Eppley to refinance debt through new preference share issue
WITH a very buoyant debt market and low interest rates in a COVID-19 environment, Eppley Limited has decided to refinance $1.21 billion of debt through the issuance of three new classes of preference shares which can be upsized from the $1.20billion target to $1.45 billion.
The company, which is a specialist financier and asset manager, first tapped the preference share market in November 2013 where it successfully raised $300 million in capital to expand its business lines. This was just months after Eppley listed in July on the Jamaica Stock Exchange’s (JSE) Junior Market, which it graduated from to the Main Market at the end of 2018. Eppley raised $82.6 million in its IPO and saw its total assets rise from $436.63 million in September 2013 to $4.29 billion at the end of March 2021.
Eppley is looking to issue 15 million units of Class A preference shares with a 5 per cent rate due in 2023; 25 million of Class B preference shares with a 7.25 per cent rate due in 2026; and 20 million units of Class C preference shares with a 7.75 per cent rate due in 2028. The issue is upsizeable by 12.5 million shares, with 5 million shares going to the Class B shares and the remaining 7.5 million shares to Class C. All of the preference shares are priced at $20 each, with a minimum 200 shares ($4,000) required to subscribe to the offer and increments being allowed in multiples of 100 units ($2,000).
“We are building a high-quality regional investment business that combines earnings from our proprietary portfolio with earnings from our asset management business. While we continue to focus on asset management for the remainder of the year, we also expect an increase in earnings from our proprietary investment portfolio. Eppley’s investment philosophy and business model are well suited for the current market environment. Our strategy of maintaining adequate liquidity for deployment into attractive opportunities has served us well and enabled the company to remain resilient in the face of the COVID-19 pandemic. Following record profitability in 2020 we are now seeing strong demand across all of our business lines — and primarily for loans, leases and infrastructure investments. We anticipate deploying additional capital to these areas in the remainder of 2021,” stated general manager of Eppley, Justin Nam in an email interview with the
Jamaica Observer’s Business
Observer about the company’s direction. Nicholas Scott is the managing director of Eppley with P B Scott serving as chairman.
Eppley is retiring its $361.6million preference share debt due in December at a rate of 8.25 per cent, along with its $250-million preference share debt due in December 2023 at a rate of 8.75 per cent. The company is also retiring a structured note due in July 2022 with a value of $335 million plus a Us$1.5-million ($225-million) note due in August 2021 at a rate of 4.75 per cent. The cumulative value of the debt is $1.206 billion, with the preference share offer expected to cost $35 million to execute. However, Nam noted that the company is expected to save $9 – $10 million in annual interest expenses from this refinancing.
When asked as to why Eppley didn’t attempt to raise USdollar (USD) debt in this issue, especially as it retires a USD note, Nam stated, “We carefully assessed our funding needs and pipeline and it is our view that it is prudent to match the currency of our funding with our expected use of proceeds.” Eppley gained the approval from the holders of its USD preference shares in July 2020 to extend the maturity of the preference shares from December 2021 to January 2024. This was done with the consideration that the agreed rate would be increased from 5 per cent to 6 per cent per annum. Eppley’s other major USD debt issuance is a bond valued at US$4 million ($600 million) which was set to mature in March 2021. Eppley held $795.93 million in cash and cash equivalents at the end of March 2021.
Although Eppley’s net profit improved by 26 per cent to $50.88 million, its net interest income revenue line fell by 58 per cent to $17.33 million. This was largely due to the 18 per cent year-over-year drop in loans receivable which closed the quarter at $1.33 billion. However, asset management income rallied by 113 per cent to $73 million as the portfolio of Eppley Caribbean Property Fund and Caribbean Mezzanine Fund II expanded during the period. Total liabilities for Eppley stood at $3.40 billion while shareholders’ equity closed the quarter at $895.17 million.
Nam noted that, “The use of proceeds of the offer is primarily to refinance existing preference share issues. If the offer is upsized the additional proceeds may be used to fund the continued expansion of our proprietary investment portfolio. We have been experiencing increased demand across all of our business lines but particularly in loans, leases and infrastructure investments.”
Interested investors can apply for the preference share offer using lead broker Sagicor Investments Limited’s einvest platform. The offer opens on July 12 and closes on July 26, subject to a 40-day extension if the company decides to utilise that option. The offer needs to raise at least $500 million in order for it to be successful and eventually be listed on the JSE’S Main Market.