.
Non-Consenting Holders will receive substantially identical treatment to that of consenting holders if they subsequently elect to exchange their Notes during a post-closing exchange window, if and to the extent offered by the Company following the closing of the restructuring transactions. The Company is under no obligation, however, to offer any such post-closing exchange window.
Key Deadlines
IMPORTANT NOTICES AND DISCLAIMERS
Forward-Looking Statements
This Consent Solicitation Statement contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include, but are not limited to, statements regarding the Company's projected financial performance, the expected outcomes of the restructuring transactions, the anticipated timeline for consummation of the restructuring, the Company's future business plans and strategies, and the expected post-restructuring capital structure and leverage profile.
Forward-looking statements are generally identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "forecast," "may," "will," "should," "could," "would," and similar expressions. These statements are based on the current expectations and assumptions of the Company's management and involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements to differ materially from those expressed or implied by such forward-looking statements.
In particular, this Consent Solicitation Statement references certain management projections, including projected FY 2023E Revenue of $545.0 million, projected FY 2023E Adjusted EBITDA of $38.5 million, and projected FY 2024E Adjusted EBITDA of $52.0 million. These projections were prepared by the Company's management for internal planning and restructuring negotiation purposes, reviewed by Hargrove Advisory Group LLC, and have not been audited or reviewed by the Company's independent accountants, Whitfield & Pryce LLP. There can be no assurance that these projections will be achieved. Actual results may differ materially from those projected due to range factors, including but not limited to the continued freight recession, excess carrier capacity, customer contract losses, changes in fuel costs, labor market conditions, regulatory developments, and general economic conditions.
All forward-looking statements in this Consent Solicitation Statement are qualified in their entirety by reference to the risk factors set forth herein. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable law.
No Recommendation
Neither the Issuer, the Trustee (Continental Fiduciary Trust Company), nor any of their respective officers, directors, employees, agents, or advisors (including Calderwood & Harkness LLP, Hargrove Advisory Group LLC, or any other advisor to any party) makes any recommendation as to whether any holder of the Notes should deliver a consent in response to this Consent Solicitation or tender its Notes in the Exchange Offer. Each holder must make its own independent decision regarding whether to consent and exchange, based upon its own investment objectives, financial condition, tax situation, and such other factors as it deems relevant. Holders are strongly urged to consult their own financial, tax, and legal advisors before making any decision with respect to the Consent Solicitation.
The information contained in this Consent Solicitation Statement has been provided by the Company and has not been independently verified by the Trustee, the Information Agent, or any other person. None of the Trustee, the Information Agent, or any of their respective affiliates, directors, officers, employees, or agents assumes any responsibility for the accuracy, completeness, or adequacy of the information set forth herein.
Restrictions on Distribution
This Consent Solicitation Statement is confidential and is being provided solely to holders of the Notes in connection with the Consent Solicitation. This Consent Solicitation Statement is not intended for, and should not be distributed to, any person other than such holders and their advisors, nor shall it be used for any purpose other than the evaluation of the Consent Solicitation. By accepting delivery of this Consent Solicitation Statement, each recipient agrees to the foregoing restrictions.
This Consent Solicitation Statement does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation would be unlawful. The Exchange Offer and the issuance of the Exchange Consideration are being conducted in reliance on the exemptions from registration under the Securities Act provided by Section 3(a)(9) (exchange by an issuer with its existing security holders where no commission or other remuneration is paid for soliciting such exchange) and/or Section 4(a)(2) (transactions not involving a public offering). The equity securities to be issued in the Exchange Offer will constitute "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be offered or sold absent registration or an applicable exemption from registration.
Information Agent and Exchange Agent
Continental Fiduciary Trust Company has been retained to serve as the Information Agent and Exchange Agent in connection with this Consent Solicitation and the related Exchange Offer. The Information Agent and Exchange Agent's contact information is as follows:
Continental Fiduciary Trust Company 100 Wall Street, 15th Floor New York, NY 10005 Telephone: (212) 555-8700 Facsimile: (212) 555-8701
Attn: Corporate Trust Administration — Stonefield Consent Solicitation
All questions, requests for assistance, and requests for additional copies of this Consent Solicitation Statement, the Letter of Transmittal, or other related materials should be directed to the Information Agent and Exchange Agent at the address and telephone number set forth above.
