Canadian Equipment Rentals Corp. (the "Company") (TSX VENTURE:CFL) today announced its financial and operating results for the three months ended March 31, 2017.
"With the completion of the corporate restructuring and refinancing of debt, the Company is now moving forward under a much lower cost structure and with a clearly defined strategy to be a leading surface and accommodation rental company in Western Canada" said Ken Olson, Canadian Equipment Rentals Corp., CFO.
"We are pleased with the Company's operational performance in the first quarter of 2017 and with the current demand for rental equipment in the second quarter. The increase in drilling and completion activity in Western Canada thus far in 2017 suggests the industry is emerging from its multi-year contraction and is beginning to show signs of recovery. As the Company continues to strengthen its balance sheet by paying down debt with cash from operations, it will become well positioned to take advantage of the improving market environment."
SELECT FINANCIAL RESULTS
Energy Services Division
General Rentals Division (Discontinued)
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended September 30, 2016, the Company was in breach of its financial leverage and interest coverage covenants included in the April 28, 2016 Third Amending Credit Agreement.
On November 24, 2016, the Company signed a Fourth Amending Agreement in which the lenders agreed to forbear from demanding repayment or enforcing its security under the Agreement. Under the terms of the amending agreement the authorized amount of the revolving facility was reduced to $46.1 million, while the authorized amount of the revolving capex facility remained $6.5 million.
On December 15, 2016 the Company's Syndicated Bank Credit Facility was amended under the Fifth Amending agreement. The fifth amending agreement included a reduction in the revolving facility amount from $46 million to $32.5 million and cancellation of the term facility commitment and operating facility.
Interest payable on all loans drawn under the credit facilities will range from bank prime rate plus 300 bps to bank prime rate plus 600 bps depending on the Company's Debt to EBITDA ratio. Under the terms of the Sixth Amending Credit Agreement, the Company was not in compliance of its financial leverage and interest coverage covenants as at March 31, 2017 and thus all debt held with the creditors is classified as current.
On February 16, 2017, the Company's Syndicated Credit Facility was amended under the Sixth Amending Agreement in which the lenders agree to forbear from demanding repayment or enforcing its security under the agreement until April 28, 2017.
On April 21, 2017, the Company entered into a Loan and Security Agreement with a new lender. The Loan and Security Agreement in the amount of $20.4 million was used to repay the existing Syndicated Credit Facility, bears interest at a rate of 12.75% and has a term of 12 months with an option to extend for an additional 12 months at the satisfaction of the lender. The Loan and Security Agreement is serviced by six months of interest only payments, followed by six months of blended principal and interest payments. The Loan and Security Agreement does not require quantitative financial covenants, but imposes restrictions on the Loan's collateral, being the property and equipment of the Company. The Company issued the lender share purchase warrants entitling the lender to acquire common shares in the Company representing approximately 6.5% of the fully diluted equity at the time of exercise, at an exercise price of $0.25 per warrant. The warrants will expire 90 days after the term of the loan.
On May 10, 2017, the Company signed a $1 million operating loan facility bearing interest at a rate of prime plus 3.3% and secured by the Company's accounts receivables and restricted cash. The operating loan facility requires that the Company's current ratio does not fall below 1.50:1.00 and effective September 30, 2017, the debt service coverage ratio not be less than 1.50:1.00.
2016 was a pivotal year for Canadian Equipment Rentals Corp. The acquisition of Zedcor Oilfield Rentals Ltd. ("Zedcor") and the subsequent divestitures of MCL Waste Systems & Environmental Inc. and 4-Way Equipment Rentals Corp., repositioned the Company as a significant oilfield surface equipment rental company in the Western Canadian Sedimentary Basin.
As previously announced, the Company signed and closed a new Loan and Security Agreement, the proceeds of which were used to repay the previous lenders. In conjunction with this refinancing, the Company has retired $2.5 million of the Vendor Take Back Note in exchange for 10 million common shares. With this transaction and the refinancing, the directors of the Company appointed two new directors to the Company.
Through the restructuring efforts over the past ten months, including significant reductions in headcount at the executive level and reductions in associated discretionary spending, the Company now has a lean operating structure that can also support the full utilization of the existing rental asset base. This structure, coupled with superior operational performance, service quality and a best-in-class equipment rental fleet are instrumental to maintaining and growing market share.
The stronger than expected drilling activity experienced through the first quarter of 2017 is seen continuing into the second quarter of 2017 which in turn is driving improved year over year equipment utilization. While drilling activity during the first two months of Q1 2017 was reported to be 46% improved over the same prior year period, weather related delays and other factors may prevent Q2 2017 from experiencing this same year over year growth.
The Company continues to expand its market reach and customer base from beyond its traditional upstream energy services customers to new industry segments including industrial facilities and pipeline construction. This should lead to more diversity in its revenue streams and increase the utilization of existing rental equipment by penetrating new market segments that are less affected by seasonal fluctuations.
No Conference Call
No conference call will be held in conjunction with this release. Full details of the Company's financial results, in the form of the condensed consolidated interim financial statements and notes for the three months ended March 31, 2017 and Management's Discussion and Analysis of the results are available on SEDAR at www.sedar.com and on the Company's website at www.cercorp.ca.
About Canadian Equipment Rentals Corp.
Canadian Equipment Rentals Corp. is a Canadian public corporation and parent company to Zedcor Energy Services Corp. ("Zedcor"). Zedcor is engaged in the rental of surface equipment and accommodations to the Western Canadian Oil and Gas Industry. The Company trades on the TSX Venture Exchange under the symbol "CFL".
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.