Alaris Equity Partners invests $66m in Brown & Settle

Alaris Equity Partners has made a $66 million investment in Brown & Settle, a Bristow, Virginia-based large-parcel site development contractor.

Alaris Equity Partners has made a $66 million investment in Brown & Settle, a Bristow, Virginia-based large-parcel site development contractor. The deal combined subordinated debt and preferred equity as well as minority common equity. Based in Calgary, Alaris is an alternative equity firm.

PRESS RELEASE

CALGARY, AB, Feb. 9, 2021
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.