Armtec Update on Review of Strategic Alternatives and Extension, Waiver and Sales Process Agreement with Brookfield

Toronto Stock Exchange: ARF; ARF.DB

CONCORD, ON, Feb. 25, 2015 /CNW/ - Armtec Infrastructure Inc. ("Armtec" or the "company") (TSX: ARF) today provided an update on its ongoing review of its strategic alternatives and the execution of an extension, waiver and sales process agreement (the "Extension Agreement") with Brookfield Capital Partners Fund III LP ("Brookfield") with the following key elements:

• Amendment to Armtec's credit facility with Brookfield (the "Term Facility") in order to extend the maturity date of the interim facility to May 11, 2015, and provide a new short-term facility of $20 million (the "Incremental Facility").

• Commitment from Brookfield for its affiliate, Trisura Guarantee Insurance Co. to provide the company with up to $150 million of bonding on a cost to complete basis.

• Continue Armtec's review of strategic alternatives by commencing a process to solicit interest in a sale of, or investment in, Armtec (the "Sale and Investment Process") led by BMO Capital Markets.

• Brookfield has agreed to support the Sale and Investment Process and has also agreed that if no transaction emerges from the Sale and Investment Process or otherwise which would result in Brookfield's indebtedness being repaid in full, together with certain other liabilities of Armtec, Brookfield will indirectly, through a new entity ("Newco") acquire all of Armtec's assets in exchange for Brookfield's indebtedness on the terms described below (the "Brookfield Transaction").  Pursuant to the terms of the Brookfield Transaction, Newco would assume Armtec's obligations to its trade creditors and employees.

• Business as usual for employees, trade creditors and customers.

"This commitment from Brookfield is a very positive step for Armtec," said Mark Anderson, President and Chief Executive Officer of Armtec. "Our board of directors has determined that the sale and investment process, back-stopped by Brookfield, represents the best course of action at this time for the company and its stakeholders."

As part of the ongoing review of its liquidity, financial covenants, leverage and capital structure, Armtec and its advisors have explored a broad range of alternatives, including the restructuring of its current unsecured debt and a rights offering to provide additional liquidity.  Despite advanced discussions related to these alternatives, Armtec has been unable to reach an agreement with any parties on acceptable terms to date.  Armtec's board of directors has determined that continuing to review strategic alternatives by pursuing the Sale and Investment Process, with the support of Brookfield, and, if necessary, implementing the Brookfield Transaction is the best course of action at this time for the company and its stakeholders.

"We are pleased to support Armtec and believe that, if the Brookfield Transaction is completed, we will be able to add substantial value in partnership with its management team" said David Nowak, Managing Partner of Brookfield, a global asset manager with more than $200 billion in assets under management.

Brookfield and Armtec have signed the Extension Agreement pursuant to which Brookfield has agreed to support the Sale and Investment Process and any sale or other investment transaction which would result in Brookfield's indebtedness being repaid in full, together with the repayment in full of (or other alternative arrangements acceptable with respect to) Armtec's revolving credit facility, bonding facility and secured equipment leases, the assumption of all Armtec employees and obligations to trade creditors (a "Superior Transaction").  Pursuant to the Extension Agreement, in the event Armtec accepts a Superior Transaction it will be required to pay Brookfield a backstop fee of $5 million on closing of the Superior Transaction, together with a reimbursement of Brookfield's reasonable expenses.

In the event a satisfactory offer to buy or recapitalize Armtec is not obtained, Brookfield and Armtec have agreed to pursue the Brookfield Transaction by Brookfield indirectly acquiring all of Armtec's assets through Newco in exchange for Brookfield's indebtedness.  Newco would assume Armtec's obligations to its trade creditors and employees.  Armtec's other secured indebtedness would be dealt with in a manner acceptable to Brookfield and Armtec and the affected secured creditors.  Armtec may terminate the Extension Agreement at its option at any time by paying the Brookfield indebtedness in full together with the backstop fee of $5 million and Brookfield's reasonable expenses.

If the Brookfield Transaction is implemented, neither Newco nor Brookfield will assume any of Armtec's obligations under its 8.875% senior notes due 2017 (the "Senior Notes") or its 6.50% convertible unsecured subordinated debentures due 2017 (the "Convertible Debentures").  A copy of the Brookfield Extension Agreement will be available on SEDAR at www.sedar.com.

Armtec's trade creditors, as well as its obligations to employees, including under its pension and benefit plans, would be unaffected by the Brookfield Transaction and will continue to be paid in the ordinary course of business during Armtec's ongoing review of its strategic alternatives.

There can be no assurance that the Sale and Investment Process, an investment or the Brookfield Transaction will provide any recovery for the holders of Armtec's existing Senior Notes, Convertible Debentures or common shares.  Any recovery would be limited to sale or investment transaction proceeds in excess of the amount owing to Brookfield and Armtec's other senior lenders, which will be nil in the event Armtec pursues the Brookfield Transaction.

