Centric Health Completes $42 Million Debt Refinancing

Mar 31, 2020
5:00pm

Centric Health also provides enhanced disclosure for expected shareholder consent for Remedy's Acquisition

TORONTO, March 31, 2020 /CNW/ - Centric Health Corporation ("Centric Health" or the "Company") (TSX: CHH) announced today that it has now signed definitive credit agreements with Crown Capital Partner Funding, LP ("Crown Capital") and Yorkville Asset Management Inc. for and on behalf of certain managed funds ("Yorkville") pursuant to which Crown Capital and Yorkville will advance up to $42 million to Centric Health and has closed on its initial draws under such facilities for aggregate proceeds of $28 million. The new credit facilities will be used by the Company to repay its existing senior and subordinated bank indebtedness in full, to fund the closing cash purchase price for the Company's previously announced acquisition of Remedy Holdings Inc. and the Remedy'sRx Specialty Pharmacy business (the "RHI Acquisition"), and for working capital purposes. Centric Health is also providing enhanced disclosure in relation to the RHI Acquisition in order to meet certain Toronto Stock Exchange ("TSX") requirements in advance of it seeking written shareholder consent for the transaction.

Crown Capital Facilities

The Company has signed a definitive credit agreement with Crown Capital pursuant to which Crown Capital will advance credit facilities to the Company of up to $30 million in three tranches (the "Crown Capital Facilities"), including: (i) an initial tranche of $22 million, which was advanced on March 31, 2020, (ii) a second tranche of $5 million upon closing of the RHI Acquisition, and (iii) a third tranche of $3 million upon the Company reaching certain financial milestones. The Crown Capital Facilities have a five-year term, and interest will accrue at the rate of 10% per annum (which will decrease to 8% once the Company meets certain financial milestones). The Crown Capital Facilities provide for a two-year amortization holiday, the ability to prepay up to $5 million at any time without penalty, and require the Company to maintain a net debt to EBITDA ratio of less than 4.75x, which threshold will decline over time. The Crown Capital Facilities are guaranteed by the Company's subsidiaries and secured by the assets of the Company and each of its subsidiaries. In addition, the Company issued 7,200,000 warrants to Crown Capital, with each warrant entitling the holder thereof to acquire one Common Share at an exercise price of $0.25 per share for a period of five years.

Yorkville Facilities

The Company has also signed a definitive credit agreement with Yorkville pursuant to which Yorkville will advance credit facilities to the Company of up to $12 million (the "Yorkville Facilities", and together with the Crown Capital Facilities, the "New Credit Facilities") in two tranches: (i) an initial tranche of $6 million, which closed on March 31, 2020, and (ii) a second tranche of $2 million (which may be increased by an additional $4 million at Yorkville's option), which is expected to close contemporaneously with the RHI Acquisition. The Yorkville Facilities are guaranteed by the Company's subsidiaries and secured by the assets of the Company and each of its subsidiaries, and rank in priority to the Company's existing subordinated convertible debentures but subordinate to the Crown Capital Facilities. Interest on the Yorkville Facilities will accrue at the rate of 12%, increasing to 14% to the extent that the Company does not meet certain financial covenants by the third quarter of 2021. The Yorkville Facilities will mature 24 months from closing, subject to certain prepayment rights of the Company or the mutual agreement of the Company and Yorkville to extend the maturity date.

As previously disclosed, the Subordinated Loan constitutes a "related party transaction" within the meaning of Multilateral Instrument 61-101 – Protection of Minority Holders in Special Transactions ("MI 61-101") as Yorkville is a control person of Centric and is therefore a "related party" of Centric under MI 61-101. The Company has relied on the exemption from the minority shareholder approval requirement contained in section 5.7(1)(f) of MI 61-101 in respect of the Subordinated Loan as the Subordinated Loan has been obtained from Yorkville on reasonable commercial terms that are not less advantageous to the Company than if the Subordinated Loan was obtained from a person dealing at arm's length with the Company and is not convertible or repayable in Common Shares.

