ANNOUNCES REDEMPTION OF 5.75% DEBENTURES
THE TD COWEN INSIGHT
Yesterday AMC, CJT announced intention to redeem 5.75% senior unsecured hybrid debentures due April 30/25 on Dec 27/24. CJT use revolving credit facility to repay debenture. We believe motivation is primarily de-risking the maturity profile of long-term debt as we estimate interest expense difference will be immaterial.
Impact: SLIGHTLY POSITIVE
We view the announcement as consistent with management's prior indications for capital plans. Although revolving credit facility (prime plus 20-250 bps) currently has a higher rate than debentures, our 2025 interest rate assumptions imply rate on facility will move below debenture rate in 2025 and retiring the debentures extends the effective maturity date
of the liability to 2027 from 2025. We believe the company could also eventually retire its other debenture (due June 30, 2026) prior to maturity using its revolving credit facility. Our forecasts currently assume remaining debenture is refinanced using the revolving credit facility at expiration.
The redemption price for the debenture is 100% of aggregate outstanding principal amount, together with accrued and unpaid interest up to, but excluding, the redemption date. The outstanding balance on the debentures as of Q3/24 was $115 million. Cargojet intends to draw $117 million from its revolving credit facility to fund redemption.
Our 10.0x target multiple reflects the historical premium/discount of CJT to comp groups of 1) LTLs, 2) freight and courier companies, and 3) rails. It also reflects its own historical and current valuation multiples. We believe multiple expansion to 10.0x (current fwd 8.7x) over the next 12 months will result from earnings growth, deleveraging, buybacks, anticipation of cost pressure normalization in 2026, and growing appreciation by the market for the value in the company's competitive position in Canada and relationships with Canadian/ global air freight/e-commerce heavyweights (DHL, Amazon, UPS, Great Vision).