Alaris Royalty Corp. Invests US$17 Million in New Partner



/NOT FOR DISTRIBUTION IN THE UNITED STATES. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAW./

CALGARY, AB, June 16, 2020 /CNW/ - Alaris Royalty Corp. ("Alaris" or the "Corporation") (TSX: AD) is pleased to announce that it has invested a total of $17.0 million (CAD$23.1 million) (the "Carey Investment") into a new Partner, Carey Electric Contracting, LLC ("Carey").  The Carey Investment consists of a $16.1 million investment in preferred equity (the "Carey Contribution") as well as an investment of $0.9 million in exchange for a minority ownership of the common equity in Carey (the "Carey Common Equity"). The Carey Contribution results in an anticipated first year increase of approximately CAD$0.10 and CAD$0.04 per share of revenue and net cash from operations respectively. Based on Carey's history of paying dividends on its common equity, Alaris expects to receive dividends on the Carey Common Equity on an annual basis, as cashflow permits. All dollar values presented above and to follow are in US dollars unless otherwise noted. 

Pursuant to the agreements (the "Carey Agreements") among Alaris and Carey, Alaris made the $16.1 million Carey Contribution in exchange for preferred equity in Carey entitling Alaris to receive an initial annualized cash distribution of $2.4 million (the "Carey Distribution"), a pre-tax yield of 15%. Commencing on January 1, 2022, the Carey 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 5% (January 1, 2022 reset based on fiscal 2021 vs fiscal 2020). The proceeds from the Carey Investment were used to fully redeem certain existing Carey shareholders in full, provide a partial liquidity event for another shareholder and transfer equity to other members of the management team.

Based on Alaris' review of Carey's internal pro forma financial results for the most recent trailing twelve-month period in 2020, as well as the post-closing capital structure, management of Alaris believes that Carey would have an earnings coverage ratio between 1.5x and 2.0x, which gives effect to the Carey Investment and other changes to Carey's capital structure and the Carey Distribution payable to Alaris.

Construction, which includes electrical contracting, was deemed an essential service throughout the novel coronavirus disease 2019 ("COVID-19") pandemic and therefore Carey operated with limited restrictions during the state of Illinois lockdown. Carey's management, customers and operating partners have taken and continue to follow all necessary and required protocols to ensure the safety of their employees. As an essential service, Carey has been able to continue its consistent record of financial performance with year to date May 2020 volume exceeding the same period in 2019. Carey has also secured a number of new private and public projects over the past three months which has resulted in an increase in their backlog.

"It has been an absolute pleasure working with Tom Carey, Jerry Gillund and the rest of the Carey team.  Over the past 97 years, the Carey family has created an incredible culture with a focus on their people and customers while providing high quality service. Alaris is excited that we can provide a structure that facilitates the continuation of the Carey legacy," said Gregg Delcourt, Senior Vice President, Alaris.

"I'm pleased that our team has been able to identify and execute on a transaction with a company that has continued to excel during such a difficult economic environment. I believe that excellent opportunities will continue to present themselves coming out of this pandemic with high performing companies like Carey that do not want to give up control or all of the future upside. We also believe that North American infrastructure will continue to be a sector of strength for many years to come," said Steve King, President and Chief Executive Officer, Alaris.

Following the Carey Investment, Alaris will have approximately CAD$174 million drawn on its senior credit facility (the "Facility") and CAD$168 million available for investment purposes while the total senior debt to EBITDA on a proforma basis is approximately 1.7x.  Alaris intends to provide a general corporate update on June 22, 2020.

New Partner - Carey Electric

Founded in 1923, Carey Electric Contracting is a third-generation, family-owned, electrical contracting services company servicing the industrial, commercial, and residential markets. Services include power distribution, lighting, bucket truck services, trenching, underground locating, fire alarm services, generator testing and other specialized offerings.

Carey Electric was first established by Walter Carey in McHenry, Illinois as Carey Appliance. Carey Electric was launched and incorporated in 1958 as its own entity by founder Richard Carey, Walter's son. The company transitioned to its third generation under the leadership of Tom Carey in the late 1980s. Carey is one of the premier electrical contractors in the McHenry, Lake, Kane and Cook county markets in the suburban Chicagoland area just northwest of Chicago, Illinois. Carey's head office is located in McHenry, Illinois.

Carey Electric built its brand around its ability to complete complex projects on time and on budget. Carey's reputation built on hard work and honesty has led to long term relationships with some of the largest contracting firms in the area.  Carey's reputation of performing work on time and on budget makes them a preferred electrical contractor to a number of their long-term customers.

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.

NON-GAAP MEASURES:

Earnings Coverage Ratio refers to the Normalized EBITDA of a Partner divided by such Partner's sum of debt servicing (interest and principal), unfunded maintenance capital expenditures and distributions to Alaris.

EBITDA refers to net earnings (loss) of a Partner determined in accordance with IFRS, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense.

