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Press release from Marketwire

Royal Host Inc. Announces Substantial Issuer Bids for Its Series B, Series C and Series D Debentures and Enters Into $5 Milllion Standby Facility With Clarke Inc.

Wednesday, June 06, 2012

Royal Host Inc. Announces Substantial Issuer Bids for Its Series B, Series C and Series D Debentures and Enters Into $5 Milllion Standby Facility With Clarke Inc.21:33 EDT Wednesday, June 06, 2012HALIFAX, NOVA SCOTIA--(Marketwire - June 6, 2012) - Royal Host Inc. ("Royal Host" or the "Company") (TSX:RYL) (TSX:RYL.DB.B) (TSX:RYL.DB.C) (TSX:RYL.DB.D) announced today three substantial issuer bids (the "Offers" and each, individually an "Offer") pursuant to which the Company will offer to purchase for cancellation up to $7,000,000 aggregate principal amount of the issued and outstanding Series B 6.00% convertible unsecured subordinated debentures of the Company due October 31, 2015 (the "Series B Debentures") from holders of the Series B Debentures (the "Series B Debentureholders"), up to $4,000,000 aggregate principal amount of the issued and outstanding Series D 5.90% convertible unsecured subordinated debentures of the Company due June 30, 2014 (the "Series D Debentures") from holders of the Series D Debentures (the "Series D Debentureholders"), and up to $2,000,000 aggregate principal amount of the issued and outstanding Series C 6.25% convertible unsecured subordinated debentures of the Company due September 30, 2013 (the "Series C Debentures" and, together with the Series B Debentures and the Series D Debentures, the "Debentures") from holders of the Series C Debentures (the "Series C Debentureholders" and together with the Series B and the Series D Debentureholders, the "Debentureholders").The Offers are subject to various conditions typical of transactions of this nature. It is anticipated that the offers to purchase, issuer bid circulars and other related documents containing the terms of the Offers and the instructions for tendering the Debentures (the "Offer Documents") will be mailed to the registered Debentureholders and filed with applicable securities regulators on or about June 8, 2012 (the "Commencement Date"). The Offers will remain open for acceptance until at least July 13, 2012 (the "Expiration Date"), being 35 days from the Commencement Date, unless withdrawn or extended by the Company.Series B DebenturesThe Series B Debentures, issued under and pursuant to the provisions of a trust indenture dated February 21, 2002 (the "Indenture") between Royal Host Real Estate Investment Trust (the "Trust") and Computershare Trust Company of Canada (the "Debenture Trustee"), as trustee, and a supplemental trust indenture thereto between the Trust and the Debenture Trustee dated October 20, 2005, which obligations were assumed by the Company pursuant to a fifth supplemental indenture dated January 1, 2011 (the "Fifth Supplemental Indenture"), will be purchased at the price of $880 per $1,000 principal amount of Series B Debenture (the "Series B Purchase Price"). In addition, Series B Debentureholders who tender their Series B Debentures to the Offer will receive a payment in respect of all accrued and unpaid interest outstanding on such Series B Debentures as of the date they are taken up by the Company pursuant to the Offer.If more than $7,000,000 aggregate principal amount of Series B Debentures (or such greater aggregate principal amount of Series B Debentures as the Company may determine it is willing to take-up and pay for) are properly tendered to the Offer, the Company will take-up and pay for the deposited Series B Debentures on a pro-rata basis according to the number of Series B Debentures deposited or deemed to be deposited by the Series B Debentureholders, with adjustments to avoid fractional purchases, at the Series B Purchase Price.As of June 6, 2012, there were $33,374,000 principal amount of Series B Debentures issued and outstanding, and accordingly, the Offer is for up to approximately 21.0% of the total number of issued and outstanding Series B Debentures.Stonecap Securities Inc. ("Stonecap") was engaged by the Board of Directors of Royal Host to prepare a valuation report with respect to the Series B Debentures, the Series C Debentures and the Series D Debentures (the "Valuation"), as prescribed under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). A copy of the Valuation will be attached to the Offer Documents.The Valuation contains Stonecap's opinion that, based on the scope of its review and subject to the assumptions, restrictions and limitations provided therein, the fair market value of the Series B Debentures, as of June 5, 2012, falls within the range (per $1,000 principal amount) of $750 to $820.Series D DebenturesThe Series D Debentures, issued under and pursuant to the provisions of the Indenture and a supplemental trust indenture thereto between the Company and the Debenture Trustee dated June 26, 2007, which obligations were assumed by the Company pursuant to the Fifth Supplemental Indenture, will be purchased at the price of $920 per $1,000 principal amount of Series D Debenture (the "Series D Purchase Price"). In addition, Series D Debentureholders who tender their Series D Debentures to the Offer will receive a payment in respect of all accrued and unpaid interest outstanding on such Series D Debentures as of the date they are taken up by the Company pursuant to the Offer.If more than $4,000,000 aggregate principal amount of Series D Debentures (or such greater aggregate principal amount of Series D Debentures as the Company may determine it is willing to take-up and pay for) are properly tendered to the Offer, the