Tidewater Midstream and Infrastructure Ltd. (“Tidewater” or the “Company”) (TSX: TWM) announces a financing plan to fully fund the repayment of its $125 million senior unsecured notes due December 19, 2022 (the “Senior Unsecured Notes”) and $20 million second lien term loan (the “Second Lien Term Loan”). The Company intends to use new capital sources as follows:
  • $70 million draw on the Company’s senior credit facility that, through an expanded syndicate of lenders, the Company intends to increase in size to $550 million (the “Expanded Senior Credit Facility”);
  • $40.5 million offering of units (“Units”) issued to the public on a bought deal basis (the “Public Offering”) at a price of $1.20 per Unit (the “Issue Price”), each Unit will be comprised of one common share of the Company (each a “Common Share”) and one-half of one common share purchase warrant (each full warrant, a “Warrant”). Each Warrant will entitle the holder to acquire one Common Share from the Company at a price of $1.44 per Common Share for a period of 24 months following the closing of the Public Offering; and
  • $34.5 million offering of Units to affiliates of Birch Hill (as defined below), the Company’s largest shareholder, funds managed and advised by Kicking Horse Capital Inc. (respectively, the “Kicking Horse Funds” and "Kicking Horse"), and officers of the Company on a non-brokered private placement basis (the “Private Placement”), to be issued at the Issue Price and comprised of one Common Share and one-half of one Warrant.

The new capital sources outlined above will fully refinance the maturing Senior Unsecured Notes and Second Lien Term Loan. The expenses of the refinancing will be funded via the Expanded Senior Credit Facility. Following the completion of the refinancing, Tidewater is expected to have remaining liquidity of approximately $70 million under its Expanded Senior Credit Facility. The combination of the equity raise, the increased liquidity from the Expanded Senior Credit Facility, and the strong performance of the Company, places Tidewater in a strong financial position going forward.

“These transactions simplify Tidewater’s balance sheet and enhance liquidity to provide a durable financial base for our business. Our strong business performance is driving financial results that have us at the lower end of our leverage targets and in a strong position to progress our growth initiatives,” comments Tidewater’s Chairman and CEO, Joel Macleod.

SECOND QUARTER 2022 RESULTSConsistent operating results combined with favorable refining margins have led to strong second quarter of 2022 financial results for the Company. During the second quarter, the Company’s Pipestone Gas Plant processed volumes in excess of 100 MMcf/d, above forecast volumes and the Company’s Prince George Refinery realized strong refining margins. Additionally, Tidewater Renewables Ltd. ("Tidewater Renewables"), a subsidiary in which Tidewater owns a 69% interest, has exceeded initial forecasts due to increased renewable diesel prices and carbon credit values.   Strong aggregate business performance for Tidewater has driven initial second quarter 2022 consolidated net income estimates of $18-$20 million and Consolidated Adjusted EBITDA of $67-$69 million, with Tidewater Renewables generating $4-5 million of net income and $15-$16 million of Adjusted EBITDA supporting the Company’s full year outlook released with Tidewater’s first quarter results. Full second quarter 2022 financial results are expected to be released on August 11, 2022.

EXPANDED SENIOR CREDIT FACILITYThrough an expanded syndicate of lenders including two of Canada’s largest financial institutions, the Company intends to increase the size of its senior credit facility by approximately 30% to $550 million with the facility maturing in mid-year 2024. With the announced refinancing transaction, the Company’s current senior lenders have eliminated the previously announced deadline to refinance the Senior Unsecured Notes and Second Lien Term Loan.

SECOND LIEN FACILITYTidewater has received a binding commitment from affiliates of its largest shareholder, Birch Hill Private Equity Partners Fund V (“Birch Hill”), for a second lien debt facility of up to $15 million available to the Company until November 30, 2022 (the “Second Lien Facility”). The Second Lien Facility could be used to reduce the borrowings under the Expanded Senior Credit Facility if the Company does not reduce such facility through other means prior to November 30, 2022. The Company does not expect to draw upon the Second Lien Facility. If drawn, the Second Lien Facility will bear interest at the rate of 9.85% per annum and will mature on October 18, 2024. A commitment fee of $1.75 million is payable to Birch Hill upon availability of the Second Lien Facility. Borrowings under the Second Lien Facility will be subject to an original issue discount of 3.25% and a one-time fee of $750,000. The Company will have the ability to repay the Second Lien Facility at any time prior the maturity date without any additional premium or penalty.

