Dominion Lending Centres Inc.,announced its intention to commence a substantial issuer bid pursuant to which the Corporation will offer to purchase for cancellation up to 3,000,000 of its outstanding common shares at a purchase price of $3.75 per Share in cash. See “Source of Funds and New Credit Facilities” below for details on how the Corporation will fund the Offer.
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The closing price of the Shares on the TSX Venture Exchange on 2021, the last full trading day prior to the Corporation’s announcement of its intention to make the Offer, was $3.35.
The board of directors of the Corporation (the “Board”) believes that the recent trading price of the Shares is not fully reflective of their intrinsic value based on the value of DLC’s assets and its business and future prospects. Accordingly, the Board believes that the Offer is a prudent use of the Corporation’s financial resources given the Corporation’s business profile and assets, current market price of the Shares, capital availability and cash requirements. The Offer provides DLC with the opportunity to return up to $11.25 million of capital to Shareholders who elect to tender while at the same time increasing the proportionate Share ownership of Shareholders who elect not to tender.
The Purchase Price represents a 14.7% premium over the 30-day volume weighted average closing price of the Shares on the TSX for the period ending on November 26, 2021, and a 11.9% premium over the closing price of the Shares on the TSX on November 26, 2021, the last full trading day prior to the Corporation’s announcement of its intention to make this Offer. The number of Shares subject to the Offer represents approximately 6.5% of the total number of Shares outstanding.
Details of the Offer, including instructions for tendering Shares to the Offer and the factors considered by the Board making its decision to approve the Offer, will be included in the formal offer to purchase and issuer bid circular and other related documents (the “Offer Documents”), which are expected to be mailed to shareholders and filed with applicable Canadian Securities Administrators on or about December 1, 2021 on SEDAR and on the Corporation’s Shareholders should carefully read the Offer Documents prior to making a decision with respect to the Offer. The Offer will not be conditional on any minimum number of Shares being tendered but will be subject to various other conditions that are typical for a transaction of this nature.
The Offer will expire at 5 p.m. Eastern time on January 11, 2022, unless terminated or extended by the Corporation. If more than 3,000,000 Shares are properly tendered to the Offer, the Corporation will take-up and pay for the tendered Shares on a pro-rata basis according to the number of Shares tendered, except that “odd lot” tenders (of holders beneficially owning fewer than 100 Shares) will not be subject to pro-ration. Assuming that 3,000,000 Shares are purchased pursuant to the Offer, the aggregate purchase price pursuant to the Offer will be $11,250,000.
The Board has authorized the making of the Offer. However, the Board is not making any recommendation to any Shareholders as to whether to tender or refrain from tendering their Shares under the Offer. Shareholders are strongly urged to consult their own financial, tax and legal advisors and to make their own decisions whether to tender or to refrain from tendering their Shares to the Offer and, if so, how many Shares to tender. The Corporation was authorized by the TSXV to purchase up to 2,332,697 Shares pursuant to a normal course issuer bid (the “NCIB”) that commenced on January 18, 2021 and expires on January 17, 2022. Since January 18, 2021, the Corporation has purchased 296,100 Shares through the NCIB. There will be no further purchases of Shares under the NCIB until after the expiry of the Offer or date of termination of the Offer.
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Source of Funds and New Credit Facilities
DLC has adequate cash on hand or, alternatively, expected available under the credit facilities of the Corporation, to fund the purchase of the maximum number of Shares that could be purchased under the Offer including the related fees and expenses. Accordingly, the completion of the Offer is not conditional on obtaining financing.
The Corporation has received a term sheet from Toronto-Dominion Bank (the “TD Term Sheet”), the lender to the Core Business Operations, providing for a $5 million working capital credit line; a $10 million acquisition credit line; and a $20 million credit line to fund the Offer and a pro rata (40%) dividend to Preferred Shareholders (collectively, referred to as the “New TD Senior Credit Facility”). Further, the TD Term Sheet also provides the Corporation with a $32 million term loan to facilitate the repayment of all indebtedness of the Corporation under the current Sagard credit facility and to terminate all existing foreign currency forward contracts (referred to as the “New TD Junior Credit Facility”).
Closing of the new credit facilities are subject to customary closing conditions. As such, the Corporation believes that the possibility to be remote that, if the conditions of the bid are satisfied or waived, that the Corporation will be unable to pay for the Shares deposited under the Offer due to a financing condition not being satisfied.
The New TD Senior Credit Facility is for a three (3) year term and will be secured by a first charge over all of the Corporation’s “core business assets”. The proceeds from the New TD Senior Credit Facility will be used to: (i) replace the current credit facilities for the Core Business Operations; (ii) provide the Corporation with $12 million to fund the Offer; and (iii) provide the Preferred Shareholders with dividend in an amount equal to their pro rata share of the borrowings used to fund the Offer. In the event that 3,000,000 Shares are tendered under the Offer (for cash proceeds of $11.25 million), it is anticipated that the Corporation would pay a dividend to Preferred Shareholders of $7.5 million. Interest on the New TD Senior Credit Facility is based on the prime borrowing rate plus an additional amount determined based on the Corporation’s total leverage. On closing of the New TD Senior Credit Facility, the interest rate is anticipated to be equal to the prime borrowing rate. Upon completion of the Offer, any amounts undrawn on the $20 million credit line will be cancelled.
The New TD Junior Credit Facility is for a three (3) year term and will be secured by a first charge over all of the Corporation’s “non-core business assets” and a junior security interest over the Corporation’s “core business assets” (subject to certain security-sharing rights of the Preferred Shareholders). The proceeds from the New TD Junior Credit Facility will be used to repay the existing Sagard credit facility and to terminate all existing foreign currency forward contracts. Interest on the New TD Junior Credit Facility is based on the prime borrowing rate plus an additional amount determined based on the Corporation’s total leverage. On closing of the New TD Junior Credit Facility, the interest rate is anticipated to be prime plus 75 bps and any undrawn amount under the facility will be cancelled.
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