Alaris Equity Partners Announces a US$66 Million Investment Into a New Partner, a $75 Million Bought Deal Financing and Amendments to Its Credit Facility



/NOT FOR DISTRIBUTION IN THE UNITED STATES.  FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW/

CALGARY, AB, Feb. 9, 2021 /CNW/ - (all numbers in this release are in Canadian ("CDN") unless otherwise noted)

Alaris Equity Partners Income Trust (the "Trust" or "Alaris") (TSX: AD.UN) is pleased to announce that its wholly owned subsidiary, Alaris Equity Partners USA, Inc. (collectively with the Trust and its other subsidiaries, "Alaris") has made an investment of US$66.0 million (the "B&S Investment") into Brown & Settle Investments, LLC and a subsidiary thereof (collectively, "B&S" or "Brown & Settle").  Alaris is also pleased to announce that it has entered into an agreement with a syndicate of underwriters (the "Underwriters") to purchase, on a bought deal basis, 4,687,500 trust units (the "Trust Units") from Alaris at a price of $16.00 per Trust Unit for aggregate gross proceeds of $75.0 million (the "Offering"). Lastly, Alaris and its syndicate of senior lenders (the "Lending Syndicate") have agreed to an amendment (the "Amendment") to its credit facility (the "Facility") that will see the Facility permanently increased from $330.0 million to $373.0 million. Following the B&S Investment Alaris has deployed approximately $135 million in 2021. Alaris is also pleased to announce that it is estimating Q4, 2020 revenue to beat guidance by approximately $1.0 million increasing from $31.0 million to approximately $32.0 million primarily as a result of dividends declared on Alaris' common equity investments in Amur Financial Group Inc. ("Amur") and Carey Electric Contracting, LLC ("Carey").

B&S Investment

On February 9, 2021, Alaris made the B&S Investment of US$66.0 million into Brown & Settle, which consisted of: (i) an aggregate of US$53.7 million (the "B&S Preferred Contribution") of combined subordinated debt and preferred equity, entitling Alaris to an initial annualized distribution of US$7.5 million (the "B&S Distribution"); and (ii) US$12.3 million for a minority common equity ownership in B&S. The B&S Distribution is expected to be the equivalent to a pre-tax yield of approximately 14%.   

Commencing on January 1, 2022, the B&S Distribution will be adjusted annually based on the percentage change in gross revenue over the most recently completed 12-month period versus the prior 12-month period (January 1, 2022 adjustment will be based on fiscal 2021 vs fiscal 2020), subject to a collar of 6%. 

Based on Alaris' review of Brown & Settle's internal pro forma financial results for the most recent trailing twelve-month period in 2021 and giving effect to the B&S Investment, certain other changes to Brown & Settle's capital structure and the B&S Distribution payable to Alaris, management of Alaris believes that Brown & Settle would have an earnings coverage ratio between 1.5x and 2.0x.  Proceeds were used to provide a partial liquidity event to founders, management and investors.

Founded in 2003 and headquartered in Northern Virginia, the largest data center market in the world, Brown & Settle is a full-service large-parcel site development contractor.  B&S' comprehensive suite of services includes excavation, clearing, rock blasting, concrete, paving, and utility installation in Virginia, Maryland, West Virginia, and the Greater Washington D.C. area. Brown & Settle has established itself as one of the top providers of site development services for data centers, working on projects for blue chip end users. www.brown-settle.com  B&S Corporate Video

Bought Deal

The Underwriters have agreed to purchase, on a bought deal basis, 4,687,500 Trust Units from Alaris at a price of $16.00 per Trust Unit for aggregate gross proceeds of $75.0 million. The Trust has also granted the Underwriters an option, exercisable for up to 30 days from of the closing of the Offering, to purchase up to an additional 703,125 Trust Units upon the same price and terms as the Offering to cover over-allotments and for market stabilization purposes (the "Over-Allotment Option"). The Offering is expected to close on or about March 3, 2021. The Underwriters will sell the Trust Units in all provinces of Canada, except Quebec, in a public offering by way of short form prospectus. The aggregate gross proceeds of the Offering and Over-Allotment Option (if exercised in full) will be $86.3 million (net proceeds of $82.8 million).  The Offering is being co-led by Acumen Capital Finance Partners Limited, Cormark Securities Inc., CIBC Capital Markets, National Bank Financial Inc. and RBC Capital Markets.