The closing of the Second Lien Facility is subject to the closing of the Offering (as defined below) and certain other customary closing conditions including approval from the Toronto Stock Exchange (“TSX”).

Birch Hill is a related party within the meaning of Multilateral Instrument 61-101 ‎Protection of Minority Security Holders in Special ‎Transactions (“MI 61-101”).

UNIT FINANCINGThe Company has entered into agreements to raise $75 million of new equity via an issuance of Units. $40.5 million of the Units will be issued via the Public Offering and $34.5 million of the Units will be issued via the Private Placement to Birch Hill, the Kicking Horse Funds and certain Tidewater directors and officers (the Private Placement, together with the Public Offering, the “Offering”). Net proceeds from the Offering, together with amounts drawn under Tidewater’s Expanded Senior Credit Facility will be used to repay Tidewater’s Senior Unsecured Notes and Second Lien Term Loan.

Tidewater has entered into an agreement with a syndicate of underwriters (the “Underwriters”) led by CIBC Capital Markets, National Bank Financial, RBC Capital Markets and ATB Capital Markets Inc. pursuant to the Public Offering by which the Company will issue $40.5 million aggregate amount of Units at a price of $1.20 per Unit to the public on a “bought deal” basis. Each Unit will consist of one Common Share and one-half of one Warrant. Each Warrant will entitle the holder to acquire one Common Share from the Company at a price of $1.44 per Common Share for a period of 24 months following the closing of the Offering.

Additionally, the Company will issue a total of $34.5 million of Units pursuant to the Private Placement. Units will be issued to Birch Hill in the amount of $17 million, Kicking Horse Funds in the amount of $16 million and certain officers of Tidewater in the amount of $1.5 million. Units issued in the Private Placement will be sold at the Issue Price. Birch Hill and Kicking Horse Funds will be paid a commitment fee of 5% each on their subscriptions ($850,000 and $800,000 respectively), equal to the underwriting fee in the Public Offering.

The Company has granted the Underwriters of the Public Offering an option (the “Over-Allotment Option”), exercisable at the Issue Price for a period of 30 days following the closing of the Public Offering, to purchase up to an additional 15% of the Public Offering to cover over-allotments, if any. This Over-Allotment Option may be exercised by the Underwriters for additional Units, Common Shares, Warrants or any combination of such securities (the “Securities”). Should the Over-Allotment Option be exercised, the subscribers under the Private Placement will have the option to purchase on a pro-rata basis additional Securities that are purchased by the Underwriters pursuant to the Over-Allotment Option.

The Units offered under the Public Offering will be offered in each of the provinces of Canada by way of a short form prospectus, and by way of private placement in the United States to “qualified institutional buyers” pursuant to Rule 144A or in such a manner as to not require registration under the U.S. Securities Act of 1933, as amended.

The Offering is expected to close on or about August 16, 2022, and closing of each of the Public Offering and Private Placement will be subject to, among other things, customary conditions, the concurrent closing of the other such Offering and the entering into the Expanded Senior Credit Facility. The Offering is subject to the approval of the TSX.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in the United States or in any other jurisdiction in which such offer, solicitation or sale would be unlawful. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.

RETIREMENT OF SENIOR UNSECURED NOTES AND SECOND LIEN TERM LOANThe Company has committed to retire the $125 million Senior Unsecured Notes due December 19, 2022‎. Following the closing of the Offering, the Company will provide 10 days’ notice of redemption to holders to satisfy the obligations of the notes. Tidewater also intends to fully repay the Second Lien Term Loan upon the closing of the Offering.

BOARD OF DIRECTORS UPDATEIn connection with the transaction and an investment by the Kicking Horse Funds of $16 million in the Private Placement, Thomas P. Dea will join the Board of Directors of the Company. Mr. Dea is the President and CEO of Kicking Horse, a Toronto-based investment manager. He was previously a Partner with West Face Capital Inc. and a Managing Director of Onex Corporation. Pursuant to and in connection with the Private Placement, the Company and Kicking Horse will enter into a board nomination agreement whereby the Company will agree to nominate Mr. Dea, or another Kicking Horse nominee so long as the Kicking Horse Funds hold at least 2% of the issued and outstanding basic common shares of the Company.

