Alaris Royalty Corp. (TSX: AD) has closed its previously disclosed contribution of US $15.0 million or CDN $18.8 million to Rockland, Massachusetts based Heritage Restoration, Holdings, LLC. The Heritage Contribution was used to fund the management buyout (MBO) of the existing shareholder.
Alaris entered into subscription and operating agreements with Heritage on January 23, 2018, pursuant to which Alaris made the US $15.0 million Heritage Contribution in exchange for preferred units in Heritage, which will entitle Alaris to the US $2.25 million Heritage Distribution for the first full year following the transaction, which equates to an initial yield of 15%. US $3.0 million of the Heritage Units are redeemable at par at any time. The performance metric dictating the annual percentage change in the Heritage Distribution is gross margin, subject to a 6% collar and will reset for the first time on January 1, 2019.
Founded in 1981, and under the leadership of CEO, Andy Bear since 2003, Heritage is a leading specialty contractor providing masonry and masonry related services to the commercial building industry.
photo credit: Heritage Restoration
News Release
ALARIS ROYALTY CORP. CONTRIBUTES US$15 MILLION TO A NEW PARTNER AND CLOSES AMENDMENTS TO ITS CREDIT FACILITY
Calgary, Alberta – January 23, 2018- Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX: AD) is pleased to announce that it has closed its previously disclosed contribution of US$15.0 million (approximately CAD$18.8 million) (the “Heritage Contribution”) to Heritage Restoration, Holdings, LLC (“Heritage”), in exchange for an annual distribution of US$2.25 million (approximately CAD$2.81 million) (the “Heritage Distribution”). The Corporation is also pleased to announce it has closed the amended credit facility (the “Facility”) it had previously announced. The Heritage Distribution will account for approximately 3.0% of Alaris’ annualized revenue and is accretive to cash flow adding approximately $0.04 cents per share to Alaris’ net cash from operations (after tax). Alaris has approximately $170 million of undrawn capacity on the Facility following today’s announcement.
New Partner – Heritage
Alaris entered into subscription and operating agreements with Heritage on January 23, 2018, pursuant to which Alaris made the US$15.0 million Heritage Contribution in exchange for preferred units in Heritage (the “Heritage Units”), which will entitle Alaris to the US$2.25 million Heritage Distribution for the first full year following the transaction, which equates to an initial yield of 15%. US$3.0 million of the Heritage Units are redeemable at par at any time. The performance metric dictating the annual percentage change in the Heritage Distribution is gross margin, subject to a 6% collar and will reset for the first time on January 1, 2019. The Heritage Contribution was used to fund the management buyout of the existing shareholder.
Founded in 1981, and under the leadership of CEO, Andy Bear since 2003, Heritage is a leading specialty contractor providing masonry and masonry related services to the commercial building industry. With a focus on the restoration of existing structures, Heritage’s services include masonry procurement, installation and restoration, concrete structure restoration, waterproofing and coating repair, Heritage provides quality customer service and workmanship throughout the entire New England area, employing over 100 highly skilled masons; carpenters; and laborers during peak times. New England’s abundance of university campuses, hospitals, and historic urban architecture utilizing brick and stone construction, combined with the high concentrations of concrete parking structures and tunnels, represents large and attractive market opportunities for Heritage, In addition, the attractive macroeconomic environment for new construction activity in the metropolitan Boston area also continues to provide significant opportunities for Heritage.
Based on Alaris’ review of Heritage’s unaudited internal pro forma results for the most recent trailing twelve month period in 2017, management of Alaris believes that Heritage would have an earnings coverage ratio of between 1.50x and 2.00x, after giving effect to the Heritage Contribution, other changes to Heritage’s capital structure and the Heritage Distribution payable to Alaris.
“Alaris is excited to welcome Andy and the Heritage team as its newest partner. Under Andy’s leadership, Heritage has grown to be one of the area’s leading specialty construction firms. Heritage’s focus on its restoration and maintenance business, coupled with new build projects, provides an impressive platform for continued success,” said Gregg Delcourt, Alaris Senior Vice President, Small Cap Investments.
Alaris also closed the amended Facility on January 19, 2018. A summary of changes are as follows: (i) an increase in capacity from $200 million to $280 million; (ii) increasing the according feature from $50 million to $70 million; (iii) the term of the Facility has been extended for another year to December 2021; and (iv) an increase to the permanent leverage covenant from 1.75x EBITDA to 2.5x EBITDA, and the bridge covenant (for 90 days following certain approved transactions) from 2.25x EBITDA to 3.0x EBITDA. There continue to be no amortization payments and pricing also remains the same. After the increase in the Facility Alaris has approximately $100 million available to draw on the base part of the credit facility as well as $70 million on the accordion feature.
ABOUT THE CORPORATION:
Alaris provides alternative financing to the Partners in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the Partners are adjusted each year based on the percentage change of a “top line” financial performance measure such as gross margin and same-store sales and rank in priority to the owners’ common equity position.
NON-IFRS MEASURES:
EBITDA refers to net earnings (loss) determined in accordance with IFRS, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. EBITDA is used by management and many investors to determine the ability of an issuer to generate cash from operations. Management believes EBITDA is a useful supplemental measure from which to determine the Corporation’s ability to generate cash available for debt service, working capital, capital expenditures, income taxes and dividends. The Corporation has provided a reconciliation of net income to EBITDA in this news release.
Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature, such as gains associated with the reduction of our financial interest in one partner or an impairment loss in another with which the Corporation has transacted as well as the impacts of non-cash foreign exchange gains and losses. Management deems non-recurring charges to be unusual and/or infrequent charges that the Corporation incurs outside of its common day-to-day operations.
Earnings Coverage Ratio refers to normalized EBITDA of a Partner divided by such Partner’s sum of debt servicing (interest and principal), unfunded maintenance capital expenditures and distributions to Alaris.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
For further information please contact:
Curtis Krawetz Vice President, Investments and Investor Relations Alaris Royalty Corp. P: (403) 221-7305 Suite 250, 333 24th Avenue S.W. Calgary, Alberta T2S 3E6 www.alarisroyalty.com