Company will take-up and pay for the deposited Series D Debentures on a pro-rata basis according to the number of Series D Debentures deposited or deemed to be deposited by the Series D Debentureholders, with adjustments to avoid fractional purchases, at the Series D Purchase Price.As of June 6, 2012, there were $36,778,000 principal amount of Series D Debentures issued and outstanding, and accordingly, the Offer is for up to approximately 10.9% of the total number of issued and outstanding Series D Debentures.The Valuation contains Stonecap's opinion that, based on the scope of its review and subject to the assumptions, restrictions and limitations provided therein, the fair market value of the Series D Debentures, as of June 5, 2012, falls within the range (per $1,000 principal amount) of $840 to $885.Royal Host has entered into a lock-up agreement with Geosam Capital Inc. ("Geosam") where Geosam has agreed to tender an aggregate of approximately $713,000 principal amount of Series D Debentures to the Offers. Details of the lock-up agreement are summarized in the Offer Documents.Series C DebenturesThe Series C Debentures, issued under and pursuant to the provisions of the Indenture and a supplemental trust indenture thereto between the Company and the Debenture Trustee dated September 12, 2006, which obligations were assumed by the Company pursuant to the Fifth Supplemental Indenture, will be purchased at the price of $950 per $1,000 principal amount of Series C Debenture (the "Series C Purchase Price"). In addition, Series C Debentureholders who tender their Series C Debentures to the Offer will receive a payment in respect of all accrued and unpaid interest outstanding on such Series C Debentures as of the date they are taken up by the Company pursuant to the Offer.If more than $2,000,000 aggregate principal amount of Series C Debentures (or such greater aggregate principal amount of Series C Debentures as the Company may determine it is willing to take-up and pay for) are properly tendered to the Offer, the Company will take-up and pay for the deposited Series C Debentures on a pro-rata basis according to the number of Series C Debentures deposited or deemed to be deposited by the Series C Debentureholders, with adjustments to avoid fractional purchases, at the Series C Purchase Price.As of June 6, 2012, there were $47,204,000 principal amount of Series C Debentures issued and outstanding, and accordingly, the Offer is for up to approximately 4.2% of the total number of issued and outstanding Series C Debentures.The Valuation contains Stonecap's opinion that, based on the scope of its review and subject to the assumptions, restrictions and limitations provided therein, the fair market value of the Series C Debentures, as of June 5, 2012, falls within the range (per $1,000 principal amount) of $900 to $940.GeneralThe Company has reserved the right to amend the Offers to increase the maximum number of Debentures it may purchase pursuant to the Offers, at any time and from time to time. The Offers are not conditional on any minimum number of Debentures being deposited. The Company will fund any purchases of Debentures pursuant to the Offers from available cash on hand, available credit facilities and through the use, if necessary, of a Cdn$ 5,000,000 stand-by commitment (the "Facility") provided by Clarke Inc. ("Clarke").The Directors of the Company believe that the purchase of the Debentures under the Offers represents an effective use of the Company's financial resources and is in the best interests of the Company. The Offers are not expected to preclude the Company from pursuing its foreseeable business opportunities. In accordance with applicable Canadian securities laws, Royal Host will suspend purchases under its three normal course issuers bids ("NCIBs" and each an "NCIB") until after the Expiration Date, the particulars of which are as follows as of June 6, 2012:the NCIB for its Series B Debentures announced on September 8, 2011 pursuant to which Royal Host has purchased an aggregate principal amount of $415,000 at an average price of $736.16 per $1,000 of Series B Debentures; and the NCIB for its Series D Debentures announced on September 8, 2011 pursuant to which Royal Host has purchased an aggregate principal amount of $3,781,000 of the Series D Debentures at an average price of $727.26 per $1,000 of Series D Debentures; the NCIB for its Series C Debentures announced on September 8, 2011 pursuant to which Royal Host has purchased an aggregate principal amount of $2,948,000 of the Series C Debentures at an average price of $849.76 per $1,000 of Series D Debentures;Neither the Company nor its Board of Directors makes any recommendation to Debentureholders as to whether to tender or refrain from tendering their Debentures to the Offers. Debentureholders are strongly encouraged to review the Offer Documents carefully and to consult with their financial and tax advisors prior to making any decision with respect to the Offers.