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Capital structure likely dooms major Canadian precaster in its current form

Sources: Armtec Infrastructure Inc. Concord, Ontario; CP staff

Toronto Stock Exchange-traded Armtec Infrastructure reports $474 million in 2014 revenue, up $18 million or 4 percent from the prior year, with Precast Concrete Solutions and Drainage Solutions business units accounting for $313 million and $161 million, respectively. The moderate financial performance is cited against the bleak backdrop of a challenging capital structure; significant debt levels; restrictive debt covenants; and, a nearly $47 million decline in market enterprise value during the fourth quarter of 2014.

"The Company achieved solid revenue growth driven by key project wins in our Precast business unit, and improved volumes in agricultural and natural resource applications in our Drainage business," says Armtec CEO Mark Anderson. "In the near term, Armtec faces a challenging outlook across its markets, with sharp declines in the price of oil and the Canadian dollar, and the ability and timing of governments in Ontario and Quebec to adequately finance pent up infrastructure needs. Longer-term market fundamentals ... remain favorable.”

In its 2014 review and 2015 outlook, Armtec management reiterates from earlier this year a BMO Capital Markets-led “sale and investment process” through which the company a) seeks a buyer or recapitalization partner; or, b) enters an agreement where senior debtor Brookfield Capital Partners Fund III LP, Toronto, acquires all Armtec assets and assumes trade creditor and employee obligations. To maintain market leadership and realize the potential of Armtec’s unique scale and capabilities, Anderson notes, “Our Board of Directors has determined that the sale and investment process, back-stopped by Brookfield, represents the best course of action."

Armtec is undergoing a compliance review of Toronto Stock Exchange listing requirements, while Brookfield Capital backs short-term credit measures. As the ownership equation takes shape, management projects flat or slightly improved sales in 2015—in the $470 million to $485 million range—from the Precast Concrete Solutions (structural, architectural, utility and transportation products) and Drainage Solutions (steel and HDPE pipe) units.