Clearwater completes enhancements to capital structure

HALIFAX, June 26, 2013 /CNW/ – (TSX: CLR, CLR.DB.A):

Closes approximately $350 million in new debt facilities.
New capital structure provides financing for $45 million investment in new vessel for clam harvesting operations
Reduces overall cost of capital and annual interest costs by 1.75 percentage points to 4.75% or approximately $2.6 million per year
Further enhances liquidity
Allows for early redemption of 7.25% convertible debentures
Today, Clearwater Seafoods Incorporated (“Clearwater”) reported that, it has successfully completed a series of capital markets transactions that enhances its capital structure.

These transactions include the following changes to its debt structure:

New long term credit facilities including a Canadian $75 million Revolving Credit Facility, a Canadian $30 million Term Loan A facility, a Canadian $45 million Delayed Draw Term Loan A facility and a US $200 million Term Loan B facility.

The refinancing of existing debt including:

(i) the redemption of Canadian $44.4 million of 7.25% convertible debentures, as of July 29, 2013 upon payment of a redemption amount of $1,000 for each $1,000 principal amount of Debentures plus accrued and unpaid interest thereon to but excluding the redemption date;
(ii) Canadian $69.7 million in existing term debt;.
(iii) USD $126.0 million in existing term debt;
(iv) the existing asset based revolving credit facility.

BMO Capital, GE Capital Markets, and Rabobank Nederland’s Canadian Branch acted as Joint Lead Arrangers and Joint Bookrunners for the new credit facilities with BMO, GE Capital Canada, and Rabobank taking significant positions in the new credit facilities.

Ian Smith, Clearwater’s CEO commented “This financing reduces our cost of capital while at the same time provides us with the opportunity to invest for future growth.”

Mr. Smith continued “The investment of $45 million in a third vessel for our clam fishery provides Clearwater with a meaningful means of executing on our growth plan through increasing the volumes we are able to harvest and sell to our customers.”

Mr. Smith concluded “This refinancing and the investment in the clam vessel will enable the company to continue its strong earnings and positive cash flow momentum with a lower cost of capital and once fully operational, additional earnings from the new clam vessel.”

Joe Fillmore, Senior Relationship Manager at Bank of Montreal, pointing at BMO’s 8-year relationship with Clearwater commented “Competitive companies are committed to pursuing strategies to reduce their overall cost of capital while at the same time staying focused on building shareholder value over the long-term. With the syndication and food sector expertise of BMO Capital Markets, we have advised on debt refinancings when companies like Clearwater are astutely accessing changes to their capital structures to support future growth.”

Kathy Lee, president and CEO, GE Capital, Canada commented “We’re pleased to expand our long relationship with Clearwater as they continue to grow their business. Our domain expertise in the food industry and our capital markets capabilities, assisted Clearwater in successfully executing this transaction.”

SUMMARY OF BENEFITS OF THE NEW CAPITAL STRUCTURE AND CLAM VESSEL INVESTMENT

The benefits of these transactions include:

Provides financing for strategic investments

The new Delayed Draw Term Loan A facility will be used to fund an investment in a third vessel for Clearwater’s clam business.

This investment, estimated at $45 million will begin once a suitable hull is sourced and a yard is commissioned to complete the work. Management is seeking to source a hull in the third quarter of 2013, complete conversion work over a period of 18 months and enter the new vessel into service in 2015.

This investment will drive growth in Clearwater’s clam business by expanding access to clam supply by approximately 60% when the customer distribution chain is fully in place by 2017, at which time Clearwater expects to earn incremental gross margins of approximately $8 million per year.

The new capital structure also has a number of features that provide management with greater flexibility including accordions that allow for the possibility of future borrowing to support the execution of management’s five-year growth plan for the business and funding for accretive acquisitions.

Reduces Clearwater’s cost of capital

The new term loan facilities bear interest at BA’s + 3.25% for the Term Loan A and Delayed Draw Term Loan A facilities and US Libor + 3.50% (with a 1.25% Libor Floor) for the Term Loan B Facility.

The funds from these new facilities will be used to refinance $44.4 million of 7.25% convertible debentures and existing higher cost term debt including BA’s + 4.5% Term Loan A and US Libor + 5.5% (with a 1.25% Libor Floor) Term Loan B senior term debt, reducing the overall cost of servicing Clearwater’s debt.

As a result, Clearwater’s weighted average cost of debt is expected to decrease by approximately 1.75 percentage points to 4.75% per annum yielding a reduction of annual interest costs that, based on the debt facilities outstanding at close, approximates $2.6 million per annum.

Further strengthening of Clearwater’s liquidity position

The new debt facilities include a revolving loan that unlike the previous asset backed loan, is not limited by a borrowing base and provides full availability through the fiscal period of the full amount of the $75 million facility.

The new revolver, when combined with the liquidity available at closing of the financing and expected strong cash flows in the last half of the year, is expected to result in an ongoing strong liquidity position.

The low amortization rate on the term loan facilities and lower interest rates on the new debt facilities reduces Clearwater’s annual required payments to service its debt, thus supporting the generation of stronger free cash flows and liquidity.

Finally, although this financing and the related investment in the clam vessel will result in an increase in total leverage for the next 2 years, management remains committed to a long-term leverage goal of 3x or lower and expects to return to those levels by 2015.
DETAILS OF NEW DEBT FACILITIES

CDN $75 million Revolving Loan – Can be denominated in both Canadian and US dollars. Matures in June 2018. Bears interest at BA’s plus 3.25%. Contains an accordion provision that, subject to certain conditions, allows Clearwater to increase the facility by up to Canadian $25 million.

CDN $30 million Term Loan A – Bears interest payable monthly at an annual rate of BA’s plus 3.25%. Repayable in quarterly instalments of $150,000 to June 2014, $225,000 from September 2014 to June 2015, $375,000 from September 2015 to June 2017 and $750,000 from September 2017 to March 2018 with the balance due at maturity in June 2018.

CDN $45 million Delayed Draw Term Loan A – Bears interest payable monthly at an annual rate of BA’s plus 3.25%. Repayable in quarterly instalments of $562,500 with amortization to begin in the first quarter after the facility has been fully drawn or closed out with the balance due at maturity in June 2018.

US $200 million Term Loan B – repayable in quarterly instalments of 0.25% of the initial loan amount with the balance due at maturity in June 2019. Bears interest payable quarterly at an annual rate of US Libor plus 3.50% with a Libor floor of 1.25%. Contains an accordion provision that, subject to satisfaction of certain conditions, allows Clearwater to increase the facility by up to US $100 million.

The Revolving Loan, Term Loan A, Delayed Draw Term Loan A and Term Loan B facilities are secured on a pari passu basis by a first charge on marine vessels, licenses and quotas and Clearwater’s investments in certain subsidiaries, accounts receivable, inventory, cash and cash equivalents subject to certain exceptions.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors outside of management’s control including, but not limited to, total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs that could cause actual results to differ materially from those expressed in the forward-looking statements. Clearwater does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances other than as required under applicable securities laws.

ABOUT CLEARWATER

Clearwater is one of North America’s largest vertically integrated seafood companies and the largest holder of shellfish licenses and quotas in Canada. It is recognized globally for its superior quality, food safety, diversity of species and reliable worldwide delivery of premium wild, eco-certified seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people and technological innovation as well as resource ownership and management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market and in sustainable seafood excellence.

SOURCE: Clearwater Seafoods Incorporated