BACKGROUND TO THE CONSENT SOLICITATION
Overview of Stonefield's Business
Stonefield Logistics Group Inc. is a Delaware corporation headquartered at 4200 Commerce Street, Suite 1500, Dallas, TX 75201. The Company provides freight brokerage, last-mile delivery, and warehousing services across the continental United States.
The Company conducts its operations through three wholly owned operating subsidiaries:
• Stonefield Freight Services LLC, a Texas limited liability company, which operates the Company's freight brokerage business, including contract and spot freight brokerage services;
• Stonefield Last Mile Inc., a Delaware corporation, which operates the Company's last-mile delivery services, including residential and commercial final-mile delivery logistics; and
• Stonefield Warehousing LLC, a Texas limited liability company, which operates the Company's warehousing and distribution center services, including cross-docking, transloading, and inventory management.
The Company's direct parent entity is Stonefield Logistics Holdings LLC, a Delaware limited liability company and the sole stockholder of the Company prior to the transactions contemplated herein.
For the fiscal year ended December 31, 2022, the Company reported revenue of $612.3 million and Adjusted EBITDA of $58.7 million, as audited by Whitfield & Pryce LLP, the Company's independent registered public accounting firm. The Company currently operates 26 terminals in 14 states and employs approximately 3,800 individuals, including full-time, part-time, and contract personnel.
Leveraged Buyout History
The Company was acquired by Ridgeline Capital Partners Fund III, L.P. (the "Sponsor" or "Ridgeline") in December 2017 through a leveraged buyout transaction. In connection with the acquisition, Ridgeline invested $210.0 million of equity capital.
Ridgeline Capital Partners Fund III, L.P. is a Delaware limited partnership. Its general partner is Ridgeline Capital Management III LLC, a Delaware limited liability company, with its principal office located at 300 Park Avenue, 28th Floor, New York, NY 10022. Ridgeline is a mid-market private equity firm focused on investments in the industrials, logistics, and business services sectors. The firm has approximately $4.8 billion of assets under management on a firm-wide basis. Fund III, the vehicle through which the Stonefield acquisition was effected, has committed capital of approximately $1.6 billion.
Ridgeline designates two representatives to the Company's Board of Directors: Julian Voight, a Managing Director at Ridgeline, and Serena Chu, a Principal at Ridgeline. The remaining board members consist of Marcus Delano (CEO) and three additional independent or management directors.
The December 2017 acquisition was financed with the following capital structure: (i) a $50.0 million revolving credit facility, (ii) a $310.0 million first lien term loan B, (iii) $140.0 million in second lien mezzanine notes, and (iv) $210.0 million in Ridgeline equity.
Financial Distress and Need for Restructuring
Since the latter half of fiscal year 2022, the Company has experienced significant financial deterioration driven by a broad-based freight recession, excess carrier capacity in the domestic transportation market, and the loss of several significant customer contracts. These headwinds have materially impacted both revenue and profitability.
Revenue declined from $612.3 million in FY 2022 to a projected $545.0 million for FY 2023E, representing an approximate 11.0% decline. More critically, Adjusted EBITDA declined from $58.7 million in FY 2022 to $41.2 million on a last-twelve-months basis as of Q1 2023, and is projected to decline further to $38.5 million for FY 2023E. The EBITDA margin compression reflects the Company's high fixed-cost structure, particularly in its warehousing and last-mile delivery segments, coupled with pricing pressure in its freight brokerage operations.
The Company faces a near-term maturity wall that compounds its financial distress. Approximately $327.0 million in first lien debt (consisting of the revolving credit facility and the first lien term loan B) matures on December 15, 2024, and the $140.0 million in mezzanine Notes matures on June 15, 2025. Given the Company's current financial profile, refinancing this indebtedness on commercially reasonable terms in the capital markets is not feasible.
