Founders Advantage Capital entered into an agreement with Sagard to amend its $42 million credit facility.
Founders also suspended its quarterly dividend of $0.0125 per share to provide the corporation with more flexibility to pay down debt and allow certain investees to retain more cash to take advantage of growth opportunities.
The amendment will allow Founders to repay debt at par with all excess free cash-flow and enable the company to repay the Sagard facility from available free cash flow without having to pay any make-whole amounts which are currently required under the Sagard facility.
The initial dividend policy was adopted in November, 2016 and the corporation has paid eight consecutive quarterly dividends of $0.0125 per share and has returned $0.10 per share to shareholders during that period. However, when the dividend policy was adopted, the capital markets for small-cap diversified issuers was more robust and the corporation’s business plan was to raise equity and complete multiple acquisitions per year.
Founders remains focused on further growing and optimizing its four existing investments. In particular, it expects Dominion Lending Centres to complete one or more add-on investments in 2019, while Club 16 Trevor Linden Fitness will open a new club in Langley, BC in Q3/2019. As such, the corporation anticipates retaining more cash in its investee entities to enhance the growth of the overall portfolio.
In addition to focusing on the growth of their investee businesses, Founders would also like to de-lever and pay down their existing corporate debt from available excess free cash flow. As the total cost of capital on the Sagard facility is currently in excess of 11%, Founders would like to reduce its debt burden and related interest expense. In addition to providing the corporation with the ability to repay debt with no penalty from excess cash flow, the amending agreement also provides the corporation with more flexibility under certain financial covenants within the Sagard facility.
James Bell, Founders president and CEO, commented, “While we understand that cutting a dividend is not normally viewed positively by market participants, we believe using our excess free cash flow to pay down our corporate debt and further grow our investees will maximize shareholder value over the long-term. We believe in the strength of our four businesses and are committed to making good business decisions today in an effort to maximize shareholder value over the longer term.”
In consideration for the amendments, the corporation has agreed to pay Sagard a cash fee of 1.5% of the principal loan balance and reprice its existing 2,078,568 lender warrants to $1.4375 per share (half of which were previously exercisable at $3.508 per share and half were exercisable at $3.965 per share).
