Why CVW Royalty financing is such a good deal Following is a bit of a ramble, but thought some of you here might find it interesting and worth the time to read. :)
When the CVW financing was first announced I felt it was positive that they could secure it "at this point" and had the general feeling it was lower cost than doing a private placement for the 14 Million but how much I wasn't sure. I liked as much that they seemed to have added the 'optionality' of being able to do another 5 of these with the ROFR clause that CVW had included in the deal.
But just for the fun of it I did up a little spreadsheet and ran an apples to apples cost comparison of this royalty deal compared to raising the money via a private placement of equity.
The results (assuming I haven't screwed something up majorly in the calculations which if any of you see a flaw in the numbers please do point it out) actually amazed me as to just how much cheaper the cost of this capital is compared to raising it via equity.
Here is summary of what I came up with:
Assumptions:
-Capital Raised $14 Million
- Annual Revenue per plant 9,744,000 ( 42,000 tonnes per pear at 232 Rev per tonne).
- EBITDA at plant level 55%
- I did NOT do a scenario at the current .18-.20 cent range as it was just so ridiculously expensive that there was no way they would do it at this cost.
- I did scenarios at .29 cents, .40 cents and 1.00 because TAMKO preferreds convert at .29 cents so I said what if they were willing to do at same price that might have been a route, at .40 cents my thinking was assuming plant ran to spec next spring shares rise to this range and they would have done one at .40 cents then (May/June 2025) and lastly what would the LONG TERM equity cost be if we actually did this raise at $1.00 a share (just for shits and giggles),
- Share Count for .29 cent placement scenario 165 Mil (includes Tamko preferreds and PSU/RSU's).
- Share Count for .40 cent and 1.00 placement scenario's 219 Mil (includes Tamko preferreds, PSU/RSU's AND all warrants).
Results:
1) CVW royalty costs for the two plants = $2,338,560 annually.
2) Annual Cost of equity share NEW Money will get in ALL CENTERS indicated by their percent of shares and therefore EBITDA claims:
- at a $.29 cent per share valuation it equates to a 22.64% of total equity. Being your buying equity you get this percent on ALL plants going forward.
So the equity share COST at:
- 3 plants is $3,639,230 annually
- 6 plants is $7,278,461 annually
- 18 plants is $21,835,382 annually
- at a $.40 cent per share valuation it equates to a 13.78% of total equity. Being your buying equity you get this percent on ALL plants going forward.
So the equity share COST at:
- 3 plants is $2,215,417 annually
- 6 plants is $4,430,835 annually
- 18 plants is $13,292,504 annually
- at a $1.00 per share valuation it equates to a 6.01% of total equity. Being your buying equity you get this percent on ALL plants going forward.
So the equity share COST at:
- 3 plants is $966,036 annually
- 6 plants is $1,9032,072 annually
- 9 plants is $2,898,108
- 18 plants is $5,796,216 annually
This last one blows my mind. Even at $1.00/share valuation the $14 Mill would cost 6% of equity at current fully diluted share count. So yes at 3 plants it would be much less. But literally after 2 more years if they were at 9 plants the annual cost would be $500,000 a year more and at 18 corp. run plants (their 2030 goal) the cost of that capital on an annual basis at $1.00 share would be more than double of what the CVW royalty capital is costing for perpetuity.
Amazing.
I will not be surprised if they utilize CVW royalty (or some other royalty financier if they will do for less) financings on however many plants they will need additional capital on up to when the company's cash flow will cover these equity contributions for new plants (I'm thinking 4-5 making that CVW ROFR not at all surprising....).