The Company's cash flow position has deteriorated to the point where monthly cash burn—defined as the excess of total interest expense and maintenance capital expenditures over operating cash flow—was approximately $2.5 million per month during Q1 2023. As of March 31, 2023, total liquidity stood at only $15.8 million, consisting of $11.3 million in unrestricted cash on the balance sheet and $4.5 million in remaining availability under the revolving credit facility (after giving effect to $42.0 million drawn and $3.5 million in outstanding letters of credit against the $50.0 million committed facility). At this rate of cash consumption, and absent any restructuring or additional financing, management projects that liquidity would be fully exhausted by Q3 2024.
In light of these circumstances, the Company's Board of Directors determined that a comprehensive restructuring of the Company's capital structure was necessary to ensure the Company's continued viability as a going concern.
Pre-Restructuring Capital Structure (as of March 31, 2023)
The following table summarizes the Company's capital structure as of March 31, 2023, which is the reference date used for purposes of the restructuring negotiations:
Total funded debt: $475.1 million (including accrued PIK interest on the mezzanine Notes).
Total leverage (on LTM Q1 2023 Adjusted EBITDA of $41.2 million): 11.5x ($475.1 million ÷ $41.2 million).
First lien leverage: 7.9x ($327.0 million ÷ $41.2 million).
Sponsor equity invested: $210.0 million (significantly impaired given the Company's current enterprise value estimates relative to total indebtedness).
Formation of Ad Hoc Group and Engagement of Advisors
In February 2023, as the Company's deteriorating financial condition became apparent to holders of the mezzanine Notes, certain holders began to communicate informally regarding the Company's capital structure and the potential need for a restructuring.
On March 10, 2023, a formal cooperation agreement (the "Cooperation Agreement") was executed among the three largest holders of the mezzanine Notes:
• Graystone Mezzanine Capital Fund II LP, holding $52,000,000 in aggregate principal amount;
• Ashland Structured Credit LLC, holding $40,000,000 in aggregate principal amount; and
• Dunmore Special Situations Fund LP, holding $30,000,000 in aggregate principal amount.
Together, these three holders (the "Ad Hoc Group") hold $122,000,000 in aggregate principal amount, representing 87.1% of the $140,000,000 in outstanding mezzanine Notes.
The Ad Hoc Group retained Thornbury McCaffrey LLP as its legal counsel, with Alan Driscoll as lead partner and Monica Firth as the responsible associate. Thornbury McCaffrey's offices are located at 375 Park Avenue, 25th Floor, New York, NY 10152. The Ad Hoc Group also retained Meridian Veltrian Partners LLC, located at 660 Fifth Avenue, 18th Floor, New York, NY 10103, as its financial advisor.
On March 15, 2023, the Stonefield Board of Directors retained Hargrove Advisory Group LLC as the Company's financial advisor for liability management and capital structure advisory services. Elena Voss, a Managing Director at Hargrove, serves as the lead advisor for the engagement. Hargrove's offices are located at 1345 Avenue of the Americas, 38th Floor, New York, NY 10105.
On April 3, 2023, the Company engaged Calderwood & Harkness LLP as its restructuring counsel, with Nathaniel Bower as the responsible partner. Calderwood & Harkness's offices are located at 599 Lexington Avenue, New York, NY 10022.
Negotiation Timeline
The restructuring negotiations proceeded through the spring and early summer of 2023, culminating in the execution of the Restructuring Support Agreement on June 30, 2023. The following is a summary of the key events in the negotiation timeline:
April 14, 2023. The Company, accompanied by its advisors (Hargrove Advisory Group LLC and Calderwood & Harkness LLP), held its first meeting with the first lien lender group. The first lien lenders were represented at that meeting by Daniel Wexford, Managing Director at Pinnacle National Bank, N.A. (the Administrative Agent under the first lien credit agreement), and by Ramona Quelibo of Westlake Harden & Cole LLP, counsel to the first lien lender group. The meeting focused on the Company's current financial position, projected liquidity trajectory, and the need for a comprehensive restructuring.