The Trust will use net proceeds of the Offering (and Over-Allotment Option, if any) to reduce debt outstanding under the Facility. Upon closing of the Offering and including the B&S Investment, the Trust expects to have approximately $300.0 million drawn on the Facility ($289.2 million with the Over-Allotment Option exercised).

The Offering is subject to customary closing conditions, including receipt of applicable regulatory and Toronto Stock Exchange approvals.

Amendments to the Facility

The Facility was permanently increased from $330 million to $373 million. Additionally, an additional 0.5x EBITDA was added to the leverage covenant for the March 2021 and June 2021 measurement periods bringing the maximum leverage to 3.5x through those two periods. Covenants return to previous levels from September 30, 2021 forward. The Amendment also includes a temporary bridge facility (the "Bridge") of US$30 million to use for potential new investments prior to the closing of the Offering.  Funds from the proceeds of the Bridge may be used to fund a potential new investment being reviewed by Alaris in the ordinary course of its business, which may or may not come to fruition.

This press release is not an offer of Units for sale in the United States. The Units may not be offered or sold in the United States. Alaris has not registered and will not register the Units under the U.S. Securities Act of 1933, as amended. Alaris does not intend to engage in a public offering of Units in the United States. This press release shall not constitute an offer to sell, nor shall there be any sale of, the Units in any jurisdiction in which such offer, solicitation or sale would be unlawful.

ABOUT ALARIS:

The Trust, through its subsidiaries, indirectly provides alternative financing to private companies ("Partners") in exchange for distributions with the principal objective of generating stable and predictable cash flows for payment of distributions to unitholders of the Trust.  Distributions from the Partners are adjusted each year based on the percentage change of a "top line" financial performance measure such as gross margin and same-store sales and rank in priority to the owners' common equity position.

NON-IFRS MEASURES:

Earnings Coverage Ratio refers to the Normalized EBITDA of a Partner divided by such Partner's sum of debt servicing (interest and principal), unfunded capital expenditures and distributions to Alaris. Management believes the earnings coverage ratio is a useful metric in assessing our partners continued ability to make their contracted distributions.

Normalized EBITDA refers to EBITDA excluding items that are non-recurring in nature and is calculated by adjusting for non-recurring expenses and gains to EBITDA. Management deems non-recurring charges to be unusual and/or infrequent charges that our Partners incur outside of its common day-to-day operations.

EBITDA refers to earnings determined in accordance with IFRS, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. EBITDA is used by management and many investors to determine the ability of an issuer to generate cash from operations.

The terms Run Rate Payout Ratio, Earnings Coverage Ratio, Normalized EBITDA and EBITDA (the "Non-IFRS Measure") are not standard measures under IFRS.  Alaris' calculation of the Non-IFRS Measure may differ from those of other issuers and, therefore, should only be used in conjunction with the Trust's (or its predecessor's) annual audited and unaudited interim financial statements, which are available under the Trust's (and its predecessor's) profile on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements, including forward-looking statements within the meaning of "safe harbor" provisions under applicable securities laws ("forward-looking statements"). Statements other than statements of historical fact contained in this news release may be forward-looking statements, including, without limitation, management's expectations, intentions and beliefs concerning: the closing date for the Offering, the intended use of proceeds for the Offering, outstanding amounts under the Facility after closing of the Offering, the financial impact of the Offering, and the financial impact of the B&S Investment, including the B&S Distributions and adjustments thereto and the impact on Alaris' revenue and net cash from operating activities; Brown and Settle's Earnings Coverage Ratio; Alaris' Run Rate Payout Ratio and the impact of the B&S Investment thereon; the potential increase to the Facility, including the timing thereof; potential new investments by Alaris; the use of the Bridge to fund the potential investment and reductions in indebtedness under the Facility and Alaris' updated guidance estimate for Q4 2020 revenues. Many of these statements can be identified by words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. Any forward-looking statements herein which constitute a financial outlook or future-oriented financial information (including the impact on revenues, net cash from operating activities and Run Rate Payout Ratio) were approved by management as of the date hereof and have been included to provide an understanding of Alaris' financial performance and are subject to the same risks and assumptions disclosed herein. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur.

