Swiss Water Decaffeinated Coffee completed the expansion of its credit facilities with its existing senior lenders, resulting in $33.25 million of incremental capital availability, consisting of $21.25 million of expanded revolving credit capacity and $12 million of incremental senior term financing.
The increased revolving credit capacity is being made available for working capital, particularly in light of materially increased sales volumes and elevated coffee prices, and the increased term financing will fund the completion of the company’s second production line in Delta, British Columbia, anticipated to be operating commercially in the third quarter of 2023.
The expanded financing package involves CIBC, Business Development Bank of Canada, Farm Credit Canada and Mill Road Capital II, all of the company’s current senior lenders.
“We would like to thank our lending partners for their support.” Frank Dennis, chief executive of the company, said. “Not only does this important milestone solidify our capital plan for our immediate needs, but it is a statement of support for our company, and confidence in our team’s ability to continue to grow our business as the market continues to embrace our chemical-free decaffeinated coffee.”
The incremental funds available under the incremental senior term financing, together with the Company’s existing available credit and projected internally generated cash flow are anticipated to be sufficient to fund the completion of the Delta 2 production line by the third quarter of 2023. As previously reported, the impacts of global macroeconomic pressures, including inflation, trades disruptions, and supply chain issues, became more acute in 2022 and caused the company to reassess the projected construction costs for Delta 2. The company now considers 10% of the $45 million cost estimate to be an appropriate risk factor and that this risk can be adequately addressed with the incremental senior term financing secured.
The following is a descriptive summary of the material terms of the amendments, which pursuant to the rules of the Toronto Stock Exchange are anticipated to become effective 10 business days after the date of this press release:
Expanded Senior Term Loan. The company has entered into an amendment to the existing senior debt facility with the company’s two senior lenders, Business Development Bank of Canada and Farm Credit Canada, which will provide the company with up to an additional $12 million of senior debt financing at a favorable payment, interest rate and amortization schedule by increasing the senior debt facility to $57 million from the current $45 million. The incremental funds available under the Amended senior facility, together with the company’s existing available credit and projected internally generated cash flow are anticipated to be sufficient to fund the completion of the Delta 2 production line by the third quarter of 2023.
Expanded Revolving Credit Facility. The company has entered into a renewal and amendment to the existing revolving credit facility with CIBC which provides the company an additional $21.25 million of senior debt financing based on a borrowing base calculation by increasing the revolving credit facility to $51.25 million from the current $30 million. The amended revolving facility will allow the company to more efficiently finance any working capital requirements due to increases in sales volumes and coffee prices in the future.
Amended Debenture. The terms of the company’s existing $15 million subordinated debenture held by Mill Road include a restrictive covenant that limits the amount of indebtedness ranking senior to the Debenture. In order to permit the company to access the increased funds available under the amended senior facility and amended revolving facility, the company also announced that it has entered into an amended and restated subordinated debenture and an amended and restated warrant with Mill Road.
The terms of the amended debenture modify the restrictive covenant to increase the total combined senior debt restriction from a maximum of $75 million to a maximum of $123.25 million. In return the amended debenture grants to Mill Road a security interest subordinate to the amended senior debt facilities, consent rights on any new issue of pari passu debt and a covenant regarding fixed charge coverage ratios equivalent to that under the amended revolving facility. The amended debenture provides company with the right to pre-pay the amended debenture at any time prior to maturity.
Amended Warrant. The amended warrant extends the exercise period of the warrants presently held by Mill Road to April 30, 2026 from Oct. 31, 2024 and provides for a cashless exercise feature. There is no change to the number of shares issuable under the amended warrant (2.25 million shares, representing 24.9% of the current issued and outstanding shares) or the exercise price of the Amended Warrant ($3.33 per share, which is a premium of $0.69 and 23.8% over the current market price of the shares, based on the five day volume weighted average price of the shares). Certain existing rights of Mill Road regarding the nomination of a director and pre-emptive rights in respect of issuances of shares set out in ancillary agreements are now reflected in the amended warrant itself. The amended warrant was negotiated at arm’s length with Mill Road.
The board of directors determined that entering into the Amended senior facility and amended revolving facility in combination with the amended debenture and the amended warrant required to access the increased debt financing is in the best interests of the company.