Loyalist in talks for forbearance deal, seeks financing
2015-06-15 17:07 ET - News Release
Mr. Shawn Klerer reports
LOYALIST PROVIDES UPDATE ON INITIATIVES UNDERWAY TO RESTORE LIQUIDITY AND STRENGTHEN THE COMPANY'S FINANCIAL POSITION
Loyalist Group Ltd. has provided an update to all stakeholders in an effort to provide timely and transparent communication regarding the company's initiatives under way to restore liquidity and strengthen its financial position.
"Our new senior management team is focused on moving quickly, aggressively and prudently to put Loyalist back on sound footing. We have many stakeholders both inside and outside the company who want to see us succeed in this endeavour. It is important we do so in a manner fair and transparent to all stakeholders," said Shawn Klerer, chief executive officer.
Negotiations with senior credit facility lender
As noted in the audited financial statements for the year ended Dec. 31, 2014, the company is not in compliance with certain covenants in its operating credit facility. The senior lender has not taken any formal action to exercise its rights or remedies under the terms of the credit facility.
Management has been working closely with the senior lender and is currently negotiating a forbearance agreement. This forbearance agreement will document the defaults and will allow the company to operate in the normal course in the near term. Executing the forbearance agreement will allow the company to seek new sources of liquidity, and to develop a comprehensive plan for the eventual repayment and full discharge of the credit facility.
The forbearance agreement is expected to be executed before the end of June.
Near-term liquidity plan
Based on current discussions under way, management expects the senior lender may be willing to provide the company with additional time during a forbearance period if new liquidity in the range of $2-million to $3-million is injected into the company prior to the end of June 30, 2015.
These funds would be added to the company's working capital. During the forbearance period, none of the new funds will be applied against the $8.9-million total amount owing under the acquisition credit facility.
As the company is currently headed into its strongest seasonal demand period, activity levels are highest, and management wants to ensure that normal course operations are not impeded in any manner by any potential working capital constraints.
Management believes that a number of the company's directors, officers, management, employees and several outside parties are prepared to contribute $2-million to $4-million of new liquidity to the company, in conjunction with execution of the forbearance agreement as noted above. These funds would be firmly committed in order to achieve the best possible outcome prior to finalization of the forbearance agreement.
It is anticipated that this fundraising would be in the form of a non-brokered private placement, which results in the least amount of dilution to existing common shareholders, yet is an attractive investment to the providers of this new liquidity. Additional details will be provided later this week once key terms and conditions are determined.
Financial projections and path to stabilization
The company has met with various equity investors and alternative lenders over the past week, and management believes there will be multiple options available to fully restore liquidity and permanently strengthen its financial position.
Management is currently working on developing three preliminary financial projection scenarios, which follow from the discussions it has had with various equity investors and alternative lenders:
- Base case scenario:
- No changes are made to the current portfolio of school locations and brands. This scenario reflects the focused approach to cost constraint and expense rationalization, which is already under way. The company will put its pipeline of acquisitions on hold until further notice;
- Stabilized scenario:
- Prudent initiatives are undertaken to reduce and/or eliminate unnecessary expenses, and enhance revenues through more effective yield management;
- Enhanced scenario:
- Following stabilization, management believes there is significant unused capacity in its current base of schools to leverage fixed costs. With targeted new capital investment into development of new programs, management believes there is an opportunity to materially grow revenues and margins through increased enrolment levels during off-peak periods.
It is anticipated these preliminary financial projection scenarios will be completed in the very near term. These preliminary financial projections will be fine-tuned in the months ahead as new management spends additional time performing comprehensive bottom-up and top-down reviews of all business segments.
In an effort to ensure full transparency to all of the company's stakeholders, management will issue a press release communicating these preliminary projections (revenues, gross margin, EBITDA (earnings before interest, taxes, depreciation and amortization)) prior to finalizing the terms of the proposed non-brokered private placement noted above.
We seek Safe Harbor.
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