Alaris Royalty Corp has invested $70 million in Amur Financial Group Inc, a Surrey, British Columbia-based originator, manager and servicer of home equity loans.
Alaris, a Canadian alternative equity firm, committed $50 million in exchange for debt and preferred units in Amur, which will result in an annualized cash distribution of $6.5 million.
Alaris also invested $20 million for a minority interest.
The deal’s proceeds were used for partial liquidity of existing shareholders.
Amur facilitates loans for customers looking to use home equity for debt consolidation, renovations and other priorities. Its operates through Alpine Credits, a mortgage originator, and fund management brands.
Alaris Royalty Corp. Invests CAD$70 Million in a new Canadian Partner
CALGARY, June 21, 2019 /CNW/ – Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX: AD) is pleased to announce that it has invested a total of $70,000,000 (the “Amur Investment”) in a new Canadian partner, Amur Financial Group Inc. (“Amur” or the “Company”) and a subsidiary thereof. The Amur Investment consists of a $50,000,000 contribution (the “Amur Contribution”) as well as an investment of $20,000,000 in exchange for a minority ownership of the common equity in Amur (the “Amur Common Equity”). The Amur Contribution results in an anticipated first year increase of approximately $0.18 cents and $0.06 cents per share of revenue and net cash from operations respectively. Based on Amur’s history of paying dividends on its common equity, Alaris expects to receive dividends on the Amur Common Equity, as cashflow permits. These dividend payments on the Amur Common Equity will add to the revenue and cash from operations improvements shown above.
Pursuant to the agreements (the “Amur Agreements”) among Alaris and Amur, Alaris made the $50,000,000 Amur Contribution in exchange for debt and preferred units in Amur. The Amur Contribution will result in an annualized cash distribution to Alaris of $6,500,000 (the “Amur Distribution”), a pre-tax yield of 13%. Commencing on January 1, 2021, the Amur Distribution will be adjusted annually based on the percentage change in gross revenue for the most recently completed fiscal year vs the prior fiscal year, subject to a collar of 6% (January 1, 2021 reset based on fiscal 2020 vs fiscal 2019). The proceeds from the Amur Investment were used for partial liquidity to existing Amur shareholders.
Based on Alaris’ review of Amur’s internal pro forma financial results for the most recent trailing twelve-month period in 2019, as well as the post-closing capital structure, management of Alaris believes that Amur would have an earnings coverage ratio between 2.0x and 2.5x, which gives effect to the Amur Investment and other changes to Amur’s capital structure and the Amur Distribution payable to Alaris. This does not include any dividends paid on the Amur Common Equity as those will be paid out with excess cash flow.
Following the Amur Investment, Alaris will have approximately $190 million drawn on its senior credit facility (the “Facility”) and $160 million available for investment purposes ($110 million available under the Facility and $50 million available on the accordion) while the total senior debt to EBITDA on a proforma basis is approximately 1.85x. Alaris estimates its run rate payout ratio to be approximately 88% following today’s announcement.
“Alaris is extremely pleased to have been selected by Amur as their equity partner. With a long track record of success, a young, committed management team that refused to give up control, consistent profitability, an immaculate balance sheet and a well-diversified, fee-based revenue stream, Amur provides everything that we look for in a partner. This also marks the first time that Alaris has invested in a partner not only for preferred shares but also common shares. Given the company’s consistent growth and their policy of paying out excess cash as common dividends, this was a very attractive opportunity for us. In addition to allowing us to be the successful bidder on this transaction, we believe that the inclusion of common shares will increase our total returns while still contributing consistent cash yield to our shareholders,” said Steve King, President and Chief Executive Officer, Alaris.
New Partner – Amur Financial
Amur was founded over 30 years ago and is one of Canada’s leading fully integrated independent originator, manager and servicer of home equity loans. Amur’s business model revolves around home equity loans to homeowners who are looking to use the equity in their homes to fund debt consolidation, home renovations or other uses. Amur has two main revenue streams, Mortgage Origination (Alpine Credits) and Investment Management. Amur originates loans under the Alpine Credits brand which was established in 1969 and has generated over $1.1 billion in home equity loans over the last five years. Success in origination has been driven by a distinctive sourcing model and innovative advertising campaigns. Mortgages originated by the Company are primarily funded directly by three Mortgage Investment Corporations (“MICs”) that Amur has exclusive relationships with. Amur is the investment manager for the managed MICs and the administrator for all sold mortgages.
Alpine, the largest source of income for Amur, carries minimal balance sheet risk as the mortgages that Alpine originates are underwritten directly by the MICs or third-party lenders. Alpine is diversified across Canada with primary focus on BC, Alberta, Ontario and recently Quebec. Alpine operates a very nimble structure with a focus on a virtual presence rather than the traditional bricks and mortar set up. This allows Alpine to shift advertising dollars quickly to different markets as dynamics change, which allows them to focus on markets that are robust while scaling back in markets that are dealing with potential and current headwinds.
“Our executive team spent a significant amount of time reviewing its recapitalization options. Almost immediately Alaris stood out as the best fit. With a focus on supporting our long-term growth aspirations, and not a quick exit, it was clear that Alaris’ investment model was designed specifically for companies like ours. We look forward to working with a great group of professionals and are proud to be a part of the Alaris group of companies,” said Kurt Wipp, Managing Director, Amur Financial.
ABOUT THE CORPORATION:
Alaris provides alternative financing to private companies (“Partners”) in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. 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.
For further information: Curtis Krawetz, Vice President, Investments and Investor Relations, Alaris Royalty Corp., P: (403) 221-7305, www.alarisroyalty.com