(Note: All dollar amounts Canadian dollars unless otherwise noted)
Toronto, Ontario (January 7, 2014) – Chemtrade Logistics Income Fund (TSX: CHE.UN) (“Chemtrade” or the “Fund”) announced today that it has entered into an agreement with a syndicate of underwriters led by BMO Capital Markets and Scotiabank (the “Joint Bookrunners”), under which the underwriters have agreed to buy on a bought deal basis 15,800,000 subscription receipts (the “Subscription Receipts”), at a price of $19.00 per Subscription Receipt (the “Offering Price”) for gross proceeds of $300.2 million (the “Offering”). The Fund has granted the underwriters an option, exercisable at the offering price for a period of 30 days following the closing of the Offering, to purchase up to an additional 15% of the Offering to cover over-allotments, if any. The Offering is expected to close on or about January 23, 2014 and is subject to Chemtrade receiving all necessary regulatory approvals.
The net proceeds of the Offering will be used to partially fund Chemtrade’s previously announced acquisition (the “Transaction”) of General Chemical Holding Company (“General Chemical”), which is expected to close by late January, 2014.
On December 4, 2013, Chemtrade announced that it had entered into a definitive agreement to acquire General Chemical. Chemtrade will pay cash consideration of US$860 million (the “Purchase Price”), subject to certain adjustments described herein. The Purchase Price is subject to a working capital adjustment. In addition, the Purchase Price will be adjusted based on a formula for any variance between the one day volume weighted average unit price of Chemtrade for January 8, 2014 (the “Target Price”) and the reference price of $17.00 per unit (the “Reference Price”). If the Target Price is higher than the Reference Price, the Purchase Price will be increased, and if the Target Price is less than the Reference Price, the Purchase Price will be reduced. For every $0.50 difference between the Target Price and the Reference Price, the Purchase Price will be adjusted by approximately 1%. Assuming the Target Price is equal to the Offering Price and there is no working capital adjustment, the Purchase Price will be equal to approximately US$893 million.
The Transaction is structured as a merger in accordance with the laws of the State of Delaware pursuant to which Chemtrade will acquire all of the outstanding shares of ASP GT Holding Corp., General Chemical’s parent company, from certain funds controlled by American Securities LLC, a private equity firm, and certain minority shareholders. The applicable notification and waiting period requirements of the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, a condition to the closing of the Transaction, have been satisfied. The Transaction remains subject to other customary closing conditions.
The acquisition of General Chemical adds significant size, scale and scope to Chemtrade’s existing product and service platform. General Chemical has strong portfolio alignment with Chemtrade’s current business, enhancing its existing sulphuric acid geographic footprint and greatly expanding the water treatment business so it now extends across most of North America. The acquisition of General Chemical also moves Chemtrade into new but related product categories and end markets, and positions Chemtrade to capitalize on new growth opportunities.
General Chemical is a North American manufacturer of a broad portfolio of inorganic chemical products. The business operates 45 facilities across the United States and Canada, and employs approximately 540 people. General Chemical serves a diverse customer base in a variety of end markets including municipal water treatment, general industrial production, pulp and paper, food and beverage, agriculture, and pharmaceuticals. No single customer accounted for more than 8% of total 2012 revenue.
The Transaction is approximately 15% accretive to Chemtrade’s DCPU on a pro forma basis for the twelve month period ended December 31, 2012, excluding synergies. Chemtrade’s pro forma DCPU would have been approximately $2.38 for the same period, excluding synergies. Chemtrade intends to maintain its current annual distribution rate of $1.20 per unit. The Transaction is expected to deliver operating cost synergies of US$10 million through reduction of duplicate services. The synergies are expected to be fully realized within one year from the closing of the Transaction. On a combined basis, the pro forma business would have generated revenue of approximately $1,305 million and EBITDA (before synergies) of approximately $246 million for the twelve month period ended December 31, 2012.
The gross proceeds from the sale of Subscription Receipts will be held in escrow pending confirmation by the Fund to the underwriters and the escrow agent that the conditions precedent to completing the Transaction contained in the merger agreement have been satisfied (the “Escrow Release Condition”).
If the Escrow Release Condition is satisfied by 5:00 p.m. (Eastern Standard Time) on the Termination Date (as defined herein), holders of Subscription Receipts will be entitled to receive, without payment of additional consideration or further action, one unit of Chemtrade for each Subscription Receipt plus, if applicable, payment equal to the aggregate amount per unit of distributions declared by the Fund, if any, for which record dates have occurred during the period from the date of the closing of the Offering to the date immediately preceding the satisfaction of the Escrow Release Condition. If (i) the Escrow Release Condition is not satisfied by 5:00 p.m. (Eastern Standard Time) on March 14, 2014, (ii) the Transaction is terminated at any earlier time, or (iii) the Fund advises the Joint Bookrunners or announces to the public that it does not intend to proceed with the Transaction (the date upon which the first of any such event occurs, being the “Termination Date”), holders of the Subscription Receipts will be entitled to receive an amount equal to the full subscription price thereof plus their pro rata share of earned interest in the escrowed funds.
