Element Financial Corporation

TSX : EFN


Element Financial Corporation

December 09, 2013 16:22 ET

Element Financial Raises $1 Billion of New Capital, Launches Railcar Alliance with Trinity Industries and Acquires GE Capital Helicopter Portfolio

- Bought deal financing to raise $325 million in common shares plus $75 million in cumulative 5-year rate reset preferred shares

- Related credit facility of $600 million provided by lending syndicate led by BMO Capital Markets

- Financing for US$2 billion worth of railcars to be provided over the next two years

- Purchase of GE portfolio, previously announced on November 13, 2013, establishes Element in North American helicopter market

TORONTO, ONTARIO--(Marketwired - Dec. 9, 2013) -

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"), one of North America's leading equipment finance companies, today announced that it has entered into a strategic alliance with Trinity Industries (NYSE:TRN) ("Trinity") to provide lease financing for up to $2 billion worth of railcars over the next two years. Element also announced today that it has signed a definitive agreement with a subsidiary of GE Capital in the United States to acquire a portfolio of finance assets secured by helicopters for a purchase price of approximately US$245 million.

These two transaction (collectively, the "Transactions") are expected to be accretive to Element's shareholders commencing in the second half of 2014 while decreasing OPEX, increasing leverage and maintaining established risk parameters.

"With these two transactions, Element has firmly anchored itself as a North American leader in two of our five core equipment finance verticals - aviation finance and railcar finance," noted Steven K. Hudson, Element's Chairman and Chief Executive Officer. "Working alongside the leading manufacturers that we support in these verticals, we expect to originate growing volumes of diversified high quality finance assets over the next several quarters as a result of these initiatives," added Mr. Hudson.

Bought Deal Equity Financings

Concurrent with the Transactions, Element announced that it plans to sell, on a "bought deal" basis pursuant to a supplement to the Company's final base shelf prospectus dated December 6, 2013 (the "Base Shelf Prospectus"), an aggregate of 23,637,000 common shares of Element ("Common Shares") at a price of $13.75 per Common Share for gross proceeds of approximately $325 million (the "Common Share Offering") to a syndicate of underwriters co-led by GMP Securities L.P, BMO Capital Markets, Barclays Capital Canada Inc., CIBC World Markets and RBC Capital Markets and including Credit Suisse Securities (Canada) Inc., National Bank Financial Inc., TD Securities Inc. and Cormark Securities Inc. (collectively, the "Common Share Underwriters").

Element also announced that it plans to sell, on a bought deal basis, pursuant to a supplement to the Base Shelf Prospectus, an aggregate of 3.0 million Cumulative 5-year Rate Reset Preferred Shares, Series A of Element ("Series A Preferred Shares") at a price of $25.00 per Series A Preferred Share for gross proceeds of approximately $75 million (the "Preferred Share Offering", and together with the Common Share Offering, the "Offerings") to a syndicate of underwriters co-led by GMP Securities L.P, National Bank Financial Inc., CIBC World Markets, RBC Capital Markets, BMO Nesbitt Burns Inc. and TD Securities Inc. and including Manulife Securities Inc. and Hampton Securities Limited (collectively, the "Preferred Share Underwriters", and together with the Common Share Underwriters, the "Underwriters"). Holders of the Series A Preferred Shares will be entitled, as and when declared by the Board of Directors of the Company, to receive a cumulative quarterly fixed dividend for the initial five-year period ending December 31, 2018 of 6.60% 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 4.71%. Holders of the Series A Preferred Shares will have the right to convert their shares into Cumulative Floating Rate Preferred Shares, Series B of the Company (the "Floating Rate Series B Preferred Shares"), subject to certain conditions and the Company's right to redeem the Series A Preferred Shares, on December 31, 2018 and on December 31 every five years thereafter. Holders of the Floating Rate Series B Preferred Shares will be entitled to receive a quarterly floating rate dividend, as and when declared by the Board of Directors of the Company, equal to the then current three-month Government of Canada Treasury Bill yield plus 4.71%. Holders of the Floating Rate Series B Preferred Shares may convert their Floating Rate Series B Preferred Shares into Series A Preferred Shares, subject to certain conditions and the Company's right to redeem the Floating Rate Series B Preferred Shares, on December 31, 2023 and on December 31 every five years thereafter. The Series A Preferred Shares will not be rated.

The Company has granted to each of the Common Share Underwriters and the Preferred Share Underwriters an option (collectively, the "Over-Allotment Options"), which may be exercised at any time for a period of 30 days following the closing of the Offerings, to purchase at the issue price under the Offerings an additional 3,545,550 Common Shares for additional gross proceeds of up to approximately $48.8 million and an additional 450,000 Series A Preferred Shares for additional gross proceeds of up to $11.25 million. In the event that the Over-Allotment Options are exercised in their entirety, the aggregate gross proceeds of the Offerings will be approximately $460 million.

The proceeds of the Offerings, including any proceeds from the exercise of the Over-Allotment Options, will be used to originate and finance, directly or indirectly, finance assets as well as for general corporate purposes. The Offerings are expected to close on December 17, 2013 and are subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals including the approval of the Toronto Stock Exchange.

Expanded Debt Facilities

In conjunction with the Transactions, Element also announced that it received a new committed term debt facility, fully underwritten by BMO Capital Markets and a syndicate of financial institutions that includes the participants in the Company's Senior Secured Credit Facility, in the amount of $600 million. This facility was established to provide bridge financing for the expected railcar financings while the Company develops an asset backed securitization structure to permanently fund originated railcar leases under the Trinity alliance.

Transaction Advisors

BMO Capital Markets acted as financial advisors to Element in connection with the Transactions. Blake, Cassels & Graydon LLP acted as legal counsel to Element.

About Element Financial Corporation

With total assets of approximately $2.7 billion, Element Financial Corporation is one of North America's leading equipment finance companies. Element operates across North America in three verticals of the equipment finance market - Element Capital provides large ticket equipment financing, Element Finance serves the mid-ticket equipment finance market and Element Fleet provides vehicle fleet leasing and management solutions.

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 expected financings relating to the Transactions, the anticipated increase in Element's finance assets in the future, the completion of the initial conveyances in connection with the Transactions, the issuance and sale of Common Shares and Series A Preferred Shares and the use of proceeds from the Offerings. 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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