Canadian heavyweight Armtec confronts debt load, capital structure challenges

A major operator precast operator serving Canada and parts of the U.S. from plants in Ontario, Quebec and Alberta, Armtec Infrastructure Inc. has reached a crossroads: Respectable 2014 year-end results amid delisting and debt payment alerts from the Toronto Stock Exchange, where its shares have traded for six years.

Armtec reported $474 million in 2014 revenue, up $18 million or 4 percent from the prior year. The Precast Concrete Solutions and Drainage Solutions business units accounted for $313 million and $161 million, respectively. The financial performance contrasts with capital structure challenges; significant debt levels; restrictive debt covenants; and, a nearly $47 million decline in market enterprise value during the fourth quarter.

“The company achieved solid revenue growth driven by key project wins in our Precast 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, 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.”

Concord, Ont.-based 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.

Shortly after reporting 2014 results, Armtec noted how the Toronto Stock Exchange (TSX) had advised investors that a new round of the producer’s convertible, unsecured subordinated debentures, due 2017, would commence trading on an interest flat basis. The company had previously confirmed it will not make any payments, including interest, on its convertible debentures, or on senior unsecured notes due September 2017, unless indebtedness to Brookfield Capital Partners is paid in full. Similarly, management agreed with operating lenders not to make any such payments unless obligations to such operating lenders are fully satisfied.

Absent assurance the company will be in a position to pay interest on the convertible debentures on the next interest payment date of June 30, 2015, TSX noted that all Armtec convertible debentures will trade on an interest flat basis until further notice. TSX has advised that it will not report accrued interest regarding any trades made on an interest flat basis to its participating organizations.