April 28, 2023. The Company held its first meeting with the mezzanine Ad Hoc Group and its advisors. The discussion centered on the Company's capital structure, enterprise valuation, and the range of potential restructuring outcomes for the mezzanine Notes, including full equitization, partial equitization, and various exchange consideration alternatives.
May 19, 2023. The Company, through Hargrove Advisory Group LLC, circulated an initial restructuring term sheet to all creditor constituencies. The initial proposal contemplated a full equitization of the mezzanine Notes in exchange for 40% of the pro forma common equity and a smaller quantum of preferred stock. The first lien lenders were offered an amend-and-extend with a modest consent fee.
June 9, 2023. Following extensive negotiation among the Company, the Sponsor, the first lien lender group, and the mezzanine Ad Hoc Group, a revised restructuring term sheet was circulated incorporating feedback from all constituencies. Key changes from the initial proposal included an increase in the mezzanine holders' pro forma common equity allocation from 40% to 47.5%, an increase in the Series A Preferred Stock liquidation preference from $25.0 million to $35.0 million, the introduction of a $55.0 million new-money super-priority term loan (to be provided by Belvedere Credit Opportunities Fund LP), and an increase in the Sponsor's new-money equity contribution from $7.5 million to $12.5 million.
June 30, 2023. The Restructuring Support Agreement was executed by all principal parties, as described in greater detail below.
The Restructuring Support Agreement
The Restructuring Support Agreement, dated June 30, 2023 (the "RSA"), was executed by and among the following parties:
• Stonefield Logistics Group Inc., as Issuer;
• Ridgeline Capital Partners Fund III, L.P., as Sponsor;
• Consenting TLB Lenders, holding $228,500,000 of $285,000,000 in outstanding first lien term loan B obligations (representing 80.2% of the outstanding TLB);
• Revolver Lenders (unanimous consent):
• Pinnacle National Bank, N.A. — $20,000,000 commitment
• Great Basin Commercial Bank — $15,000,000 commitment
• Tidewater Lending Corporation — $15,000,000 commitment
• Ad Hoc Mezzanine Group Members:
• Graystone Mezzanine Capital Fund II LP — $52,000,000
• Ashland Structured Credit LLC — $40,000,000
• Dunmore Special Situations Fund LP — $30,000,000
• (Total: $122,000,000)
Following execution of the RSA, a joinder period ran from July 3 through July 21, 2023, during which additional holders of the mezzanine Notes were invited to join the RSA and commit to deliver consents. During the joinder period, holders of an additional $12,500,000 in mezzanine principal amount executed joinder agreements and became parties to the RSA, bringing the total consenting mezzanine principal to $134,500,000, or 96.1% of the $140,000,000 in outstanding mezzanine Notes.
The RSA contains customary milestones, covenants, representations, and termination events. The long-stop date under the RSA is December 31, 2023, meaning that if the restructuring transactions have not been consummated by that date, the RSA and the obligations of the parties thereunder (including the obligation to consummate the Exchange) will terminate. The RSA also provides that a filing by the Company of a petition for relief under the Bankruptcy Code constitutes a termination event.
The RSA is governed by the laws of the State of New York. A copy of the RSA (execution version) is annexed hereto as Annex C.
THE RESTRUCTURING TRANSACTIONS
Overview
The Consent Solicitation and Exchange Offer described in this Consent Solicitation Statement are components of a broader consensual out-of-court restructuring of approximately $485 million in funded debt. The restructuring is designed to address the Company's unsustainable leverage, near-term maturity wall, and liquidity constraints, while preserving the Company as a going concern and avoiding a filing for relief under Title 11 of the United States Code (the "Bankruptcy Code").