Exchange and Shareholder Approval of the RHI Acquisition

As previously disclosed in the Company's press release of March 24, 2020, Centric Health anticipates closing the second tranche of its New Credit Facilities contemporaneously with the closing of the RHI Acquisition in the second quarter of 2020, which remains subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals and the approval of Centric Health shareholders. Under the rules of the TSX, shareholder approval is required in respect of the RHI Acquisition as the RHI Acquisition is expected to materially affect control (as such term is defined in the TSX Company Manual) of the Company requiring shareholder approval pursuant to section 604(a)(i) of the TSX Company Manual and result in dilution in excess of 25% of the Company's issued and outstanding Common Shares requiring shareholder approval pursuant to sections 611(c) and (g) of the TSX Company Manual. The Company anticipates obtaining shareholder approval for the RHI Acquisition and the related share issuances thereunder by way of written consent of shareholders holding the majority of the issued and outstanding common shares of the Company in lieu of a meeting pursuant to Section 604(d) of the TSX Company Manual.

As previously disclosed, the purchase price payable in respect of the RHI Acquisition is expected to be up to $44 million, subject to adjustments, such amount being comprised of:

  • $31 million of consideration due on closing, including $8 million of cash and $23 million of common shares of Centric Health ("Common Shares") to be issued at an implied price of $0.184 per Common Share, subject to adjustment in certain circumstances (the "Consideration Share Price"), which, assuming a Consideration Share Price of $0.184, would result in the issuance of up to 125 million Common Shares;

  • $8 million of deferred consideration, comprised of (i) $4 million of deferred consideration due 12 months following closing, and (ii) $4 million of consideration payable under a vendor take-back note (the "Vendor Take-Back Note") (together with any accrued interest thereon) due 18 months following closing (collectively, the "Deferred Amounts"), each of which is to be paid in cash, or in certain circumstances Common Shares; and

  • Earn-out consideration of up to $5 million payable in cash if certain performance targets are achieved over the next two years.

In the event any Deferred Amounts are to be satisfied in Common Shares, the issuance of such Common Shares shall be made at the lower of the Consideration Share Price and the 60-day volume-weighted average share price (the "VWAP") of the Common Shares at the time of such payment.

As of the date hereof, Centric Health has 295,150,096 Common Shares issued and outstanding. Upon closing of the RHI Acquisition, it is expected that up to 125,000,000 Common Shares will be issued to certain of the vendors of the Remedy'sRx Specialty Pharmacy business under the RHI Acquisition (the "Sellers"), representing 42.4% of the Company's current issued and outstanding Common Shares before giving effect to the RHI Acquisition (or 29.8% after giving effect to the RHI Acquisition). While the Company is required to settle all of the Deferred Amounts in cash, there is the potential that if the Company cannot fulfil this obligation that the Deferred Amounts could be settled through the issuance of Common Shares. If such Common Shares were to be issued at a Consideration Share Price of $0.184, it is possible that up to an additional 44,021,739 Common Shares could be issued to certain Sellers in satisfaction of such Deferred Amounts, in which case, the Common Shares issued pursuant to the RHI Acquisition, together with the 7,200,000 warrants issued to Crown Capital, would collectively represent 59.7% of the Company's current issued and outstanding Common Shares before giving effect to the RHI Acquisition and assuming no prior conversion of any of the Company's existing convertible securities (or 41.9% after giving effect to the RHI Acquisition and the satisfaction of the Deferred Amounts in Common Shares). However, because the Deferred Amounts (including any interest accrued on the Vendor Take-Back Note), to the extent not paid in cash, could result in the issuance of a number of Common Shares that is tied to the VWAP at the time of issuance, it is possible that an even greater number of Common Shares could be issued and such number of Common Shares cannot be determined at this time.

In accordance with applicable TSX policies, the Company is required to show hypothetical scenarios of issuances of Common Shares that could theoretically become issuable in the event that all Deferred Amounts are satisfied in Common Shares. For these purposes, the Company has assumed that (i) $100,000 of interest has accrued and remains unpaid in respect of the Vendor Take-Back Note as of the date of issuance, and (ii) none of the Company's existing convertible securities have been converted prior to the date of issuance. In the following hypothetical scenarios, assuming that the Deferred Amounts were satisfied in Common Shares issued at arbitrary prices of $0.15, $0.10 and $0.05, an additional 54,000,000 Common Shares, 81,000,000 Common Shares or 162,000,000 Common Shares, respectively, could become issuable to certain Sellers. In those circumstances, such Sellers would hold an aggregate of 179,000,000, 206,000,000 or 287,000,000 Common Shares, representing 37.8%, 41.1% or 49.3%, respectively, of the Common Shares outstanding after giving effect to the RHI Acquisition (assuming no other conversion of any convertible securities).  