By their nature, forward-looking statements require Alaris to make assumptions and are subject to inherent risks and uncertainties.  Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect Alaris' business and that of its Partners (including, without limitation, the ongoing impact of COVID-19) are material factors considered by Alaris management when setting the outlook for Alaris.  Key assumptions include, but are not limited to, assumptions that: the Offering will close as expected and that Alaris will obtain regulatory and third party approvals for the Offering; the conditions to closing the Offering, including, if required, the consent of the Toronto Stock Exchange and, if required, the consent of Alaris' lenders under the Facility, will be satisfied; the Canadian and U.S. economies will begin to recover from the ongoing economic downturn created by the response to COVID-19 within the next twelve months, interest rates will not rise in a material way over the next 12 to 24 months, that those Alaris Partners detrimentally affected by COVID-19 will recover from the pandemic's impact and return to their current operating environments, following a recovery from the COVID-19 impact, the businesses of the majority of our Partners will continue to grow, more private companies will require access to alternative sources of capital and that Alaris will have the ability to raise required equity and/or debt financing on acceptable terms.  Management of Alaris has also assumed that the Canadian and U.S. dollar trading pair will remain in a range of approximately plus or minus 15% of the current rate over the next 6 months. In determining expectations for economic growth, management of Alaris primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies as well as prevailing economic conditions at the time of such determinations.

Forward-looking statements are subject to risks, uncertainties and assumptions and should not be read as guarantees or assurances of future performance. The actual results of the Trust and the Partners could materially differ from those anticipated in the forward-looking statements contained herein as a result of certain risk factors, including, but not limited to: that the Offering may not close when planned (or at all); or on the terms and conditions set forth herein; the failure of Alaris to secure, if required, the consent of its lenders under its credit facility to proceed with the Offering; the use of proceeds from the Offering as described herein may change; how many Partners will be impacted by the COVID-19 and the extent of such impact; the ability of our Partners and, correspondingly, Alaris to meet performance expectations for 2021 and beyond as a result of COVID-19 or otherwise; any change in  the senior lenders under the Facility's outlook for Alaris' business;  management's ability to assess and mitigate the impacts of COVID-19; the dependence of Alaris on the Partners; reliance on key personnel; general economic conditions, including the ongoing impact of COVID-19 on the Canadian, U.S. and global economies; failure to complete or realize the anticipated benefit of Alaris' financing arrangements with the Partners; a failure of the Trust or any Partners to obtain required regulatory approvals on a timely basis or at all; changes in legislation and regulations and the interpretations thereof; risks relating to the Partners and their businesses, including, without limitation, a material change in the operations of a Partner or the industries they operate in; inability to close additional Partner contributions in a timely fashion, or at all; a change in the ability of the Partners to continue to pay Alaris' distributions; a change in the unaudited information provided to the Trust; a failure of a Partner (or Partners) to realize  on their anticipated growth strategies; a failure to achieve resolutions for outstanding issues with Partners on terms materially in line with management's expectations or at all; and a failure to realize the benefits of any concessions or relief measures provided by Alaris to any Partner or to successfully execute an exit strategy for a Partner where desired. Additional risks that may cause actual results to vary from those indicated are discussed under the heading "Risk Factors" and "Forward Looking Statements" in the Trust's Management Discussion and Analysis for the year ended December 31, 2019, which is filed under the Trust's profile at www.sedar.com and on its website at www.alarisroyalty.com.

The preliminary results for Alaris' revenues for Q4 2020 set forth herein are based on an initial review of Alaris' applicable operating and financial results for the fourth quarter 2020 and are subject to change. Final reported results could differ from these preliminary results following the completion of year-end accounting procedures, final adjustments and other developments arising between now and the time that Alaris' financial results are finalized, and such changes could be material. Alaris' independent auditor has not audited, reviewed or performed any procedures with respect to the accompanying preliminary financial results and other data, and accordingly does not express an opinion or any other form of assurance with respect thereto. Alaris has included information on its expected Q4 2020 revenues in order to provide readers with a more complete perspective on its financial position and such information may not be appropriate for other purposes. 

Readers are cautioned not to place undue reliance on any forward-looking information contained in this news release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Statements containing forward-looking information reflect management's current beliefs and assumptions based on information in its possession on the date of this news release. Although management believes that the assumptions reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations will prove to be correct.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release and Alaris does not undertake or assume any obligation to update or revise such statements to reflect new events or circumstances except as expressly required by applicable securities legislation.

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Alaris Equity Partners Income Trust


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