Dorel Industries Moves Forward with New Financing and Growth Strategy

Dorel Industries Secures New Financing for Strategic Growth

MONTRÉAL — Dorel Industries Inc. (TSX: DII.B, DII.A) is on the verge of finalizing important agreements with significant lenders that will bolster its financial structure. This involves establishing new credit facilities aggregating up to $310 million alongside a private placement of preferred shares totaling $75 million. These measures are expected to affirm Dorel's commitment to financial stability and strategic growth.

Objectives of the Financial Agreements

The primary aim of these new financial undertakings is to repay approximately $180 million in existing senior secured debt. Moreover, the funds will enable Dorel to cover restructuring costs related to its Home segment and enhance working capital, ensuring efficient and robust operational financing.

Details of the Credit Facilities

The new financing agreement will involve a senior secured credit facility of $310 million. This facility comprises a revolving credit line of $175 million that will be accessible based on a borrowing base, with an initial drawdown of $110 million upon closing. Additionally, the agreement includes a term loan of $135 million, which is structured for a five-year term and will be secured by certain subsidiaries of Dorel.

Interest Rates and Governance Aspects

The loans from the credit facilities will accrue interest at a variable rate linked to the secured overnight financing rate (SOFR) plus an additional margin. The agreement is designed with financial covenants that are customary in such arrangements, and notably, TCW will have the right to nominate a director to Dorel’s board, reinforcing their involvement in governance.

Issuance of Preferred Shares: A Strategic Move

In conjunction with the credit facilities, Dorel will issue preferred shares to Alberta Investment Management Corporation (AIMCo), projected to yield an attractive annual dividend starting at 17%. This dividend rate is set to increase in the subsequent years, highlighting Dorel's initiative to create shareholder value.

Redemption and Retraction of Preferred Shares

Significantly, the preferred shares provide safeguards for investors. Should Dorel undergo any significant asset sales, these shares will be redeemed at their original price, along with any accrued dividends. From the second anniversary, Dorel can redeem them at a premium, reflecting a prudent approach to shareholder returns.

Non-convertible and Non-voting Nature

It is essential to note that the preferred shares issued are non-voting and do not convert to Class A or Class B shares, maintaining the existing voting structure while offering investors a solid income opportunity.

Warrants to Strengthen Shareholder Engagement

To complement the financing arrangements, Dorel will also issue warrants to both TCW and AIMCo. These warrants are significant, amounting to 5% and 8% of the number of Dorel's outstanding shares respectively. Holders can acquire Class B Shares at a nominal exercise price, thereby incentivizing long-term investment through the substantial potential of equity participation.

Impact on Share Structure

The issuance of these warrants will increase the number of Class B Shares, which, at the current exercise prices, represent a substantial discount compared to market rates. However, this structure requires shareholder approval to ensure compliance with governance norms and shareholder interests.

Future Outlook for Dorel Industries

Dorel Industries, with its global reach, operates in key segments including juvenile products and home goods. With expected annual sales of $1.3 billion and a workforce of around 3,500, the company is well-positioned to leverage the new financing to enhance its offerings and expand its market share. The strategic decisions taken now are meant to strengthen Dorel's operational base, promote innovation in product development, and maintain a competitive edge in diverse markets.

Frequently Asked Questions

What is the purpose of Dorel's new financing?

The financing aims to repay existing debt, cover restructuring costs in the Home segment, and enhance working capital for improved operational efficiency.

Who is managing the new credit facilities?

TCW Asset Management Company LLC is leading the group of lenders for the new credit facilities.

What are the terms of the preferred shares?

The preferred shares will initially offer a 17% dividend yield, increasing to a maximum of 20% over time.

How will the warrants affect existing shareholders?

The issuance of warrants will increase the number of outstanding Class B Shares, potentially diluting existing holdings but also enhancing capital opportunities.

Who can join Dorel's Board of Directors as part of the agreements?

Both TCW and AIMCo have the right to nominate members to Dorel's Board of Directors as part of their agreements.

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