TRANSACTION DECISION AND APPROVALSThe Board of Directors has determined that the comprehensive financing package and associated transactions as described herein are in the Company's best interests as it will allow the Company to fully finance the retirement of the $125 million Senior Unsecured Notes due December 19, 2022 and $20 million Second Lien Term Loan due ‎October 31, 2022‎ and provide the Company with additional liquidity under its Expanded Senior Credit Facility.

This determination was based on a number of factors, including but not limited to, the unanimous recommendation of a special committee of independent directors formed to consider the Company's financing after consultation with the Company's financial and legal advisors.

The involvement of management and Birch Hill in the Offering and Second Lien Facility are “related party transactions” within the meaning of MI 61-101 and the Company is relying on the exemptions in sections 5.5(a) and 5.7(a) [Fair Market Value Not More Than 25% of Market Capitalization] of MI 61-101 in connection with such transactions, as the aggregate fair market value of such transactions does not exceed 25% of the Company’s current market capitalization.

ABOUT TIDEWATERTidewater is traded on the TSX under the symbol “TWM”. Tidewater's business objective is to build a diversified midstream and infrastructure company in the North American natural gas, natural gas liquids, crude oil, refined product, and renewable energy value chain. Its strategy is to profitably grow and create shareholder value through the acquisition and development of conventional and renewable energy infrastructure. To achieve its business objective, Tidewater is focused on providing customers with a full service, vertically integrated value chain through the acquisition and development of energy infrastructure, including downstream facilities, natural gas processing facilities, natural gas liquids infrastructure, pipelines, railcars, export terminals, storage, and various renewable initiatives. To complement its infrastructure asset base, the Company also markets crude, refined product, natural gas, NGLs and renewable products and services to customers across North America.

Tidewater is a majority shareholder in Tidewater Renewables, a multi-faceted, energy transition company focusing on the production of low carbon fuels. Tidewater Renewables' common shares are publicly traded on the TSX under the symbol “LCFS”.

FURTHER INFORMATION:

For more information, please contact:

Joel Macleod, Chairman & Chief Executive Officer  Brian Newmarch, Chief Financial Officer
Tidewater Midstream and Infrastructure Ltd. Tidewater Midstream and Infrastructure Ltd.
Phone: (587) 475-0210 Phone: (587) 315-8368
Email: jmacleod@tidewatermidstream.com  Email: bnewmarch@tidewatermidstream.com 

NON-GAAP MEASURES

Throughout this press release and in other materials disclosed by the Company, Tidewater uses a number of financial measures when assessing its results and measuring overall performance. The intent of non-GAAP measures and ratios is to provide additional useful information to investors and analysts. Certain of these financial measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other entities. As such, these measures should not be considered in isolation or used as a substitute for measures of performance prepared in accordance with GAAP. For more information with respect to financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the “Non-GAAP Measures” section of Tidewater’s most recent MD&A which is available on SEDAR.

Non-GAAP Financial Measures

Consolidated Adjusted EBITDA is calculated as income (or loss) before finance costs, taxes, depreciation, share-based compensation, unrealized gains/losses on derivative contracts, non-cash items, transaction costs, lease payments under IFRS 16 Leases and other items considered non-recurring in nature plus the Company’s proportionate share of EBITDA in their equity investments. Consolidated Adjusted EBITDA is used by management to set objectives, make operating and capital investment decisions, monitor debt covenants and assess performance. In addition to its use by management, Tidewater also believes consolidated Adjusted EBITDA is a measure widely used by securities analysts, investors, lending institutions, and others to evaluate the financial performance of the Company and other companies in the midstream industry. The Company issues guidance on this key measure. As a result, consolidated Adjusted EBITDA is presented as a relevant measure in the MD&A to assist analysts and readers in assessing the performance of the Company as seen from management’s perspective.