The restructuring involves the following integrated transactions:
(i) An amend-and-extend of the $285.0 million first lien term loan B and the $50.0 million revolving credit facility, in each case extending the maturity and modifying certain pricing and covenant terms;
(ii) A $55.0 million new-money super-priority term loan to be provided by Belvedere Credit Opportunities Fund LP, providing critical liquidity to the Company on a going-forward basis; and
(iii) The equitization of $140.0 million in mezzanine Notes (plus $8.1 million of accrued PIK interest, which will be waived) into a combination of Series A Preferred Stock and common equity of the Company.
All of these transactions are to be accomplished without a bankruptcy filing, on a consensual out-of-court basis, pursuant to the terms of the RSA and the definitive documentation described herein. Each of the components of the restructuring is described in greater detail below.
Amend-and-Extend of the First Lien Term Loan B
The first lien term loan B (the "TLB") was originally entered into on December 15, 2017 in connection with the Ridgeline leveraged buyout. The key terms of the existing TLB and the amended TLB are compared below:
The amendment of the TLB requires the consent of "Required Lenders" under the existing first lien credit agreement, defined as holders of more than 50% of the outstanding TLB loans. The Company has obtained consent from lenders holding $228,500,000 of $285,000,000, representing 80.2% of the outstanding TLB and well in excess of the required threshold.
Consenting TLB lenders will receive an amendment consent fee equal to 50 basis points of the outstanding principal amount of the TLB, calculated as $285,000,000 × 0.50% = $1,425,000. This fee will be paid in cash on the closing date of the restructuring.
Pinnacle National Bank, N.A. serves as Administrative Agent under the first lien credit agreement. Pinnacle's offices are located at 200 Liberty Street, New York, NY 10281. The first lien lenders are represented by Westlake Harden & Cole LLP, with Ramona Quelibo as lead partner and Gregory Noll as the responsible associate. Westlake Harden & Cole's offices are located at 787 Seventh Avenue, 34th Floor, New York, NY 10019.
The Amended and Restated First Lien Credit Agreement is expected to be executed on or about December 1, 2023.
Amend-and-Extend of the Revolving Credit Facility
The revolving credit facility (the "Revolver") was also entered into on December 15, 2017 in connection with the leveraged buyout. The key terms of the existing Revolver and the amended Revolver are compared below:
The amendment of the Revolver requires unanimous consent of all three revolver lenders, which has been obtained. The three revolver lenders are:
• Pinnacle National Bank, N.A. — $20,000,000 commitment
• Great Basin Commercial Bank — $15,000,000 commitment
• Tidewater Lending Corporation — $15,000,000 commitment
The reduction in the Revolver commitment from $50.0 million to $35.0 million reflects the expectation that the new-money super-priority term loan will provide additional liquidity, partially offsetting the need for revolving credit availability.
Consenting revolver lenders will receive an amendment consent fee equal to 25 basis points of the amended commitment, calculated as $35,000,000 × 0.25% = $87,500. This fee will be paid in cash on the closing date.
The springing maturity provision ensures that the Revolver will mature 91 days prior to the maturity of the TLB if the TLB has not been refinanced prior to that date, preventing a situation in which the Revolver matures after the TLB without adequate debt service coverage.
New-Money Super-Priority Term Loan
A critical component of the restructuring is the provision of $55.0 million in new-money financing in the form of a super-priority term loan (the "Super-Priority Term Loan"). The key terms of the Super-Priority Term Loan are as follows:
Lender. Belvedere Credit Opportunities Fund LP, a Delaware limited partnership, will serve as lead arranger and initial lender. Belvedere's offices are located at 450 Lexington Avenue, 30th Floor, New York, NY 10017. The Managing Partner of Belvedere is Christopher Hartigan.
Counsel. Belvedere is represented by Thornbury McCaffrey LLP. An ethical wall has been established at Thornbury McCaffrey to separate the representation of Belvedere from the firm's representation of the mezzanine Ad Hoc Group.
Amount. $55,000,000, consisting of (i) $45,000,000 funded at closing and (ii) $10,000,000 in a delayed-draw term loan available for a period of 12 months following the closing date.
