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Automotive Finco to provide $21M loan to AA Finance
2022-11-18 17:39 ET - News Release
Ms. Shannon Penney reports
AUTOMOTIVE FINCO CORP. ANNOUNCES NEW LOAN WITH STRONG RISK ADJUSTED RETURNS AND TARGETED INCREASE TO NET ASSET VALUE
Automotive Finco Corp., via Automotive LP, has agreed to finance a new unsecured loan to AA Finance Co. LP (investee) of $21-million.
The investment is being made in accordance with the alliance agreement, under which a partnership suitable financing has been made available to Automotive Finance LP with terms set out in the relevant ROFO notice. These terms were then modified through negotiation in the company's favour. The investment will bear interest at 12.0 per cent per annum, payable in cash or PIK (payment in-kind), with a two-year term and, under certain circumstances, will be convertible into equity of a related entity of the investee. To the extent the convertible option is exercised, Automotive Finco intends to distribute the equity received to its shareholders, in its sole discretion. The proceeds of the investment will be used by investee for general corporate purposes, which may include acquisitions and related working capital requirements.
The board views the investment as an attractive deployment of capital given the ability to lower the contractually set term of a partnership suitable financing from 10 years to two years, an increase in the coupon rate to 12.0 per cent (from 10.5 per cent) as well as the ability to secure an option to convert the investment into equity under certain circumstances. Assuming the loan is outstanding through maturity, the gross assets of the company would be expected to increase, before the payment of dividends to shareholders and on a pretax basis, by approximately 25 cents per share by the end of the two-year term.
The company's strategy is centred around a focus on shareholder aligned capital allocation. Since the change of business transaction in 2017, the company has returned approximately $1.45 per share to its shareholders through a combination of dividends paid and declared and share buybacks. The company will continue to focus on the attractive deployment of capital and shareholder returns via dividends going forward. As a result of the new investment, the company expects to maintain the dividend at its current level over the near term, subject to continuing review to ensure its continued sustainability.