NFI Group, an independent bus and coach manufacturer, is working to complete a comprehensive refinancing plan to improve financial flexibility and strengthen its balance sheet. Under the proposed plan, NFI will amend its existing senior secured credit facilities, extend its senior unsecured debt facilities with the Government of Manitoba and Export Development Canada (EDC), and raise additional funds through the sale of new common shares and a second lien debt financing.
Amendments to the Company’s Credit Facilities
NFI has received confirmation of credit approval from its banking partners for proposed amendments to the company’s existing North American senior secured credit facility and its senior secured UK credit facility.
The Bank of Nova Scotia is the administrative agent for the North American facility, and The Bank of Nova Scotia, BMO Capital Markets and National Bank Financial are the joint bookrunners. The North American facility syndicate also includes the Canadian Imperial Bank of Commerce; Bank of America, Canada Branch; Wells Fargo Bank, Canadian Branch; TD Bank; HSBC Bank Canada; Export Development Canada; and ICICI Bank Canada. ATB Financial is expected to join the North American facility syndicate in replacement of MUFG Bank, Canada Branch, upon execution of the amended agreements and have also confirmed their credit approval.
For the UK facility, HSBC UK is acting as administrative agent and HSBC UK and the Bank of America (Canada Branch) are the two co-lenders and mandated lead arrangers.
Details of the proposed amendments to the secured facilities include the following:
- The $1 billion revolving North American facility will convert to a $400 million first lien term loan and a $361 million first lien revolving credit facility (total combined borrowing capacity of $761 million) and the maturity date will be extended from Aug. 2, 2024, to April 30, 2026.
- The £40 million ($50 million) revolving UK facility will convert to a £16 million ($20 million) term loan and a £15 million ($18.7 million) revolving credit facility (total combined borrowing capacity of £31 million [$38.7 million]), and the maturity date will be extended from June 30, 2023, to April 30, 2026.
- The first lien security interest granted to the lenders under the secured facilities will cover all present and future assets of NFI and its subsidiaries (including mortgages on select owned manufacturing facilities).
- New financial covenants will be in place during the term of the secured facilities.
The amendments to the secured facilities are subject to negotiation of binding documentation and several precedent conditions, including the planned equity sale and second lien debt financing described below. It is possible that certain details relating to the secured facilities described herein could change as the documentation relating to those facilities are finalized.
The Government of Manitoba and EDC also both confirmed their intention to extend the maturity of their respective C$50 million ($37 million) and $50 million senior unsecured debt facilities to April 30, 2026. EDC also made available a $100 million guarantee facility to support NFI’s surety and performance bonding requirements for new vehicle contracts.
As all of the financing transactions are mutually conditional, NFI expects to close all components of the plan at the same time and is targeting completion prior to June 25, 2023.
Equity Issuance and Second Lien Debt Financing
With a proposed decrease in the total borrowing capacity under the amended secured facilities and to support additional liquidity requirements, NFI plans to raise proceeds of $150 million of equity capital through the sale of new common stock and to raise total gross proceeds of between $200 million and $250 million from a second lien debt financing. The second lien debt financing is expected to be on customary market terms for an issuer in these circumstances, which will be finalized during the marketing process.
According to NFI, the company has held detailed discussions with several parties who have expressed interest in participating in the equity sale and second lien debt financing. BMO Capital Markets is acting as the company’s financial advisor related to these matters. “The announcement of today’s refinancing plan is a critical step towards providing NFI with financial flexibility, improved liquidity, and long-term visibility, as we continue to execute on our operational and financial recovery. The planned equity and second lien debt financing are expected to lower our overall debt balances and significantly improve liquidity,” Pipasu Soni, CFO of NFI, said. “Our business is benefiting from record backlog and demand for our products and services, and we are looking forward to completing these financing transactions so we can place our full attention on delivering the growth in revenue, gross margins, Free Cash Flow and ROIC that we expect from achieving our targets, including $400 million of Adjusted EBITDA by 2025.”
Anticipated Financial Covenants Under the Amendments
NFI partnered with banking syndicate members under the secured facilities to develop revised financial covenants (including a waiver of leverage tests through to Q3/24) under the proposed amendments that are based on financial projections that utilize a conservative downside as compared to NFI’s internal financial objectives. Based on its expected financial performance, NFI is confident that it will be able to comply with the new proposed covenants and that there is significant space between covenant levels and expected results.