Element Financial Corporation

TSX : EFN


Element Financial Corporation

June 03, 2014 12:00 ET

Element Financial Announces an Increase of the Previously Announced Offering of Subscription Receipts, Debentures and Series E Preferred Shares to $1,250,052,500

TORONTO, ONTARIO--(Marketwired - June 3, 2014) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

Element Financial Corporation (TSX:EFN) ("Element" or the "Company") is pleased to announce that it has amended the terms of its previously announced bought deal offering of subscription receipts ("Subscription Receipts"), extendible convertible unsecured subordinated debentures ("Debentures") and cumulative 5-year rate reset preferred shares, Series E ("Series E Preferred Shares") to increase the aggregate size of such offering to $1,250,052,500. The net proceeds of the Offering (as defined below) will be used by Element to fund a portion of the purchase price of the acquisition of PHH Corporation's fleet management services business (the "Acquisition"). For further details on the Acquisition, see Element's press release dated June 2, 2014 entitled "Element Signs Definitive Agreement to Acquire PHH Corporation's North American Fleet Management Business".

Subscription Receipts

Under the amended terms of the Offering, a syndicate of underwriters being co-led by BMO Nesbitt Burns Inc., CIBC World Markets Inc., GMP Securities L.P., Barclays Capital Canada Inc., National Bank Financial Inc. and TD Securities Inc. and including Credit Suisse Securities (Canada) Inc., RBC Dominion Securities Inc., Scotia Capital Inc., Cormark Securities Inc. and Manulife Securities Inc. (collectively, the Subscription Receipt Underwriters") have agreed to purchase, on a bought deal basis, 64,710,000 Subscription Receipts at a price of $12.75 per Subscription Receipt for gross proceeds of $825,052,500 ("Subscription Receipt Offering").

Each Subscription Receipt will entitle the holder thereof to receive, upon the Acquisition closing, without payment of additional consideration or further action, one Element common share ("Common Share") in exchange for each Subscription Receipt.

The Subscription Receipts will be issued pursuant to a subscription receipt agreement (the "Subscription Receipt Agreement"). Pursuant to the Subscription Receipt Agreement, the proceeds of the Subscription Receipt Offering, net of 50% of the underwriters' fee payable in connection therewith, will be held in escrow pending delivery of notice of the closing of the Acquisition. If: (i) the Acquisition closing does not occur prior to 5:00 p.m. (Toronto time) on December 31, 2014; (ii) the Acquisition stock purchase agreement ("Stock Purchase Agreement") is terminated at an earlier time; or (iii) Element advises the subscription receipt agent and the lead underwriter, or announces to the public, that it does not intend to proceed with the Acquisition, the subscription receipt agent and Element will return to holders of Subscription Receipts an amount per Subscription Receipt equal to the offering price plus a pro rata share of the interest earned or deemed to be earned on the escrowed funds, net of any applicable withholding taxes.

Extendible Convertible Debentures

Under the amended terms of the Offering, a syndicate of underwriters being co-led by BMO Nesbitt Burns Inc., CIBC World Markets Inc., GMP Securities L.P., National Bank Financial Inc. and TD Securities Inc. and including Barclays Capital Canada Inc., Credit Suisse Securities (Canada) Inc., RBC Dominion Securities Inc., Scotia Capital Inc., Cormark Securities Inc. and Manulife Securities Inc. (collectively, the "Debenture Underwriters") have agreed to purchase, on a bought deal basis, $300,000,000 aggregate principal amount of 5.125% Debentures ("Debenture Offering").

Each Debenture will be convertible into freely tradeable Common Shares at the option of the holder of a Debenture at any time after the Acquisition closing and prior to 5:00 p.m. (Toronto time) on the Final Maturity Date (as defined below), at a conversion price of $17.85 per Common Share, representing a conversion rate of 56.0224 Common Shares per $1,000 principal amount of Debentures, subject to adjustment in accordance with the trust indenture governing the Debentures (the "Indenture"). The Debentures will have an interest rate of 5.125% per annum payable semi-annually in arrears on the last day of June and December in each year commencing December 31, 2014. The Debentures will be unsecured indebtedness of the Company and will be subject to, and governed by, the Indenture.

Pursuant to the Indenture, if: (i) the Acquisition closing does not occur by 5:00 p.m. (Toronto time) on December 31, 2014; (ii) the Stock Purchase Agreement is terminated at an earlier time; or (iii) Element advises the lead underwriter, or announces to the public, that it does not intend to proceed with the Acquisition (the date on which such event occurs being the "Debenture Termination Date"), the Debentures will have an initial maturity date of the Debenture Termination Date, which will be automatically extended to June 30, 2019 (the "Final Maturity Date") upon the Acquisition closing.

