Clearwater completes substantial improvements to capital structure

HALIFAX, June 6, 2012 /CNW/ – (TSX: CLR CLR.DB.B CLR.DB.A):

Closes approximately $265 million in new debt facilities.
Redeems $43.4 million aggregate principal amount of 10.5% convertible unsecured debentures
New capital structure sets stage to execute growth plan
Reduces overall cost of capital and annual interest costs
Significantly strengthens liquidity
Today, Clearwater Seafoods Incorporated (“Clearwater”) reported that, it has successfully completed a series of capital market transactions that will substantially improve its capital structure.

These transactions include the following changes to its debt structure:

New long term credit facilities including a Canadian $65 million Asset Based Revolving Credit Facility (“ABL”), Canadian $75 million Term Loan A facility and US $125 million Term Loan B facility.
The payout of several existing debt facilities including:
(i) the redemption of Canadian $43.4 million of 10.5% convertible debentures, (“Debentures”) as of July 10, 2012 (the “Redemption Price”), upon payment of a redemption amount of $1,002.88 for each $1,000 principal amount of Debentures plus accrued and unpaid interest thereon to but excluding the Redemption Date, being $2.88 per $1,000 principal amount;
(ii) US $54.5 million of 12% second lien debt;
(iii) Canadian $74.2 million in existing senior term notes with the remaining funds, after payment of expenses to be used to pay down the balance on the existing asset based revolving credit facility.
GE Capital Markets, BMO Capital Markets and Rabobank’s Nederland Canadian Branch acted as Joint Lead Arrangers and Joint Bookrunners for the new credit facilities with GE Capital in Canada, BMO and Rabobank taking significant positions in the new credit facilities.

Holders of the Debentures may elect to convert the Debentures into common shares of the Corporation (“Common Shares”) at any time prior to 5:00 p.m. (Eastern) on July 9, 2012 at a conversion price of $3.25 per Common Share.

Ian Smith, Clearwater’s CEO commented “Consistent with our goal of increasing shareholder value, these financings build on our relationship with lenders to reduce our interest costs by about $4.6 million annually, strengthen our liquidity and provide us with the capital structure necessary to execute our growth plans while further reducing overall leverage.”

Mr. Smith continued “The Company’s continuing strong earnings momentum as well as the $453 million independent valuation of our quotas by TriNav Fisheries Consultants Inc. combined with the positive ratings issued by Moody’s and Standard and Poors all contributed to our ability to complete this transaction on such favourable terms in the United States and Canadian credit markets.”

Ellis Gaston, Managing Director of Corporate Finance Canada at GE Capital, added “We are pleased to build on our long relationship with Clearwater and contribute, using our food industry expertise and capital markets resources, to this transaction.”

OVERVIEW OF BENEFITS OF THE NEW CAPITAL STRUCTURE

The benefits of these improvements to the capital structure are threefold:

1. Further strengthening of Clearwater’s liquidity position

At closing there was in excess of $20 million in availability on the asset based revolving credit facility which, when combined with expected strong cash flows in the last half of the year, is expected to result in an ongoing strong liquidity position.

The low amortization rate on the Term Loan A and B facilities and lower interest rates on the new debt facilities reduces Clearwater’s annual required payments to service its debt, thus supporting the generation of stronger free cash flows and liquidity.

The new facilities contain accordion features that will allow Clearwater to expand the facilities, subject to satisfaction of certain conditions. The additional funding will provide Clearwater with the ability to pay out future maturing debt facilities, including the 7.25% convertible debentures maturing in 2014, prior to or at their maturity, maintaining strong liquidity on an ongoing basis.

2. Reduction in Clearwater’s cost of capital

The new term loan facilities bear interest at BA’s + 4.5% for the Term Loan A facility and US Libor + 5.5% (with a 1.25% Libor Floor) for the Term Loan B Facility. The funds from these new facilities will be used to repay US $54.5 million of 12% second lien debt and Canadian $43.4 million of 10.5% convertible debentures and Canadian $74.2 million in existing senior term debt, reducing the overall cost of servicing Clearwater’s debt.

As a result, Clearwater’s weighted average cost of debt is expected to decrease by approximately 2% per annum yielding a reduction of annual interest costs that, based on the debt facilities outstanding at close, approximates $4.6 million per annum.

3. Provides a solid capital structure to allow management to continue to build shareholder value

The new capital structure has a number of features that will support the execution of management’s five-year growth plan for the business including:

Ability to fund capital expenditures required to maintain and grow the business.
Ability to shield the business from short-term fluctuations in exchange rates and interest rates through hedging facilities.
The ability to use excess free cash flows to pay down debt facilities, through the application of excess cash flow sweep provisions, supporting Clearwater’s goals of reducing leverage to 3.0X EBITDA and generating increased levels of free cash flows, through reduced interest costs.
DETAILS OF NEW DEBT FACILITIES

Asset based loan – Based on up to 90% of eligible receivables and up to 75% of eligible inventory to a maximum of Canadian $65 million. Can be denominated in both Canadian and US dollars. Matures in June 2017. Bears interest at BA’s plus 2.5%. Secured by a first charge on accounts receivable, inventory, cash and cash equivalents subject to certain exceptions, as well as a second charge on marine vessels, licenses and quotas and Clearwater’s investments in certain subsidiaries. Contains an accordion provision that, subject to certain conditions, allows Clearwater to expand the facility by up to Canadian $20 million.

Term Loan A – Canadian $75 million, repayable in quarterly instalments of $468,750 to June 2015, $1,406,250 from September 2015 to June 2016 and $2,343,750 from September 2016 to March 2017 with the balance due at maturity in June 2017. Bears interest payable monthly at an annual rate of BA’s plus 4.5%. Contains an accordion provision that, subject to satisfaction of certain conditions, allows Clearwater to expand the facility by up to Canadian $25 million.

Term Loan B – US$125 million, repayable in quarterly instalments of 0.25% of the initial loan amount with the balance due at maturity in June 2018. Bears interest payable monthly at an annual rate of US Libor plus 5.5% with a Libor floor of 1.25%. Contains an accordion provision that, subject to satisfaction of certain conditions, allows Clearwater to expand the facility by up to US $60 million, without further approvals from existing lenders.

Both the Term Loan A and Term Loan B facilities are secured by a first charge on marine vessels, licenses and quotas and Clearwater’s investments in certain subsidiaries and a second charge on accounts receivable, inventory, cash and cash equivalents subject to certain exceptions.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This news release may contain forward-looking statements, including, without limitation, with respect to the refinancing, cash flows, liquidity and cost of capital. Such statements involve known and unknown risks, uncertainties, and other factors outside management’s control including, but not limited to, total allowable catch levels, selling prices, weather, exchange rates, interest rates, fuel and other input costs that could cause actual results to differ materially from those expressed in the forward-looking statements. Clearwater does not undertake any obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances other than as required under applicable securities laws.

ABOUT CLEARWATER

Clearwater is one of North America’s largest vertically integrated seafood companies and the largest holder of shellfish licenses and quotas in Canada. It is recognized globally for its superior quality, food safety, diversity of species and reliable worldwide delivery of premium wild, eco-certified seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people and technological innovation as well as resource ownership and management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market and in sustainable seafood excellence.