Capital Management Measures

Consolidated net debt is used by the Company to monitor its capital structure and financing requirements. It is also used as a measure of the Company’s overall financial strength. Consolidated net debt is defined as bank debt, notes payable and convertible debentures, less cash. In addition to reviewing consolidated net debt, management reviews deconsolidated net debt to highlight the Company’s financial flexibility, balance sheet strength and leverage. Deconsolidated net debt is calculated as consolidated net debt less the portion attributable to Tidewater Renewables. Consolidated and deconsolidated net debt exclude working capital, lease liabilities and derivative contracts as the Company monitors its capital structure based on deconsolidated net debt to deconsolidated Adjusted EBITDA, consistent with its credit facility covenants.

FORWARD LOOKING STATEMENTS Certain statements contained in this press release constitute forward-looking statements and forward-looking information (collectively referred to herein as, “forward-looking statements“) within the meaning of applicable Canadian securities laws. Such forward-looking statements relate to future events, conditions or future financial performance of Tidewater based on future economic conditions and courses of action. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of any words such as “seek”, “anticipate”, “budget”, “plan”, “continue”, “forecast”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “believes”, “estimated”, “intends”, “plans”, “projection”, “outlook” and similar expressions. These statements involve known and unknown risks, assumptions, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon.

In particular, this press release contains forward-looking statements pertaining to but not limited to the following:

  • the use of the proceeds from the Offering, together with amounts drawn under Tidewater’s Expanded Senior Credit Facility and potentially the Second Lien Facility
  • the expectation that the Second Lien Facility will not be drawn;
  • these transactions simplify Tidewater’s balance sheet and enhance liquidity to provide a durable financial base for our business and future growth;
  • that the Over-Allotment Option may be exercised and may ultimately increase the size of the Private Placement;
  • the receipt of all required regulatory and other approvals and the satisfaction of all conditions to the completion of the transactions describe herein;
  • the expected closing of the Offering and the other financing transactions described herein;
  • Tidewater will enter into a board nomination agreement with Kicking Horse and Mr. Dea will be appointed to its board of directors upon closing
  • the comprehensive financing package and associated transactions as described herein are in the Company's best interests as it will allow the Company to fully finance the retirement of the $125 million Senior Unsecured Notes due December 19, 2022 and $20 million Second Lien Term Loan due ‎October 31, 2022.

Any financial outlook or future oriented financial information (in each case "FOFI") contained in this news release regarding prospective financial position, including, but not limited to: the Company's expectations for its net income estimates, its Consolidated Adjusted EBITDA, Tidewater Renewables' net income and Adjusted EBITDA, are based on reasonable assumptions about future events, including those described below, and based on an assessment by management of the relevant information that is currently available. The actual results will likely vary from the amounts set forth herein and such variations may be material.

Although the forward-looking statements and FOFI contained in this press release are based upon assumptions which management of the Company believes to be reasonable, the Company cannot assure investors that actual results will be consistent with these forward-looking statements and FOI. With respect to forward-looking statements and FOI contained in this press release, the Company has assumptions regarding, but not limited to:

  • the Company’s ability to satisfy the conditions to completion of the transactions described herein;
  • Tidewater’s ability to execute on its business plan;
  • general economic and industry trends including the duration and effect of the COVID-19 pandemic;
  • liabilities inherent in operations in the energy industry;
  • impacts of commodity prices and demand on the Company's working capital requirements; continuing government support for existing policy initiatives;
  • the Company's ability to obtain and retain qualified staff and equipment in a timely and cost effective manner;
  • the ability to obtain additional financing on satisfactory terms;
  • foreign currency, exchange and interest rates, and expectations relating to inflation;
  • the Company's future debt levels and the ability of the Company to repay its debt when due;
  • that PGR crack spreads remain strong and refined product demand continues to increase;
  • future commodity prices, including natural gas, crude oil, NGL and renewable energy prices;
  • processing and marketing margins;
  • that there are no unforeseen events preventing the performance of contracts;
  • Cenovus volume demands from the PGR are consistent with forecasts;
  • assumptions regarding amount of operating costs to be incurred;
  • that there are no unforeseen material costs relating to the facilities which are not recoverable from customers;
  • distributable cash flow and net cash provided by operating activities are consistent with expectations;
  • the ability of Tidewater to successfully market its products; and
  • credit rating changes.

