Superior Plus Corp, a Toronto-based energy distribution and specialty chemicals business, has secured a US$260 million (C$350 million) equity investment from Brookfield Asset Management. The proceeds will support acquisitions and the reduction of the company’s leverage.
TORONTO–(BUSINESS WIRE)–Superior Plus Corp. (“Superior”) (TSX:SPB) today announced that Brookfield Asset Management Inc. (“Brookfield”), through its Special Investments program, agreed to make a US$260 million (approximately C$350 million) equity investment (the “Brookfield Investment”) in Superior through the purchase of newly created perpetual exchangeable Series 1 Preferred Stock (the “Preferred Stock”) of a U.S. subsidiary of Superior (the “Superior Subsidiary”) on a private placement basis.
The Brookfield Investment is expected to provide several immediate benefits to Superior, while optimally positioning Superior for future growth.
Increased Ability to Pursue Accretive Acquisitions in the Consolidating U.S. Propane Market – Enhances Superior’s ability to actively pursue high return acquisitions at valuations that have become more attractive in the current market environment.
Immediate Reduction in Leverage – Significantly strengthens Superior’s balance sheet with an immediate reduction in the Total Debt to Adjusted EBITDA Leverage Ratio to approximately 3.2x based on the trailing twelve months Adjusted EBITDA as of April 30, 2020, placing Superior in its long term targeted leverage range of 3.0x to 3.5x.
Establishes Long-Term Strategic Shareholder – The addition of a highly respected strategic partner in Brookfield, with significant financial strength and tremendous transaction expertise across its global investment team, positions Superior to pursue a greater number and scale of acquisition opportunities.
“Acquisitions are becoming increasingly attractive as fewer competing buyers are pursuing growth at the current time”, said Luc Desjardins, President and Chief Executive Officer of Superior. “We are excited to partner with Brookfield on the execution of our strategy. Our differentiated business platform, combined with the improved financial strength and enhanced liquidity resulting from the Brookfield Investment, positions Superior to become the leading consolidator in the U.S. propane industry, which we view as a highly opportunistic environment.”
“We are pleased to partner with Superior as they continue to execute on their proven strategy of accretive tuck-ins and larger-scale acquisitions”, said David Levenson, Managing Partner, Brookfield. “We believe Superior is well-positioned to benefit from the ongoing consolidation of the North American propane market and look forward to supporting the business as it pursues growth opportunities.”
Brookfield Investment Summary
The Brookfield Investment of US$260 million (approximately C$350 million) of Preferred Stock, which will be made by an affiliate of Brookfield (the “Investor”), will initially pay a monthly cash dividend of 7.25% per annum through to the end of Superior’s second fiscal quarter in 2027.
The shares of Preferred Stock may be exchanged, at Brookfield’s option, into common shares of Superior (“Common Shares”) at a Canadian dollar equivalent exchange price of $11.63 per Common Share, representing a 24% premium to the 20-day volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (the “TSX”) as of June 5, 2020. On an as-exchanged basis, the Brookfield Investment currently represents approximately 15% of the pro forma fully diluted outstanding Common Shares. The exchange price of the Preferred Stock will be subject to adjustment from time to time in accordance with the terms of the Preferred Stock.
Holders of Preferred Stock will be entitled to vote on an as-exchanged basis for all matters on which holders of Common Shares vote, and to the greatest extent possible, will vote with the holders of Common Shares as a single class.
Superior is pleased to be welcoming Angelo Rufino, Managing Partner of Brookfield, who will join Superior’s board of directors (the “Board”) on the closing date of the Brookfield Investment as the Investor’s nominee. The Investor will maintain its right to nominate one director to the Board, so long as its ownership on an as-exchanged basis (calculated in accordance with the agreement terms) is greater than 7.5% of the outstanding Common Shares.
In connection with the Brookfield Investment, Superior and the Superior Subsidiary will enter into an investor rights agreement with the Investor providing for, among other things, customary registration rights, participation rights, certain standstill and transfer restrictions and certain director nomination rights.
Additional information regarding the Brookfield Investment and the terms of the Preferred Stock will be included in a material change report to be filed by Superior on www.sedar.com. This press release is only a summary of certain principal terms of the Brookfield Investment and is qualified in its entirety by reference to the more detailed information contained in the material change report.
The closing date is expected to occur by the end of July 2020, subject to receipt of TSX approval and other necessary regulatory approvals.
CIBC Capital Markets acted as exclusive financial advisor and private placement agent and Torys LLP acted as legal advisor to Superior.
Suspension of Dividend Reinvestment Plan
Superior will suspend the active operation of its Dividend Reinvestment Plan and Optional Share Purchase Program (“DRIP”) after payment of the May dividend, payable on June 15, 2020. Shareholders participating in the DRIP will begin receiving cash dividends on the expected July 15, 2020 payment date. Superior’s DRIP program will remain in place should Superior elect to reactivate the DRIP, subject to regulatory approval, at a future date.
With the Brookfield investment, Superior now anticipates being within its long-term Total Debt to Adjusted EBITDA targeted leverage range of 3.0x to 3.5x at December 31, 2020.
Superior consists of two primary operating businesses: Energy Distribution includes the distribution of propane and distillates, and supply portfolio management; and Specialty Chemicals includes the production and sale of specialty chemicals.
Non-GAAP Financial Measures
In this press release, Superior has used the following term that are not defined by International Financial Reporting Standards (“Non-GAAP Financial Measures”) but are used by management to evaluate the performance of Superior and its business: Total Debt to Adjusted EBITDA Leverage Ratio and Adjusted EBITDA. These measures may also be used by investors, financial institutions and credit rating agencies to assess Superior’s performance and ability to service debt. Non-GAAP financial measures do not have standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Securities regulations require that Non-GAAP financial measures are clearly defined, qualified and reconciled to their most comparable GAAP financial measures. Except as otherwise indicated, these Non-GAAP financial measures are calculated and disclosed on a consistent basis from period to period. Specific items may only be relevant in certain periods. See “Non-GAAP Financial Measures” in our first quarter MD&A for a discussion of Non-GAAP financial measures and certain reconciliations to GAAP financial measures.
The intent of Non-GAAP financial measures is to provide additional useful information to investors and analysts, and the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Non-GAAP financial measures differently.
Investors should be cautioned that Adjusted EBITDA should not be construed as an alternative to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior’s performance. Non-GAAP financial measures are identified and defined as follows:
Adjusted EBITDA represents earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, transaction and other costs, and unrealized gains (losses) on derivative financial instruments. Adjusted EBITDA is used by Superior and investors to assess its consolidated results and ability to service debt.
Total Debt to Adjusted EBITDA Leverage Ratio and Pro Forma Adjusted EBITDA
Adjusted EBITDA for the Total Debt to Adjusted EBITDA leverage ratio is defined as Adjusted EBITDA calculated on a 12-month trailing basis giving pro forma effect to acquisitions and dispositions adjusted to the first day of the calculation period (“Pro Forma Adjusted EBITDA”). Pro Forma Adjusted EBITDA is used by Superior to calculate its Total Debt to Adjusted EBITDA leverage ratio.
To calculate the Total Debt to Adjusted EBITDA leverage ratio divide the sum of borrowings before deferred financing fees and lease liabilities by Pro Forma Adjusted EBITDA. Total Debt to Adjusted EBITDA leverage ratio is used by Superior and investors to assess its ability to service debt.