Crius Energy Trust
TSX : KWH.UN

Crius Energy Trust

May 30, 2017 15:58 ET

Crius Energy Trust Announces Acquisition of U.S. Gas & Electric, Inc. and C$110 Million Bought Deal Offering of Subscription Receipts

Acquisition to Increase Crius Energy's Customer Base by 37%

TORONTO, ONTARIO--(Marketwired - May 30, 2017) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

Crius Energy Trust ("Crius" or the "Trust") (TSX:KWH.UN) today announces that it has entered into an agreement to purchase, indirectly through one of its subsidiaries, U.S. Gas & Electric, Inc. ("USGE"), a leading U.S. energy retailer with natural gas and/or electricity customers in 11 States and D.C. (the "Acquisition"), for total consideration of US$152.5 million plus approximately US$20 million in working capital, subject to customary post-closing adjustments, for a total purchase price of approximately US$172.5 million. The Acquisition is expected to close early in the third quarter of 2017, subject to the receipt of required regulatory approvals and the satisfaction of the other closing conditions described in the acquisition agreement.

Transaction Highlights

  • Accretive Acquisition: Acquisition is expected to be highly accretive to distributable cash per Unit (as defined herein), and would have represented an approximate 16% increase to distributable cash per Unit on a pro-forma basis for the 12-month period ending March 31, 2017 and is expected to deliver strong accretion in 2017 and 2018, before accounting for planned synergies.
  • Materially Enhances Financial Profile of Crius Energy: Acquisition is expected to increase distributable cash and Adjusted EBITDA and reduce payout ratio, and would have represented a 60% increase in distributable cash (from US$36.8 million to US$58.8 million), a 59% increase in Adjusted EBITDA (from US$62.3 million to US$99.3 million) and a 9% reduction in payout ratio (from 62% to 53%) on a pro-forma basis for the 12-month period ending March 31, 2017.
  • Significant Customer Adds: Acquisition will add approximately 375,000 RCEs (as defined below) to the customer portfolio, representing an increase of 37% to customer portfolio on a pro-forma basis as of March 31, 2017.
  • Growth from Robust Sales Channels: Acquisition is expected to deliver incremental customer growth through the acquisition of USGE's robust direct-to-consumer sales channels.
  • Increased Natural Gas Customers: Acquisition will increase the proportion of natural gas customers (as defined below) in Crius' total customer portfolio from 6% to 14%.
  • Market Penetration and Expansion: Acquisition will provide deeper market penetration in existing electricity and natural gas markets, as well as an expanded geographic footprint into new markets (i.e., natural gas markets in Michigan and Kentucky).

The Acquisition is expected to deliver a diverse portfolio of electricity and natural gas customers, totaling approximately 375,000 residential customer equivalents ("RCEs") in 11 States - Connecticut, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio and Pennsylvania - and the District of Columbia. In addition to the planned synergies expected to be achieved from the integration of the businesses of USGE and Crius, the Trust expects to benefit from continued operating leverage from the incremental scale added as a result of the Acquisition. The pro-forma company would serve nearly 1.4 million customers, representing a 37% increase, and be positioned among the ten largest independent energy retailers in North America. Crius will also immediately benefit from the robust direct-to-consumer sales channels acquired as part of the transaction.

As at March 31, 2017, USGE's customer portfolio consisted of approximately 62% electricity customers and approximately 38% natural gas customers, with approximately 43% of the overall customer portfolio under fixed price customer contracts. Along with geographic expansion, the Acquisition is expected to diversify Crius' existing customer portfolio by increasing the Company's percentage of commercial customers from 35% to 38% and its natural gas customers from 6% to 14%.

The closing of the Acquisition is subject to the satisfaction or waiver of a number of conditions described in the acquisition agreement, including obtaining approvals from the stockholders of USGE at a duly called meeting, the Federal Energy Regulatory Commission (FERC), under the Hart-Scott-Rodino Antitrust Improvements Act and other regulatory authorities.

The consideration payable or deliverable to the selling stockholders of USGE in connection with the Acquisition consists of (i) US$95,000,000 in cash (the "Cash Consideration"), plus (ii) US$47,500,000 in promissory notes (the "Debt Consideration"), (iii) 3,847,870 trust units of the Trust (the "Equity Consideration"), plus (iv) the aggregate amount of all deposits of the USGE companies at the closing date of the Acquisition that are not current assets, minus amounts of indebtedness that are not paid to holders of indebtedness at the closing date of the Acquisition as agreed by the parties and remaining indebtedness as set out in the payment schedule to the acquisition agreement and updated as of the closing of the Acquisition.