The Incremental Facility to be provided by Brookfield, subject to certain conditions, is for a short-term facility of $20 million, with potential for an additional $10 million with the consent of Brookfield in its sole discretion, bearing interest at the 30-day BA rate plus 12% per annum.  The Incremental Facility will mature May 11, 2015.  Pursuant to the Extension Agreement the Senior Secured Debt to EBITDA covenant under the Term Facility (the "Covenant") was waived until the same date.  The Covenant required that Armtec maintain a Senior Secured Debt to EBITDA ratio (measured at the end of each month) of no greater than 5.0:1.  In consideration of the extension and waiver, Armtec will pay Brookfield an extension fee of $2 million. Armtec will also pay Brookfield a commitment fee of $2 million in respect of its commitment to provide the Incremental Facility.  In the event the Incremental Facility is increased to $30 million, no additional commitment fee will be payable on any such increased amount.

An interest payment on the Senior Notes is due on March 22, 2015 (the "March Interest Payment").  The indenture governing the Senior Notes provides for a 30 day cure period in the event Armtec does not pay any interest payment when due.  The Extension Agreement with Brookfield provides that a failure of Armtec to pay the March Interest Payment will not terminate the Extension Agreement. The company has agreed in the Extension Agreement not to pay the March Interest Payment nor other payments on the Senior Notes and Convertible Debentures unless the Brookfield indebtedness is paid in full.

Armtec's financial advisor BMO Capital Markets will coordinate arrangements for the Sale Process.  Any interested party interested in participating in the Sale and Investment Process may contact BMO Capital Markets at the number listed below.

If Armtec and Brookfield pursue the Brookfield Transaction, it is intended to be completed pursuant to a court-supervised process to be agreed by Armtec and Brookfield.  Implementation of the Brookfield Transaction or a Superior Transaction is subject to a number of conditions and other risks and uncertainties including the receipt of the final approval of the court and all necessary regulatory approvals, as well as other conditions.

The Company's 2014 EBITDA is expected to be in line with the previous EBITDA guidance of approximately $30 million when excluding the impact of costs associated with exploring strategic alternatives and other non-recurring expenses.  Despite the recent sharp decline in oil prices and the significantly lower Canadian dollar, management believes that 2015 should generate earnings from operations that are similar to or better than 2014.

The following information constitutes "forward-looking statements"; see "Caution Concerning Forward-Looking Statements" below.

¹ EBITDA excluding the impact of costs associated with exploring strategic alternatives and certain non-recurring expenses.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in the United States or in any other jurisdiction in which such offer, solicitation or sale would be unlawful. The securities have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.

Armtec is a manufacturer and marketer of a comprehensive range of infrastructure products and engineered construction solutions for customers in a diverse cross-section of industries that are located in every region of Canada, as well as in selected markets globally. These markets include Canada's national and regional public infrastructure markets and private sector markets in agricultural drainage, commercial building, residential construction and natural resources. Armtec operates through a network of offices and production facilities across the country. Armtec operates in two business units: Drainage Solutions manufactures and markets corrugated high­ density polyethylene pipe, corrugated steel pipe and other drainage related products including small bridge structures. Precast Concrete Solutions manufactures and markets highly engineered precast systems such as parking garages, bridges, sport venues and building envelopes as well as standard precast products such as steps, paving stones and utility vault.

Non-GAAP Measure

EBITDA
References to EBITDA are to earnings before finance (income) expense – net, income taxes, depreciation and amortization, certain non-recurring expenses and certain other non-cash amounts.  Management believes that in addition to net earnings, EBITDA is a useful supplemental measure of cash available prior to debt service, changes in working capital, capital expenditures and income taxes.  However, EBITDA is not a recognized measure under GAAP.  Investors are cautioned that EBITDA should not be construed as an alternative to net and comprehensive earnings determined in accordance with GAAP as an indicator of Armtec's performance or as an alternative to cash flows from operating, investing and financing activities as a measure of Armtec's liquidity and cash flows.  Armtec's method of calculating EBITDA may differ from the methods used by other issuers and, accordingly, Armtec's EBITDA may not be comparable to similarly named measures used by other issuers.

Caution Concerning Forward-Looking Statements

This press release includes "forward-looking statements" within the meaning of securities laws.  Such statements relate to the company's or management's objectives, projections, estimates, expectations, or predictions of the future and can be identified by words such as "will", "anticipate", "estimate", "expect" and "project" or variations of such words.  These statements are based on certain assumptions and analyses by the company that reflect its experience and its understanding of future developments.  Such statements are subject to a number of uncertainties, including, but not limited to, the results of the Sale Process and receipt of the approvals necessary to implement the Brookfield Transaction or a Superior Transaction, and other factors identified in the company's periodic filings with securities regulatory authorities in Canada.  Many of these uncertainties are beyond the company's control and, therefore, may cause actual actions or results to differ from those expressed or implied herein.  The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  The implementation of the Brookfield Transaction or a Superior Transaction is subject to a number of conditions, and other risks and uncertainties including, without limitation, court and any required regulatory approvals. Accordingly, there can be no assurance that the Brookfield Transaction or a Superior Transaction will occur, or that it will occur on the terms and conditions contemplated in this news release. The terms of the Brookfield Transaction could be modified, restructured or terminated.

SOURCE Armtec Infrastructure Inc.

Related Links

http://www.armtec.com