KP Tissue closes financing transactions for $575 million TAD2 Project in Sherbrooke, QC

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KP Tissue closes financing transactions for $575 million TAD2 Project in Sherbrooke, QC

November 20, 2018 - 09:59
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MISSISSAUGA, ON , Nov. 19, 2018 (Globe Newswire) -KP Tissue Inc. (KPT) reports today that Kruger Products L.P. (KPLP) and certain of its subsidiaries have closed financing transactions (the Financings) to fund the previously announced TAD2 Project of $575 million in the Brompton area of Sherbrooke, Quebec, to build a new, state-of-the-art tissue plant featuring Canada’s largest and most modern TAD paper machine along with related converting equipment and infrastructure. Furthermore, the existing debt related to the Memphis TAD1 Project was also refinanced with more favourable terms and conditions.

“We are very pleased to announce that the financing associated with the TAD2 Project is now completed. The financing structure will be non-dilutive to KPT shareholders but will require higher leverage ratios during the construction and start-up period of the project. The financing in place provides us with the flexibility to execute the project and with terms and conditions supporting solid long-term returns for our shareholders. As indicated before, this significant investment in capital expenditures is central to our long-term North American growth strategy in the ultra-premium paper tissue segment,” said Dino Bianco, CEO of KP Tissue and KPLP.

The Financings include credit facilities in aggregate amounts of US$198 million and $123.5 million (the Project Facility) and US$147 million (the KTG Facility) made available to certain subsidiaries of KPLP under a credit agreement with American AgCredit FLCA, as administrative agent, and National Bank of Canada, as Canadian administrative agent; the issuance of a $105 million convertible debenture by Kruger Products Sherbrooke Inc. (KPSI), the entity that will construct and operate the TAD2 Project, to Investissement Québec (IQ); a senior secured credit facility (the Nordea 2 Facility) in an amount of US$48.8 million made available to KPLP under a credit agreement with Nordea Bank Abp, filial i Sverige, as original lender and administrative agent; and a $50 million factoring facility (the Factoring Facility) made available to KPLP under a receivables purchase agreement with The Bank of Nova Scotia. The package of TAD2 Project financing for the entire $575 million investment is expected to have a weighted average cost of capital in the 5-7% range.

KPLP will use funds from the Nordea 2 Facility and the Factoring Facility as well as cash on hand to fund a $125 million equity investment in KPSI, with half of such investment having occurred upon the closing of the Financings and the remainder to be funded over the following two years. Funds from the KTG Facility have been used to refinance existing indebtedness of TAD Canco Inc. incurred for the TAD1 project under a credit agreement with Caisse de dépôt et placement du Québec. The Project Facility and the KTG Facility are both non-recourse to KPLP.

In connection with the Financings, the Sixth Amended and Restated Credit Agreement between KPLP and National Bank of Canada, acting as administrative agent, and the Fourth Amended and Restated Credit Agreement with Nordea Bank Abp, filial i Sverige, acting as administrative agent, have been amended to, amongst other things, amend certain covenants to increase the amount of permitted debt for borrowed money.

Project Facility

  • US$188 million term loan repayable by December 31, 2036;
    • Quarterly principal instalment payments commencing March 31, 2026;
    • Fixed interest rate based on farm credit system cost of funds plus applicable margin set at time of each tranche draw;
  • $111 million term loan repayable by December 31, 2025;
    • Quarterly principal instalment payments commencing March 31, 2022;
    • Floating interest rate based on CDOR plus applicable margin;
  • Revolving loans of US$10 million and $12.5 million for five years with floating interest rates and a renewal option.

KTG Facility

  • US$147 million term loan repayable by December 31, 2036;
  • Quarterly principal instalment payments commencing March 31, 2022;
  • 3% maximum fixed interest rate;
  • Loan repayable after a three-year lock-out period.

Debenture

  • $105 million principal amount 10-year convertible debenture issued by KPSI to IQ;
  • 3% fixed capitalized interest rate;
  • Redeemed on a monthly basis commencing 36 months from the date of issuance (which payments KPSI undertakes to cause KPLP or Kruger Inc. to make), failing which IQ will have a conversion right on terms of conversion that would provide IQ with a 48% equity interest in KPSI if the entirety of the debenture were so converted;
  • Pursuant to a repayment agreement (the Repayment Agreement) between Kruger Inc., KPLP, KPSI and IQ, KPLP has, at its discretion, a priority right to make any required monthly redemption payment to IQ. The party which makes the redemption payment will receive common shares of KPSI as consideration for such payment. Pursuant to the Repayment Agreement, if Kruger Inc. makes all of the redemption payments, it will hold approximately 48% of KPSI.

Nordea 2 Facility

  • US$48.8 million senior secured term loan facility in KPLP;
  • Semi-annual principal instalment payments starting at the latest on August 28, 2021;
  • All outstanding amounts will be payable on August 31, 2029;
  • 74% fixed interest rate.

Factoring Facility

  • Sale of all eligible accounts receivable owing by certain key customers of KPLP to The Bank of Nova Scotia up to a facility limit of $50 million;
  • Committed two year term, renewable for additional one-year periods.
  • Floating interest rate based on CDOR plus applicable margin;

About KP Tissue Inc. (KPT)

KPT was created to acquire, and its business is limited to holding, a limited partnership interest in KPLP, which is accounted for as an investment on the equity basis. KPT currently holds a 15.8% interest in KPLP.

About Kruger Products L.P. (KPLP)

KPLP is Canada's leading manufacturer of quality tissue products for household, industrial and commercial use. KPLP serves the Canadian consumer market with such well-known brands as Cashmere, Purex, SpongeTowels, Scotties and White Swan. In the U.S., KPLP manufactures the White Cloud brand, as well as many private label products. The Away-From-Home division manufactures and distributes high-quality, cost-effective product solutions to a wide range of commercial and public entities. KPLP has approximately 2,500 employees and operates eight FSC COC-certified (FSC C-104904) production facilities in North America.