The Cash Consideration is expected to be funded from the net proceeds of the Offering (as defined below) and a draw in the amount of US$20 million on the Company's credit facility with Macquarie Energy LLC. The Debt Consideration will consist of non-amortizing promissory notes with an eight-year maturity and bearing interest at the annual rate of 9.5%, redeemable by Crius without penalty at any time prior to maturity. The trust units of the Trust ("Units") to be issued as the Equity Consideration will be subject to either a four-month or six-month lock-up period from the closing date of the Acquisition, with approximately 85% of such Units to be subject to a six-month lock-up period and approximately 15% of such Units to be subject to a four-month lock-up period.

"The acquisition of U.S. Gas & Electric is a significant milestone for Crius as we continue to execute on our organic and acquisitive growth strategy," commented Michael Fallquist, Chief Executive Officer of the Trust. "We believe that adding U.S. Gas & Electric to the Crius platform reinforces our position as a market leader in the retail energy industry, as we will immediately benefit from economies of scale, an expanded service territory and new sales channels. Further, we are excited to welcome such a strong and well-respected team to the Crius Energy family and look forward to what we will achieve together as a blended, world-class organization."

Bought Deal Offering of Subscription Receipts

Concurrently with the announcement of the Acquisition, Crius entered into an agreement with a syndicate of underwriters led by Desjardins Capital Markets, RBC Capital Markets and National Bank Financial Inc. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase from Crius, on a "bought deal" basis, and sell to the public 11,224,500 subscription receipts of the Trust ("Subscription Receipts") at a price of C$9.80 per Subscription Receipt (the "Offering Price") for total gross proceeds of C$110,000,100 (the "Offering"). In addition, the Trust has also granted the Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 1,683,675 Subscription Receipts (the "Additional Subscription Receipts") at the Offering Price per Additional Subscription Receipt, exercisable in whole or in part, at any time up to 30 days following the closing of the Offering. If the Over-Allotment Option is exercised in its entirety, the aggregate gross proceeds of the Offering will be C$126,500,115.

Each Subscription Receipt will entitle the holder thereof to receive, without further consideration or action on the part of the holder thereof, one Unit together with an amount per Unit equal to the amount of any distributions for which record dates have occurred during the period from the closing date of the Offering to the date immediately preceding the closing date of the Acquisition, less any applicable withholding taxes, if any. The gross proceeds from the Offering less 50% of the Underwriters' fee payable on the closing date of the Offering will be held in escrow, pending closing of the Acquisition. If the Acquisition closes on or before August 31, 2017, the escrowed proceeds from the Offering will be released to Crius and used by Crius to pay a portion of the purchase price of the Acquisition. If the Acquisition fails to close by August 31, 2017, or the Acquisition is terminated at an earlier time, the gross proceeds and pro-rata entitlement to interest earned on the escrowed proceeds thereon will be paid to holders of the Subscription Receipts.

The Subscription Receipts will be offered by way of a short form prospectus to be filed in each of the Provinces of Canada, other than Québec. The closing of the Offering is expected to occur on or about June 20, 2017, subject to the conditional approval of the Toronto Stock Exchange and other necessary regulatory approvals.

Once the escrow release conditions have been satisfied, the net proceeds of the Offering are expected to be used to partially fund the Cash Consideration, with the remaining funds, if any, to be used by the Trust to pay the expenses of the Offering and for general corporate purposes.

This news release does not constitute an offer of securities for sale in the United States. The securities being offered have not been, nor will they be, registered under the 1933 Act, as amended, and such securities may not be offered or sold within the United States absent U.S. registration or an applicable exemption from U.S. registration requirements.

Financial and Legal Advisors

Desjardins Capital Markets acted as the exclusive financial advisor to Crius in the context of the Acquisition. Bennett Jones LLP acted as Canadian legal counsel to Crius in the context of the Acquisition and Offering. Baker Botts L.L.P. acted as U.S. legal counsel to Crius in the context of the Acquisition and Offering.

Conference Call Details

Crius executives Michael Fallquist, CEO, and Roop Bhullar, CFO, will hold a conference call to discuss the Acquisition on Tuesday, May 30, 2017 at 4:15 p.m. (Eastern Daylight Time).

To access the conference call, dial 647-427-7450 or 1-888-231-8191. A question and answer session for analysts will follow management's presentation.

A live audio webcast of the conference call will be available by clicking here or by visiting www.cnw.ca. Please connect at least 15 minutes prior to the call to ensure adequate time for connection to the webcast. The webcast will be archived at the above web site for 90 days.

A digital rebroadcast will be available to listeners starting at 7:15 p.m. (Eastern Time) on May 30, 2017 until June 6, 2017. To access the rebroadcast, please dial 416-849-0833 or 1-855-859-2056 and enter passcode 31290435.

About Crius Energy Trust

Crius Energy Trust provides investors with a distribution-producing investment through its 100% ownership interest in Crius Energy. With over one million residential customer equivalents, the Company is a comprehensive energy solutions partner that provides electricity, natural gas and solar products to residential and commercial customers. The Company connects with energy customers through an innovative family-of-brands strategy and multi-channel marketing approach. This unique combination creates multiple access points to a broad suite of energy products and services that make it easier for consumers to make informed decisions about their energy needs. The Company currently sells energy products in 16 states and the District of Columbia with plans to continue expanding its geographic reach.