Interest Rate. SOFR + 700 basis points, with a 100 basis point SOFR floor.
Original Issue discount (OID). 2.00% of the total commitment, calculated as $55,000,000 × 2.00% = $1,100,000. The OID will be deducted from the funded amount at closing, resulting in net funded proceeds at closing of $43,900,000 ($45,000,000 − $1,100,000).
Maturity. December 19, 2027, representing a four-year tenor from the expected closing date.
Commitment Fee. 1.00% per annum on the undrawn delayed-draw tranche of $10,000,000, payable quarterly in arrears.
Mandatory Prepayment. 75% excess cash flow sweep, calculated quarterly, applied after maintaining Minimum Liquidity of $20,000,000.
Call Protection. 103% in year one, 102% in year two, 101% in year three, and par thereafter.
Change of Control. Any person or group (other than Ridgeline and the mezzanine equitization recipients and their respective permitted transferees) acquiring more than 50% of the voting equity of the Company will constitute a "change of control" triggering mandatory prepayment of the Super-Priority Term Loan at 101% of outstanding principal.
The Super-Priority Credit Agreement is expected to be executed on or about November 17, 2023.
Intercreditor Arrangements. The Super-Priority Term Loan will benefit from a super-priority first-out position in the Company's capital structure, ranking senior in right of payment and lien priority to the existing first lien debt (which will become "first lien second-out" following the restructuring). This priority structure will be documented in an Amended and Restated Intercreditor Agreement among Belvedere Credit Opportunities Fund LP (as Super-Priority Agent), Pinnacle National Bank, N.A. (as First Lien Agent), and Stonefield Logistics Group Inc. The Intercreditor Agreement is expected to be executed on or about November 10, 2023.
Equitization of Mezzanine Notes (the Exchange)
The equitization of the mezzanine Notes is the central transaction addressed by this Consent Solicitation Statement and is described in greater detail in "The Exchange Offer" below. In summary, $140,000,000 in aggregate principal amount of mezzanine Notes, together with approximately $8,100,000 in accrued and unpaid PIK interest (which will be waived), will be exchanged for a combination of Series A Preferred Stock with an aggregate liquidation preference of $35,000,000 and 47.5% of the pro forma common equity of the Company.
The implied recovery to exchanging mezzanine holders is as follows:
• Cash-equivalent recovery on Series A Preferred Stock alone: $35,000,000 ÷ $148,100,000 (total mezzanine claims including accrued PIK) = approximately 23.6%.
• Total implied recovery (including common equity): Approximately 40 to 55 cents on the dollar, depending on the equity valuation assumptions employed in the analysis performed by Hargrove Advisory Group LLC.
Sponsor Contribution and Pro Forma Equity
In connection with the restructuring, Ridgeline Capital Partners Fund III, L.P. will contribute $12,500,000 in new cash equity to the Company. This contribution is expected to be funded on December 15, 2023, and will be used to (i) fund a portion of the transaction costs associated with the restructuring and (ii) provide an additional liquidity cushion for the Company on a going-forward basis.
Following the consummation of all restructuring transactions, the pro forma equity ownership of the Company will be as follows:
Ridgeline's common equity ownership will be diluted from 100% to 47.5% as a result of the issuance of equity to the mezzanine holders and the establishment of the management incentive plan.
The Company's Board of Directors following the restructuring will consist of seven (7) members, with the following composition:
• Three (3) seats designated by Ridgeline;
• Three (3) seats designated by the mezzanine holders (as a group); and
• One (1) independent director.
Post-Restructuring Capital Structure
The following table summarizes the Company's anticipated capital structure immediately following the closing of all restructuring transactions:
Total post-restructuring funded debt: $375.0 million (assuming the Revolver is fully drawn at $35.0 million and the full $55.0 million Super-Priority Term Loan is funded, including the $10.0 million delayed-draw tranche).
Post-restructuring total leverage (based on projected FY 2024E Adjusted EBITDA of $52.0 million): 7.2x ($375.0 million ÷ $52.0 million).