Normalized EBITDA refers to the EBITDA of a Partner excluding items that are non-recurring in nature and is calculated by adjusting for nonrecurring expenses and gains to EBITDA. Management deems non-recurring items to be unusual and/or infrequent items that its Partner incurs outside of its common day-to-day operations.

The terms "Earnings Coverage Ratio", "EBITDA" and "Normalized EBITDA" (the "Non-IFRS Measures") are not standard measures under IFRS.  Alaris' calculation of the Non-IFRS Measures may differ from those of other issuers and, therefore, should only be used in conjunction with the Corporation's annual audited financial statements, which are available under the Corporation's profile on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements, including forward-looking statements within the meaning of "safe harbor" provisions under applicable securities laws ("forward-looking statements"). Statements other than statements of historical fact contained in this news release may be forward-looking statements, including, without limitation, management's expectations, intentions and beliefs concerning: the impact of the Carey Investment (including the impact on revenues, distributions, total senior debt to EBITDA and net cash from operating activities); the Carey Distribution (including adjustments thereto); expectations for dividends on the Carey Common Equity; outstanding indebtedness on the Facility and the use of proceeds thereunder; future investment opportunities; Carey's earnings coverage ratio; and the impact of the ongoing COVID-19 pandemic on the operations of Carey. Many of these statements can be identified by words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof.  Any forward-looking statements herein which constitute a financial outlook or future-oriented financial information (including the impact on revenues, net cash from operating activities, and Carey's ECR) were approved by management as of the date hereof and have been included to provide an understanding of Alaris' financial performance and are subject to the same risks and assumptions disclosed herein. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur.

By their nature, forward-looking statements require Alaris to make assumptions and are subject to inherent risks and uncertainties. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect Alaris' business and that of its Partners (including, without limitation, the ongoing impact of the COVID-19) are material factors considered by Alaris management when setting the outlook for Alaris.  Key assumptions include, but are not limited to, assumptions that: the Canadian and U.S. economies will begin to recover from the ongoing economic downturn created by the response to COVID-19 within the next twelve months; interest rates will not rise in a material way over the next 12 to 24 months, that those Alaris Partners detrimentally affected by COVID-19 will recover from the pandemic's impact and return to their current operating environments; following a recovery from the COVID-19 impact, the businesses of the majority of our Partners will continue to grow; more private companies will require access to alternative sources of capital; and that Alaris will have the ability to raise required equity and/or debt financing on acceptable terms.  Management of Alaris has also assumed that that the Canadian and U.S. dollar trading pair will remain in a range of approximately plus or minus 15% of the current rate over the next 6 months.  In determining expectations for economic growth, management of Alaris primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies as well as prevailing economic conditions at the time of such determinations.

Forward-looking statements are subject to risks, uncertainties and assumptions and should not be read as guarantees or assurances of future performance. The actual results of the Corporation and the Partners could materially differ from those anticipated in the forward-looking statements contained herein as a result of certain risk factors, including, but not limited to: how many Partners will be impacted by COVID-19 pandemic and the extent thereof; the ability of our Partners and, correspondingly, Alaris to meet performance expectations for 2020 as a result of COVID-19; any change in Alaris' senior lenders outlook for the Corporation; management's ability to assess and mitigate the impacts of COVID-19; the dependence of Alaris on the Partners; reliance on key personnel; general economic conditions, including the ongoing impact of COVID-19 on the Canadian, U.S. and global economies; failure to complete or realize the anticipated benefit of Alaris' financing arrangements with the Partners; a failure of the Corporation or any Partners to obtain required regulatory approvals on a timely basis or at all; changes in legislation and regulations and the interpretations thereof; risks relating to the Partners and their businesses, including, without limitation, a material change in the operations of a Partner or the industries they operate in; inability to close additional Partner contributions in a timely fashion, or at all; a change in the ability of the Partners to continue to pay Alaris' distributions; a change in the unaudited information provided to the Corporation; a failure of a Partner (or Partners) to realize  on their anticipated growth strategies; a failure to achieve resolutions for outstanding issues with Partners on terms materially in line with management's expectations or at all; and a failure to realize the benefits of any concessions or relief measures provided by Alaris to any Partner or to successfully execute an exit strategy for a Partner where desired. Additional risks that may cause actual results to vary from those indicated are discussed under the heading "Risk Factors" and "Forward Looking Statements" in the Corporation's Management Discussion and Analysis for the year ended December 31, 2019, which is filed under the Corporation's profile at www.sedar.com and on its website at www.alarisroyalty.com.

Accordingly, readers are cautioned not to place undue reliance on any forward-looking information contained in this news release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Statements containing forward-looking information reflect management's current beliefs and assumptions based on information in its possession on the date of this news release. Although management believes that the assumptions reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations will prove to be correct.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release and Alaris does not undertake or assume any obligation to update or revise such statements to reflect new events or circumstances except as expressly required by applicable securities legislation. 

Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Alaris Royalty Corp.


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