The Company's actual results could differ materially from those anticipated in the forward-looking statements and FOFI, as a result of numerous known and unknown risks and uncertainties and other factors including but not limited to:

  • changes in demand for refined and renewable products;
  • general economic, political, market and business conditions, including fluctuations in interest rates, foreign exchange rates, stock market volatility, supply/demand trends and inflationary pressures;
  • risks of health epidemics, pandemics, public health emergencies, quarantines, and similar outbreaks, including COVID-19, which may have sustained material adverse effects on the Company's business financial position results of operations and/or cash flows;
  • competition for business capital;
  • changes in the creditworthiness of counterparties;
  • changes in the credit rating of the Company, and the impacts of this on the Company’s access to private and public credit markets in the future and increase the costs of borrowing;
  • adverse claims made in respect of the Company's properties or assets;
  • risks and liabilities associated with the transportation of dangerous goods and derailments;
  • reliance on key personnel;
  • technology and security risks, including cybersecurity;
  • potential losses which would stem from any disruptions in production, including work stoppages or other labour difficulties, or disruptions in the transportation network on which the Company is reliant;
  • activities of producers and customers and overall industry activity levels;
  • failure to negotiate and conclude any required commercial agreements;
  • non-performance of agreements in accordance with their terms;
  • failure to execute formal agreements with counterparties in circumstances where letters of intent or similar agreements have been executed and announced by Tidewater;
  • failure to close transactions as contemplated and in accordance with negotiated terms;
  • that the resolution of any particular legal proceedings could have an adverse effect on the Company's operating results or financial performance;
  • operational matters, including potential hazards inherent in the Company's operations and the effectiveness of health, safety, environmental and integrity programs;
  • actions by governmental authorities, including changes in government regulation, tariffs and taxation;
  • changes in operating and capital costs, including fluctuations in input costs;
  • effects of weather conditions;
  • legal risks and environmental risks and hazards, including risks inherent in the transportation of NGLs and refining of light crude oils which may create liabilities to the Company in excess of the Company's insurance coverage, if any;
  • actions by joint venture partners or other partners which hold interests in certain of the Company’s assets;
  • reliance on key relationships and agreements;
  • potential losses which would stem from any disruptions in production, including work stoppages or other labour difficulties, or disruptions in the transportation network on which the Company is reliant;
  • technical and processing problems, including the availability of equipment and access to properties; and
  • changes in gas composition.

The foregoing lists are not exhaustive. Additional information on these and other factors which could affect the Company's operations or financial results are included in the Company's most recent AIF and in other documents on file with the Canadian Securities regulatory authorities.

Management of the Company has included the above summary of assumptions and risks related to forward-looking statements and FOFI provided in this press release in order to provide holders of common shares in the capital of the Company with a more complete perspective on the Company's current and future operations and such information may not be appropriate for other purposes. The Company's actual results or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and FOFI and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any off them do so, what benefits the Company will derive therefrom. Readers are therefore cautioned that the foregoing list of important factors is not exhaustive, and they should not unduly rely on the forward-looking statements included in this press release. Tidewater does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities law. All forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Further information about factors affecting forward-looking statements and FOFI and management's assumptions and analysis thereof is available in filings made by the Company with Canadian provincial securities commissions available on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

PRELIMINARY FINANCIAL INFORMATION

The Company's expectations for its net income estimates, its Consolidated Adjusted EBITDA, Tidewater Renewables' net income and Adjusted EBITDA (see “Non-GAAP Measures”) are based on, among other things, the Company's and Tidewater Renewables' anticipated financial results for the three and six month period ended June 30, 2022. The Company's and Tidewater Renewables' anticipated financial results are unaudited and preliminary estimates that: (i) represent the most current information available to management as of the date of hereof; (ii) are subject to completion of interim review procedures that could result in significant changes to the estimated amounts; and (iii) do not present all information necessary for an understanding of the Company's or Tidewater Renewables' financial condition as of, and the Company's or Tidewater Renewables' results of operations for, such periods. The anticipated financial results are subject to the same limitations and risks as discussed under "Forward Looking Statements" above. Accordingly, the Company's and Tidewater Renewables' anticipated financial results for such periods may change upon the completion and approval of the financial statements for such periods and the changes could be material.

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