Total debt reduction achieved through the equitization: approximately $100.1 million ($475.1 million pre-restructuring − $375.0 million post-restructuring).
While the post-restructuring leverage ratio of 7.2x remains elevated, it represents a material improvement from the pre-restructuring leverage of 11.5x and is predicated on the Company's achievement of its FY 2024E EBITDA projections, which reflect anticipated cost savings and operational improvements.
THE EXCHANGE OFFER
Exchange Consideration
Each holder of the Notes who delivers a valid consent and tenders its Notes in the Exchange Offer will receive, in exchange for each $1,000 principal amount of Notes tendered, the following Exchange Consideration:
(a) A pro rata portion of the Series A Preferred Stock of Stonefield Logistics Group Inc., which will have an aggregate liquidation preference of $35,000,000. The Series A Preferred Stock will bear a dividend at a rate of 10.00% per annum, payable in kind, and will rank senior to common stock in liquidation. The terms of the Series A Preferred Stock will be established by a Certificate of Designations to be filed with the Secretary of State of the State of Delaware.
(b) A pro rata portion of 47.5% of the pro forma common equity of Stonefield Logistics Group Inc. The common equity will be subject to the terms of an Amended and Restated Stockholders' Agreement to be entered into among the Company, Ridgeline, and the mezzanine equitization recipients on or about the closing date.
As part of the exchange, all accrued and unpaid PIK interest on the Notes (estimated at $8,100,000 in the aggregate through the expected closing date of December 19, 2023) will be waived and cancelled. No cash payment will be made to exchanging holders in respect of accrued PIK interest. The waiver of accrued PIK interest is a condition of the Exchange Offer and is reflected in the total implied recovery analysis discussed below.
Series A Preferred Stock
The Series A Preferred Stock to be issued as part of the Exchange Consideration will have the following principal terms:
Issuer: Stonefield Logistics Group Inc.
Aggregate Liquidation Preference: $35,000,000.
Dividend Rate: 10.00% per annum, payable in kind by the issuance of additional shares of Series A Preferred Stock. Dividends will accrue and compound semi-annually.
Ranking: The Series A Preferred Stock will rank senior to common stock of the Company with respect to dividends and distributions upon liquidation, dissolution, or winding up of the Company.
Establishment: The terms of the Series A Preferred Stock will be set forth in a Certificate of Designations of Series A Preferred Stock (the "Certificate of Designations") to be filed with the Secretary of State of the State of Delaware. Filing of the Certificate of Designations is expected to occur on or about December 12, 2023.
Conversion: The Certificate of Designations will include provisions relating to the voluntary conversion of Series A Preferred Stock into common equity of the Company, subject to specified conditions and conversion ratios.
Redemption: The Certificate of Designations will include provisions relating to the optional redemption of Series A Preferred Stock by the Company, subject to specified conditions, notice requirements, and redemption prices.
Voting: The Series A Preferred Stock will have specified voting rights, including the right to vote as a separate class on certain matters affecting the rights and preferences of the Series A Preferred Stock, as set forth in the Certificate of Designations.
Common Equity
Exchanging holders will receive, in the aggregate, 47.5% of the pro forma common equity of the Company. The common equity will be issued on the closing date and will be subject to the following principal terms, as set forth in the Amended and Restated Stockholders' Agreement (the "Stockholders' Agreement") to be entered into on or about December 12, 2023:
Transfer Restrictions. The common equity will be subject to customary transfer restrictions, including restrictions on transfers to competitors of the Company, rights of first refusal, and compliance with applicable securities laws.
Tag-Along/Drag-Along Rights. The Stockholders' Agreement will provide for tag-along rights (permitting minority holders to participate pro rata in a sale by a majority holder) and drag-along rights (permitting a majority holder to require minority holders to participate in a sale of the Company on the same terms).
Preemptive Rights. Holders of common equity will have preemptive rights to participate pro rata in any future issuance of equity securities by the Company, subject to customary exceptions.