The Subscription Receipts will be offered by way of a short form prospectus in all of the provinces and territories of Canada and may also be offered to qualified institutional buyers pursuant to Rule 144A in the United States.
The securities offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Financing of the Transaction
Chemtrade intends to finance the Purchase Price through a combination of: (i) US$1.0 billion syndicated senior secured credit facilities consisting of a US$600 million term loan and a US$400 million revolver with a US$150 million optional accordion; and (ii) the Offering. At closing of the Transaction, the term loan is expected to be fully drawn and the revolver is expected to be partially drawn, primarily for the refinancing of Chemtrade’s existing credit facility. At closing of the Transaction, Chemtrade expects to have approximately US$830 million drawn on its senior secured credit facilities and total debt of approximately $1.0 billion, including convertible debentures, pro forma as of September 30, 2013. If the Offering is not completed prior to closing of the Transaction, BMO Capital Markets and The Bank of Nova Scotia have provided Chemtrade with fully underwritten credit facilities for the full Purchase Price plus transaction expenses and refinancing of Chemtrade’s existing credit facility.
U.S. Federal Income Tax Election
Chemtrade intends to file an election to change its entity classification from a partnership to an association taxable as a corporation for United States federal income tax purposes, effective as of January 15, 2014. Unitholders should contact their tax advisors to determine the impact, if any, of this change to them having regard to their particular circumstances.
Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world. Chemtrade is one of North America’s largest suppliers of sulphuric acid, liquid sulphur dioxide and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is also a leading regional supplier of sulphur, sodium chlorate, phosphorus pentasulphide, zinc oxide, and water treatment chemicals. Chemtrade also provides industrial services such as processing hydrogen sulphide and other by-products and waste streams.
This news release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of operations from management’s perspective. Accordingly, non-IFRS measures should never be considered in isolation nor as a substitute for analysis of financial information reported under IFRS. Management presents non-IFRS measures, specifically EBITDA and Distributable Cash after Maintenance Capital Expenditures per unit (“DCPU”), as it believes these non-IFRS measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to provide a supplemental measure of operating performance and thus highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures. The definitions of the non-IFRS measures contained in this release are as follows:
EBITDA is calculated as net earnings before any deduction for net finance costs, taxes, depreciation and amortization and other charges such as unrealized foreign exchange gains and losses.
Distributable Cash after Maintenance Capital Expenditures per unit is Distributable Cash after Maintenance Capital Expenditures divided by the number of Chemtrade’s equity units outstanding. Distributable Cash after Maintenance Capital Expenditures is cash flow from operating activities adjusted by removing changes in non-cash working capital and other items, including contributions to frozen defined benefit pension plans and other post-employment benefit plans and by deducting maintenance capital expenditures. Maintenance capital expenditures are all capital expenditures other than capital expenditures that are: (a) pre-funded, usually as part of a significant acquisition and related financing; (b) considered to expand the capacity of Chemtrade’s operations; (c) significant environmental capital expenditures that are considered to be non-recurring; or (d) capital expenditures to be reimbursed by a third party.
Caution Regarding Forward-Looking Information
Certain statements contained in this news release constitute forward-looking information within the meaning of certain securities laws, including the Securities Act (Ontario). Forward-looking information can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking information in this news release include statements respecting certain future expectations about: the Fund’s ability to close the Offering, its timing and the use to be made of its proceeds; the Fund’s ability to close the acquisition transaction and the amount of the Purchase Price after adjustment; how the acquisition is to be financed; the ability of the Fund to achieve certain synergies, their timing and amount; the ability of the Fund to maintain its distribution rate and the amount of distributions. Forward-looking statements in this news release describe the expectations of the Fund and its subsidiaries as of the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including without limitation the risks and uncertainties detailed under the “Risk Factors” section of the Fund’s latest Annual Information Form and the “Risks and Uncertainties” section of the Fund’s most recent Management’s Discussion & Analysis.
Although the Fund believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon. With respect to the forward-looking statements contained in this news release, the Fund has made assumptions regarding: there being no significant disruptions affecting the operations of the Fund and its subsidiaries, whether due to labour disruptions, supply disruptions, power disruptions, transportation disruptions, damage to equipment or otherwise; the ability of the Fund to obtain products, raw materials, equipment, transportation, services and supplies in a timely manner to carry out its activities and at prices consistent with current levels or in line with the Fund’s expectations; the timely receipt of required regulatory approvals; the cost of regulatory and environmental compliance being consistent with current levels or in line with the Fund’s expectations; the ability of the Fund to successfully access tax losses and tax attributes; the ability of the Fund to obtain financing on acceptable terms; currency, exchange and interest rates being consistent with current levels or in line with the Fund’s expectations; and global economic performance.
The Fund disclaims any intention or obligation to update any forward-looking information even if new information becomes available, as a result of future events or for any other reason, except as required by law. The forward-looking information contained herein are expressly qualified in their entirety by this cautionary statement.
Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at www.sedar.com.
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For further information:
President & CEO
Tel: (416) 496-4176
Vice President, Finance & CFO
Tel: (416) 496-4177