OAKVILLE, ON - Friday, February 25, 2022 - Spark Power Group Inc. (TSX: SPG), parent company of Spark Power Corp. ("Spark Power" or the "Company"), announced today an update to its liquidity position, the operating and financial outlook provided in its Q3 MD&A, (as defined below), and potential covenant breaches.
As previously reported on January 31, 2022, the Company completed a $39.6M equity financing, (the "Equity Financing"), used to extinguish $13.0M of subordinated secured vendor debt, and to inject meaningful capital to support the Company's revitalization, deepen and strengthen its Balance Sheet, and enhance its ability to execute on its 2022 strategic priorities. As a result, and despite the challenges referenced below, Management reports that the Company currently has a good working capital position and ample liquidity to fund ongoing operations in the normal course.
As a result of impacts caused by the ongoing global COVID-19 pandemic, (including operational impacts from the Omicron variant and rapidly accelerating inflationary cost pressures), performance challenges in certain segments of the business and spillover effects of the change in approach to how the Company accounts for project revenues and gross margins related to the Q3 Change in Estimate adjustment that was previously identified, the Company is advising of negative impacts on the Company's results for the financial period ended December 31, 2021 and the first part of fiscal year 2022. Specifically, while generally revenues are expected to be in line with expectations, operational gross margin realizations have been directly and indirectly negatively impacted by the items noted above.Further details on these impacts will be provided as part of the 2021 Q4 and year-end financial disclosures.
"These are unprecedented and challenging times. We continue to work hard to adapt to the rapidly changing macro-economic events around us and we are making significant strides in improving the Company's financial accounting and reporting processes and systems", said Richard Perri, CFO of Spark Power. "Thanks to the recent founder-led equity investment, our prudent approach to capital deployment and recent improvements in the Company's working capital position,the Company is in a position to continue to execute on its business plan."
As a function of the challenges noted above and related impacts, and financial information derived from preliminary work in relation to preparation of its fourth quarter and year end audited financial results as at and for the year ended December 31, 2021, the Company expects that, as at December 31, 2021, it is in breach of certain covenants under its existing secured credit facility (the "Facility") with its senior lender (the "Lender"). The Company's subsidiaries Spark Power Corp. and Spark Power Services (USA) Corp. are borrowers under the Facility, with the Company and its other subsidiaries being guarantors under the Facility. A copy of the Facility agreement is available under the Company's profile on SEDAR at www.sedar.com.
The Facility requires that the Company be in compliance with certain financial covenants (the "Facility Covenants") that include a senior funded debt to EBITDA ratio (Debt:EBITDA), a Debt Service Coverage Ratio and a total funded debt to EBITDA ratio. Based on preliminary financial information currently available to the Company, it is expected that, as of December 31, 2021, the Facility Covenants will not have been complied with. The Lender has been advised of the expected covenant breaches and the Company is working constructively with the Lender to address the situation. The Company will be seeking that the Lender provide a waiver of these covenant breaches, but there can be no assurances that such waiver will be forthcoming. The Company will provide an update regarding discussions with the Lender as additional details are available.
About Spark Power Group Inc.
Spark Power is a leading independent provider of end-to-end electrical contracting, operations and maintenance services, and energy sustainability solutions to the industrial, commercial, utility, and renewable asset markets in North America. We work to earn the right to be our customers' Trusted Partner in Power™. Our highly skilled and dedicated people, located in the communities we serve, combined with our knowledge of the power industry, technology expertise, and commitment to safety, ensures we deliver the right solutions that keep our customers' operations up and running today and better equipped for tomorrow. Learn more at www.sparkpowercorp.com.