It is anticipated that approximately 96% of the Common Shares issuable to the Sellers on closing of the RHI Acquisition will be issued to Remedy Capital Corporation ("RCC"), which is an entity controlled by Bruce Moody. Given the foregoing, it is expected that the RHI Acquisition will have a material effect on control of Centric Health resulting in Bruce Moody becoming a control person as of closing of the RHI Acquisition with the power to hold, control or direct 119,946,554 Common Shares, representing approximately 28.6% of the Company's current issued and outstanding Common Shares after giving effect to the RHI Acquisition. Upon closing of the RHI Acquisition, but before settlement of any Deferred Amounts, to the knowledge of the Corporation, the only shareholders of the Corporation that would hold in excess of 10% of the then-outstanding Common Shares are set out below:

Investor

Current Shares and Convertible Securities Held

Pro Forma % Ownership (Basic, Non-Diluted)

Pro Forma % Ownership (Partially Diluted1)

Pro Forma % Ownership (Fully Diluted)2

Yorkville

Common shares currently held: 62,500,000

14.9%

35.9%

29.2%

Common shares issuable upon conversion of all convertible securities currently held by the holder: 137,733,333

Dr. Jack Shevel

Common shares currently held: 55,442,706

13.2%

19.6%

13.0%

Common shares issuable upon conversion of all convertible securities currently held by the holder: 33,648,331

Ewing Morris & Co. Investment Partners Ltd. ("Ewing Morris")

Common shares currently held: None

nil

13.7%

9.7%

Common shares issuable upon conversion of all convertible securities currently held by the holder: 66,826,667

Bruce Moody3

N/A

28.6%

28.6%4

17.5%


Notes:


1.

"Partially Diluted" means the holder's ownership interest calculated assuming the exercise or conversion of all securities held by such holder that are exercisable for or convertible into Common Shares and excluding the exercise or conversion of all securities held by any other person that are exercisable for or convertible into Common Shares.


2.

"Fully Diluted" means the holder's ownership interest calculated assuming the exercise or conversion of all securities that are exercisable for or convertible into Common Shares.


3.

Through his ownership in RCC.


4.

In the event any of Yorkville or Dr. Jack Shevel or Ewing Morris (but no other holder) were to convert their convertible securities into Common Shares, Mr. Moody's pro forma percentage ownership would decrease to 21.5%, 26.4% or 24.6%, respectively.

 

Other than Yorkville's interest in the Subordinated Loan, which was unanimously approved by the disinterested members of the Board and determined by such members of the Board to be on reasonable commercial terms that are not less advantageous to the Company than if the loan or credit facility were obtained from a person dealing at arm's length with the Company, no other insiders have any interest, directly or indirectly, in the RHI Acquisition.

The closing of the RHI Acquisition will occur as soon as the applicable closing conditions have been satisfied, but in no event earlier than April 14, 2020 in accordance with TSX rules.

ABOUT CENTRIC HEALTH

Centric Health's vision is to be the leading provider of pharmacy and other healthcare services to Canadian seniors. Centric Health is one of Canada's leading, and most trusted providers of comprehensive Specialty Pharmacy services and solutions to seniors. Centric Health operates a large national network of pharmacy fulfilment centres that deliver high-volume solutions for the cost-effective supply of chronic medication and other specialty clinical pharmacy services, serving more than 31,000 residents in over 460 seniors communities (long-term care, retirement homes, and assisted living facilities) nationally.

With services that address the growing demand within the Canadian healthcare system, Centric Health's unparalleled national care delivery platform provides significant potential for future expansion and growth.

FORWARD-LOOKING STATEMENTS

This press release contains statements that may constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation.  These forward-looking statements include, among others, statements regarding the Company's business strategy, plans and other expectations, beliefs, goals, objectives, information and statements about possible future events, including in respect the expected receipt of shareholder approval for the RHI Acquisition, closing of the RHI Acquisition and future advances under the Crown Capital Facilities and the Yorkville Facilities. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate" or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include the Company's liquidity and capital requirements, government regulation and funding, the highly competitive nature of the Company's industry, reliance on contracts with key customers and other risk factors described from time to time in the reports and disclosure documents filed by the Company with Canadian securities regulatory agencies and commissions. These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The factors underlying current expectations are dynamic and subject to change.

SOURCE Centric Health Corporation

For further information: Media Contacts: Centric Health Corporation, David Murphy, President and Chief Executive Officer, Centric Health Corporation, 416-927-8400; Andrew Mok, Chief Financial Officer, Centric Health Corporation, 416-927-8400