The Trust intends to continue to qualify as a "mutual fund trust" under the Income Tax Act (Canada) (the "Tax Act"). The Trust will not be a "SIFT trust" (as defined in the Tax Act), provided that the Trust complies at all times with its investment restriction which precludes the Trust from holding any "non-portfolio property" (as defined in the Tax Act). Material information pertaining to the Crius may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") including, without limitation, statements relating to non-IFRS financial measures; the timing and ability of the Trust to close the Acquisition, if at all; the timing and ability of the Trust to close the Offering, if at all; the timing and receipt of the necessary required approvals for the Offering, if at all; the integration of the businesses of USGE and Crius; the future performance of USGE following the closing of the Acquisition; the accretiveness of the acquisition to distributable cash per Unit, if at all; the near-term impact of accretion in 2017 and 2017, if at all; increases to distributable cash and reduction in payout ratio following the completion of the Acquisition; the robustness if the direct-to-consumer sales channel of USGE; the customer portfolio of Crius following the completion of the Acquisition; market penetration and expansion; the organic and acquisitive growth strategy; the timing and ability to obtain approval of the Acquisition from the stockholders of USGE, if at all; the Trust's outlook, strategy, and ability to execute its business objectives; the electricity, natural gas and solar industries; governmental regulatory regimes; acquisitions and strategic partnerships; marketing channels; customers and customer growth; liquidity and capital resources; critical accounting estimates; financial position or cash flows; expenses and distributions to Unitholders. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.
All forward-looking statements reflect the Trust's beliefs and assumptions based on information available at the time the statements were made. Actual results or events may differ from those predicted in these forward-looking statements. All of the Trust's forward-looking statements are qualified by (i) the assumptions that are stated or inherent in such forward-looking statements, and (ii) the risks described in the section entitled "Financial Instruments and Risk Management" in the most recent Management's Discussion & Analysis and in the sections entitled "Risk Factors" and "Forward-Looking Statements" in the annual information form of the Trust for the fiscal year ended December 31, 2016, dated March 16, 2017, which is available on SEDAR under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.criusenergytrust.ca. Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Although the Trust has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Trust disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except in accordance with applicable securities laws.

In this press release, "RCEs" mean residential customer equivalents, which is an industry standard unit of measurement of consumption per annum equivalent to 10 MWh (or 10,000 kWh) in the case of the electricity and 100 MMBtu in the case of natural gas. We have estimated the number of RCEs in accordance with industry conventions based on information available regarding customers and their historical usage and are subject to adjustment based on updated available information. Also, in this press release, a "customer" means an "RCE".

Non-IFRS Financial Measures

Statements in this news release make reference to Adjusted EBITDA, distributable cash and payout ratio, which are non-IFRS financial measures commonly used by financial analysts in evaluating the financial performance of companies, including companies in the energy industry. Accordingly, Crius believes Adjusted EBITDA, Distributable Cash and payout ratio may be useful metrics for evaluating the Trust's financial performance as they are measures that Crius uses internally to assess performance, in addition to IFRS measures. As there is no generally accepted method of calculating Adjusted EBITDA, Distributable Cash and payout ratio, these terms as used herein are not necessarily comparable to similarly titled measures of other companies. Adjusted EBITDA, Distributable Cash and payout ratio have limitations as analytical tools and should not be considered in isolation from, or as an alternative to, net income (loss) or other data prepared in accordance with IFRS. Adjusted EBITDA is calculated as EBITDA adjusted to exclude any change in the fair value of derivative instruments, change in fair value of non-controlling interest, change in fair value of warrant liability, Unit-based compensation, goodwill impairment and distributions to non-controlling interest. The items excluded from Adjusted EBITDA are significant in assessing the Trust's operating results and liquidity. See the MD&A of the Trust for the three month period ended March 31, 2017 (under the heading ""Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA") for a reconciliation of Adjusted EBITDA to net loss, as calculated under IFRS for the relevant periods, the most directly comparable measure in the consolidated financial statements of the Trust. See the MD&A of the Trust for the three month period ended March 31, 2017 (under the heading "Distributable Cash and Payout Ratio") for a reconciliation of Distributable Cash to cash flows provided by operating activities as calculated under IFRS, the most directly comparable measure in the consolidated financial statements of the Trust. Other financial data has been prepared in accordance with IFRS.

Contact Information

  • Crius Energy Trust
    Michael Fallquist
    Chief Executive Officer
    (203) 663-7545

    Crius Energy Trust
    Roop Bhullar
    Chief Financial Officer
    (203) 883-9900

    Crius Energy Trust
    Kelly Castledine
    Investor Relations
    (416) 644-1753
    www.criusenergytrust.ca