Preferred Shares

Under the amended terms of the Offering, a syndicate of underwriters being co-led by BMO Nesbitt Burns Inc., CIBC World Markets Inc., GMP Securities L.P., National Bank Financial Inc. and TD Securities Inc. and including RBC Dominion Securities Inc., Scotia Capital Inc., Cormark Securities Inc. and Manulife Securities Inc. (collectively, the "Preferred Share Underwriters") have agreed to purchase, on a bought deal basis, 5,000,000 Series E Preferred Shares at a price of $25.00 per Series E Preferred Share for gross proceeds of $125,000,000 ("Preferred Share Offering" and, with the Subscription Receipt Offering and the Debenture Offering, the "Offering").

Holders of the Series E Preferred Shares will be entitled, if, as and when declared by the Board of Directors of Element, to receive a cumulative quarterly fixed dividend for the initial five-year period ending September 30, 2019 of 6.4% per annum. Thereafter, the dividend rate will reset every five years to an annual dividend rate equal to the 5-Year Government of Canada Bond Yield as quoted on Bloomberg on the 30th day prior to the first day of the relevant subsequent five year fixed rate period plus 4.72%.

Holders of the Series E Preferred Shares will have the right to convert their shares into cumulative floating rate preferred shares, Series F of Element ("Series F Preferred Shares"), subject to certain conditions and Element's right to redeem the Series E Preferred Shares, on September 30, 2019 and on September 30 every five years thereafter. Holders of the Series F Preferred Shares will be entitled to receive a quarterly floating rate dividend, if, as and when declared by the Board of Directors of Element, equal to the then current three-month Government of Canada Treasury Bill plus 4.72%. Holders of the Series F Preferred Shares may convert their Series F Preferred Shares into Series E Preferred Shares, subject to certain conditions and Element's right to redeem the Series F Preferred Shares, on September 30, 2024 and on September 30 every five years thereafter. The Series E Preferred Shares will not be rated. If the Acquisition does not proceed, the net proceeds from the Preferred Share Offering will be used by Element to originate and finance, directly or indirectly, finance assets and for general corporate purposes.

Over-Allotment Option

Element has granted (i) the Subscription Receipt Underwriters an option to purchase on the same terms up to an additional 9,706,500 Subscription Receipts, (ii) the Debenture Underwriters an option to purchase on the same terms up to an additional $45,000,000 aggregate principal amount of Debentures, and (iii) the Preferred Share Underwriters an option to purchase on the same terms up to an additional 750,000 Series E Preferred Shares (each option, an "Over-Allotment Option"). The Subscription Receipt Over-Allotment Option and the Debenture Over-Allotment Option are exercisable at any time until the earlier of the date that is 30 days following the date of the closing of the Offerings and the occurrence of a termination event under the underwriting agreement. The Series E Preferred Share Over-Allotment Option is exercisable at any time for a period of 30 days following the date of the closing of the Preferred Share Offering. If each of the Subscription Receipt Over-Allotment Option, the Debenture Over-Allotment Option and the Series E Preferred Share Over-Allotment Option is exercised in full, Element will receive further proceeds from the Offerings of $187,507,875, for aggregate proceeds from the Offerings of $1,437,560,375.

About Element Financial Corporation

With total assets in excess of $4.2 billion, Element Financial Corporation is one of North America's leading equipment finance companies. Element operates across North America in four verticals of the equipment finance market - Commercial & Vendor Finance, Aviation Finance, Railcar Finance and Fleet
Management.

Forward Looking Statements

This release includes forward-looking statements regarding Element and its business. Such statements are based on the current expectations and views of future events of Element's management. In some cases the forward-looking statements can be identified by words or phrases such as "may", "will", "expect", "plan", "anticipate", "intend", "potential", "estimate", "believe" or the negative of these terms, or other similar expressions intended to identify forward-looking statements. Forward-looking statements in this release include those related to the acquisition by Element of PHH Corporation's North American Fleet Management Services business, the proposed financing of the acquisition (including the public equity and debt offerings and the entry into of the amended and restated credit agreement and the bridge facility commitment), the achievement of strategic and financial objectives in connection with the acquisition, the impact of the acquisition on Element's financial metrics (including accretion to Element shareholders and Element's anticipated level of leverage), the attainment of growth opportunities and the integration of the Fleet Management Services business. The forward-looking events and circumstances discussed in this release may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Element, including risks regarding the equipment finance industry, economic factors and many other factors beyond the control of Element. No forward-looking statement can be guaranteed. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statement or information. Accordingly, readers should not place undue reliance on any forward-looking statements or information. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Element undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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