Black Diamond Group Limited announced that the Company has agreed to terms with respect to a four-year secured asset-based revolving credit facility (“Facility”). The Facility is expected to close within the next week and is subject to customary closing conditions. The lending syndicate for the Facility is co-lead by The Bank of Nova Scotia and Bank of Montreal with a maximum $200 million revolving line, plus an uncommitted $50 million accordion.

The Facility will replace the Company’s current debt which, as at June 30, 2019 consisted of $44 million of privately placed Senior Secured Notes and a $100 million credit facility, of which $50 million was drawn. Based on current market rates and the Company’s financial position, Black Diamond expects effective annual interest rate savings in the range of 150 to 200 basis points, excluding any one-time costs. The borrowing base, or available amount at any given time under the Facility is based on 85 - 90% of the Net Orderly Liquidation Value (“NOLV”) of eligible rental fleet and qualified receivables, up to $200 million. The borrowing base at close will be $172 million, representing available liquidity or excess capacity under the Facility at approximately $80 million.

With respect to financial covenants, the Company will be required to maintain a Fixed Charge Coverage Ratio (“FCCR”) of 1.1 to 1; however, this covenant is only tested in certain instances, such as when draws under the Facility exceed 90% of the borrowing base.

As part of the Facility setup process, an independent third-party appraisal of the Company’s U.S. and Canadian Modular Space Solutions (“MSS”) and U.S. Energy Services assets was commissioned. These assets were appraised with a NOLV of slightly above $180 million, which is approximately equal to the current net book value of these assets on the Company’s balance sheet. The appraised assets account for approximately half of Black Diamond’s capital assets by net book value.

"With a committed facility through to October 2023, we are taking advantage of our strong financial position to increase our liquidity, while reducing interest costs,” said Toby LaBrie, Chief Financial Officer for Black Diamond. "By leveraging the intrinsic value of our high-quality fleet of assets, this type of financing is a highly flexible and cost-effective method to support the growth of our diversified MSS business."

The Company’s 2019 gross capital plan of $35 million is unchanged, with approximately $25 to $30 million projected for growth in MSS. In the first half of 2019, the Company grew the MSS fleet by 5.4% or 313 net rental units and we continue to work towards our objective of growing the fleet by approximately 10% per year over the next several years. The Company’s capital plan is expected to continue to be substantially funded from internally generated cash flow. Accordingly, the Company continues to expect its balance sheet to be conservatively capitalized, with a meaningful amount of asset coverage provided by marketable fleet and receivables. As a percentage of the Company’s net book value of fleet assets (“NBV”), the fully committed facility represents 60% of NBV, while the current debt outstanding represents 28% of NBV. While there is no specific debt to trailing EBITDA covenant within the Facility agreement, Management believes that a ratio with a long-term range of 2.0x to 3.0x is prudent, sustainable and compares conservatively with specialty rental company peer group ranges.

“The new Facility will allow Black Diamond to consider organic growth projects as well as small tuck-in acquisitions,” commented Trevor Haynes, Black Diamond’s CEO. “We are fully committed to deliver balanced and profitable growth while continuing to diversify our platform. As a result of our geographic and product diversification efforts, approximately 60% to 70% of the Company’s consolidated revenue was generated from outside of the western Canadian energy sector in 2018 and through the first half of 2019. We believe the Facility represents a significant milestone in Black Diamond’s continued evolution and is a key component in delivering on the Company’s long-range vision and strategy.”