Halt Alaris Equity Partners Income Trust (the "Trust") (TSX: AD.UN) is pleased to announce that its wholly owned subsidiary, Alaris Equity Partners USA, Inc. (collectively with the Trust and its other subsidiaries, "Alaris") has made investments of $34.0 million (the "Edgewater Investment") into Edgewater Technical Associates, LLC ("Edgewater") and $40.0 million (the "FNC Investment") into Falcon Master Holdings LLC ("FNC"), doing business as FNC Title Services (collectively the "Cumulative New Investments"). The Cumulative New Investments result in an approximate annual increase of CDN$0.29 (a 10% increase) and CDN$0.10 (a 6% increase) of revenue and net cash from operations per unit respectively. In addition to the above, Alaris will begin receiving $333,333 a month from PF Growth Partners, LLC ("PFGP") from January 2021 through June 30, 2021. It is estimated that the cash flows associated with the Cumulative New Investments and partial payments from PFGP will decrease the Trust's Run Rate Payout Ratio by over 8% to below 70%.
With the Edgewater Investment closing on December 31, 2020, Alaris deployed approximately CDN$171 million of gross capital in 2020, slightly above the 5-year average. Following the closing of the FNC Investment on January 7, 2021, Alaris is off to a strong start in 2021 and has deployed over CDN$222 million in the last twelve months. Alaris' pipeline of new investment opportunities continues to be strong with active mandates under review.
"Our company's ability to advance our capital deployment program during the pandemic has been a significant positive for our unitholders. Adding two quality partners not only increases our revenue and cash flow but it also improves our diversification and safety. Both of these companies have proven that they can prosper during these difficult times and both transactions result in the management teams increasing their equity stake in their businesses. We look forward to long partnerships with Edgewater and FNC," said Steve King, President and CEO, Alaris.
Edgewater Investment
Pursuant to the agreements (the "Edgewater Agreements") among Alaris and Edgewater, Alaris made the $34.0 million Edgewater Investment in exchange for: (i) $30.6 million of preferred equity (the "Edgewater Contribution"), which will be entitled to annualized distributions of $4.3 million (the "Edgewater Distribution") in the first full year, a pre-tax yield of 14%; and (ii) $3.4 million for a minority ownership of common equity (the "Edgewater Common Equity").
Commencing on January 1, 2022, the Edgewater Distribution will be adjusted annually based on the percentage change in gross profit over the most recently completed 12-month period versus the prior 12-month period (January 1, 2022 reset based on fiscal 2021 vs fiscal 2020), subject to a collar of 6%. Edgewater can elect to defer up to 2% ($0.6 million in the first full year) of the Edgewater Contribution with any such deferred distributions compounding at the current yield of the Edgewater Distribution. All deferred Edgewater Distributions are required to be paid in full every 3-years. The proceeds from the Edgewater Investment were used to facilitate a partial management buyout.
Based on Alaris' review of Edgewater's internal pro forma financial results for the most recent trailing twelve-month period in 2020, as well as the post-closing capital structure, management of Alaris believes that Edgewater would have an earnings coverage ratio between 1.2x and 1.5x, which gives effect to the Edgewater Investment and other changes to Edgewater's capital structure and the Edgewater Distribution payable to Alaris.
Founded in 2003 and employing over 400 highly skilled professionals, Edgewater is a professional and technical services firm primarily supporting the U.S. Department of Energy as well as the U.S., U.K., and Canadian Commercial Nuclear Industry, and private sector businesses involved in high-hazard or complex operations through the provision of staff augmentation support in specialty areas such as nuclear operations, nuclear safety basis, multidisciplinary engineering, regulatory compliance, waste management, environmental remediation, maintenance, work control, waste transportation, and decommissioning and closure activities, as well as chemical inventory and removal, construction, and infrastructure upgrades.
FNC Investment
Pursuant to the agreements (the "FNC Agreements") among Alaris and FNC, Alaris collectively made the $40.0 million FNC Investment in exchange for: (i) $32.15 million of preferred equity (the "FNC Contribution"), which will be entitled to annualized distributions of $4.5 million (the "FNC Distribution") in the first full year, a pre-tax yield of 14%; and (ii) $7.85 million for a minority ownership of common equity (the "FNC Common Equity").
Commencing on January 1, 2022, the FNC Distribution will be adjusted annually based on the percentage change in gross profit over the most recently completed 12-month period versus the prior 12-month period (January 1, 2022 reset based on fiscal 2021 vs fiscal 2020), subject to a collar of 7%. The proceeds from the FNC Investment were used by FNC for a partial liquidity event and a partial redemption of certain equity holders.
Based on Alaris' review of FNC's internal pro forma financial results for the most recent trailing twelve-month period in 2020, as well as the post-closing capital structure, management of Alaris believes that FNC would have an earnings coverage ratio above 2.0x, which gives effect to the FNC Investment and other changes to FNC's capital structure and the FNC Distribution payable to Alaris.
Founded in 2007 FNC Title Services is a full-service title and settlement company, specializing in reverse mortgages that operates in 49 states and with approximately 80 employees. Management of FNC believes it is the only independent, nationwide player providing title and settlement services to the lenders in the reverse mortgage industry. FNC is specifically focused on meeting the title services needs of seniors through a specialized understanding of the senior citizen demographic and reverse mortgage market. FNC is deeply involved throughout the reverse mortgage process, providing a comprehensive set of title and closing services through its highly trained reverse mortgage professionals.
Update on PF Growth Partners LLC
Alaris is pleased to announce that it has entered an agreement with PFGP to receive monthly distributions of $333,333 between January 2021 and June 30, 2021. This equates to approximately 40% of full distributions from PFGP. Following the last payment in June 2021 and assuming PFGP is compliant with its bank covenants at that time, Alaris would then be entitled to full distributions commencing in July 2021. Alaris and PFGP have also agreed to a payment plan on all deferred distributions with payments to begin being made in January 2022, or earlier if cash flows and bank covenants allow. All deferred distributions as of January 1, 2022 are to be paid over the 48 months ending December 31, 2025.
Following the announcements today, Alaris will have approximately CAD$296 million drawn on its senior credit facility (the "Facility") and CAD$53 million available for investment purposes while the total senior debt to EBITDA on a proforma basis is approximately 2.7x. Alaris's debt levels are expected to be reduced in the coming months due to proceeds from potential partner redemptions.
"We are so proud of what our Partners accomplished in a most difficult and unique business environment. Due to the strong demand for services/products our partners offer, we will see the majority of our partners with a positive reset to the 2021 distributions and will have only missed original organic revenue projections for 2020 by approximately 6%, far surpassing our expectations from April of 2020," said Darren Driscoll, Chief Financial Officer, Alaris.