Feb 25 Alaris News Alaris Equity Partners Announces an Investment of US$30 Million Into a New Partner, a US$8 Million Follow-On Investment in Accscient and an Increase to its Credit Facility
February 25, 2021
/NOT FOR DISTRIBUTION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW/
CALGARY, AB, Feb. 22, 2021 /CNW/ - (all numbers in this release are in Canadian dollars (CDN$) unless otherwise noted) Alaris Equity Partners Income Trust (the "Trust" or "Alaris") (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 an investment of US$30.0 million (the "3E Investment") into its twentieth Partner, 3E, LLC ("3E") and a US$8.0 million (the "Accscient Contribution") follow-on investment into an existing Partner, Accscient, LLC ("Accscient"). This brings year to date 2021 capital deployment to over $180.0 million with capital deployment over the last twelve months over $350.0 million, Alaris' most active 12-month period in its history. Alaris is also pleased to announce that its subsidiary's credit facility (the "Facility") will be increased (the "Facility Increase") from $373 million to $400 million with the addition of a seventh bank to the lending syndicate (the "Lending Syndicate") subject to the completion of final documents.
New logo (CNW Group/Alaris Equity Partners Income Trust)
3E Investment
On February 22, 2021, Alaris made the 3E Investment with a contribution of US$22.5 million (the "3E Contribution") into 3E in exchange for preferred equity, which will entitle Alaris to an annualized Partner distribution of US$3.15 million (the "3E Distribution"). In addition, US$7.5 million (the "3E Escrow") was contributed to an escrow account to be released to 3E in the event that certain hurdles are met (the "Escrow Hurdles") with in a 24-month time frame. In the event that those Escrow Hurdles are met in in part or in full, Alaris will contribute up to US$7.5 million in exchange for additional preferred units, entitling Alaris to up to an additional US$1.05 million of annualized distributions. The 3E Distribution is equivalent to a pre-tax yield of 14% in the first full year after the 3E Contribution.
Commencing on January 1, 2022, the 3E 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 adjustment will be based on fiscal 2021 vs fiscal 2020), subject to a collar of 6%.
Based on Alaris' review of 3E's internal pro forma financial results for the most recent trailing twelve-month period in 2021 and giving effect to the 3E Investment, certain other changes to 3E's capital structure and the 3E Distribution payable to Alaris, management of Alaris believes that 3E would have an earnings coverage ratio between 1.2x and 1.5x. Proceeds of the 3E Contribution were used to replace an existing capital provider.
3E is a utility service provider that installs, inspects, maintains and replaces critical infrastructure (primarily natural gas utilities) for blue-chip, investor-owned utility companies. 3E operates under two entities: Benton Georgia and Pipe Strong, with operations across nine States in the Southeastern and Midwestern United States including Georgia, Illinois, Texas, Tennessee, Missouri, Kentucky, Louisiana, Arkansas and Mississippi. 3E's business is well positioned to benefit from maintaining and replacing the aging natural gas utility network in the United States. 3E's services relate only to regulated entities. 3E does not provide services for natural gas exploration, production or mid-stream operations.
Accscient Follow-On
On February 19, 2021, Alaris made the Accscient Contribution of US$8.0 million in exchange for additional preferred units in Accscient, which entitle Alaris to an additional annualized distribution of US$1.14 million (the "Accscient Distribution"). The Accscient Distribution is equivalent to a pre-tax yield of 14.3% in the first full year following the Accscient Contribution. Accscient used the proceeds of the Accscient Contribution for investment purposes.
Alaris is estimating a proforma increase of $0.05 per trust unit1 to its net operating cash flow following the 3E Contribution and Accscient Contribution. Following the Facility Increase, Alaris will have approximately $80.0 million available for future investment opportunities.2
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1
Assumes the expected total units outstanding following the anticipated closing of the previously announced trust unit offering, which is expected prior to March 3, 2021 (including the exercise in full of the overallotment option).
2
Assumes Alaris' previously announced offering of trust units closes and the overallotment is exercised in full.
ABOUT ALARIS:
The Trust, through its subsidiaries, indirectly provides alternative financing to private companies ("Partners") in exchange for distributions with the principal objective of generating stable and predictable cash flows for payment of distributions to unitholders of the Trust. 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:
Earnings Coverage Ratio refers to the Normalized EBITDA of a Partner divided by such Partner's sum of debt servicing (interest and principal), unfunded capital expenditures and distributions to Alaris. Management believes the earnings coverage ratio is a useful metric in assessing our partners continued ability to make their contracted distributions.
Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature and is calculated by adjusting for non-recurring expenses and gains to EBITDA. Management deems non-recurring charges to be unusual and/or infrequent charges that our Partners incur outside of its common day-to-day operations.
EBITDA refers to earnings 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.
The terms Run Rate Payout Ratio, Earnings Coverage Ratio, Normalized EBITDA and EBITDA (the "Non-IFRS Measure") are not standard measures under IFRS. Alaris' calculation of the Non-IFRS Measure may differ from those of other issuers and, therefore, should only be used in conjunction with the Trust's (or its predecessor's) annual audited and unaudited interim financial statements, which are available under the Trust's (and its predecessor's) profile on SEDAR at www.sedar.com.