$5 Million Standby FacilityRoyal Host has today entered into a standby facility effective immediately (the "Standby Facility") which provides a Cdn$ 5,000,000 commitment from Clarke Inc. ("Clarke"), the Company's 30% shareholder. The Standby Facility provides the Company with greater flexibility in the financing of purchases of the Company's convertible debentures under the SIBs. The purchases of convertible debentures will have no impact on the Company's operating businesses and will provide benefits to its overall capital structure.Pursuant to the terms and conditions of the Standby Facility, Clarke has agreed that the Company may, a maximum of two times, draw any amount or amounts up to Cdn$ 5,000,000 for general corporate purposes including in order to make cash payments for any Debentures tendered pursuant to the Offers. Interest on the outstanding principal amount drawn shall accrue at a rate per annum equal to 10% from the drawdown date to December 6, 2012; at a rate per annum equal to 10.25% from December 7, 2012 to June 6, 2013; at a rate per annum equal to 10.50% from June 7, 2013 to December 6, 2013; at a rate per annum equal to 10.75% from December 7, 2013 to June 6, 2014; at a rate per annum equal to 11% from June 7, 2014 to December 6, 2014; at a rate per annum equal to 11.25% from December 7, 2014 to June 6, 2015 and at a rate per annum equal to 11.50% from June 7, 2015 to December 31, 2015. The Company has the right to prepay, from time to time, any portion of the principal amount drawn (plus all accrued interest thereon) under the Facility without penalty or fee. Any amount drawn under the Facility is repayable no later than December 31, 2015. The Company will pay Clarke a commitment fee on execution in the amount of Cdn$25,000, and it will pay a funding fee in the amount of 1.00% of the amount drawn (which is due on funding). The Standby Facility is not convertible into securities of the Company.Clarke shall have approval rights over any additional indebtedness other than where such additional indebtedness is (i) under the Company's existing corporate credit facility (ii) under the Company's existing mortgage loan facility which is secured by certain hotels in Ontario or (iii) applied to repay amounts drawn under the Standby Facility. Royal Host shall provide a negative pledge of its entire interest in the certain assets located in Ontario and Nova Scotia as collateral on funding.Additional terms of the Standby Facility are substantially as set out in the Standby Facility Agreement which will be filed on the SEDAR website at www.sedar.com.The Standby Facility constitutes a "related party transaction" under MI 61-101 as Clarke is a related party of Royal Host because Clarke owns more than 10% of the issued and outstanding common shares of the Company. Clarke also has a representative (George Armoyan) on the Company's Board of Directors. Geosam, a private investment company, has publicly announced that, pursuant to the Securities Act (Ontario), it is presumed to be acting jointly or in concert with Clarke and family members of George Armoyan, President of Geosam, with whom he resides.The Company determined that exemptions from the formal valuation and minority approval requirements available under MI 61-101 apply to the Standby Facility, as neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the Standby Facility exceeds 25 percent of the Company's market capitalization as of the date of the provision of the Standby Facility. The Directors of the Company voted unanimously in favour of the Standby Facility at a Board of Directors' meeting. George Armoyan, Interim President and CEO of Clarke, and Blair Cook, a Director of Clarke, both abstained from voting.ROYAL HOST INC.Royal Host is a diversified hospitality company that delivers shareholder value through hotel ownership, investment and franchising. The Company's hotels, which contain 3,092 rooms, are located in five Provinces and Territories across Canada. Twenty-two of the Company's hotels operate under internationally recognized brands such as Travelodge®, Super 8®, Holiday Inn®, Hilton® and Country Inns & Suites®. Two of the Company's hotels are unbranded. In addition to its real estate holdings, the Company owns and operates the Travelodge Canada franchise business which is currently comprised of over 90 hotels across nine Provinces and Territories.Royal Host's common shares and convertible debentures are traded on the Toronto Stock Exchange under the trading symbols "RYL", "RYL.DB.B", "RYL.DB.C" and "RYL.DB.D" respectively.This press release may contain certain forward-looking statements relating, but not limited to, Royal Host's operations, anticipated financial performance, business prospects, and strategies. Forward-looking information typically contains statements with words such as "anticipate", "does not anticipate", "believe", "estimate", "forecast", "intend", "expect", "does not expect", "could", "may", "would", "will", "should", "budgeted", "plan" or other similar terms and expressions suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by such forward-looking statements. Readers are therefore cautioned that Royal Host's expectations, estimates and assumptions, although considered reasonable, may prove to be incorrect and readers should not place undue reliance on forward-looking statements.Forward-looking statements contained herein are not guarantees of future performance and involve certain risks, uncertainties, and other factors that are difficult to predict, and could result in the outcome of such events being materially different from those intended, planned, anticipated, believed, estimated, or expected in this news release. Such factors and assumptions include, but are not limited to, general economic conditions, levels of travel in Royal Host's key market areas, political conditions and events, competitive pressures, changes in government policy or regulations, and lodging industry conditions. Royal Host does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances, unanticipated events or circumstances, or should its estimates or assumptions change, after the date hereof, except as expressly required by law.This press release contains registered trademarks that are the exclusive property of their respective owners. None of the owners of these trademarks has any responsibility or liability for any information contained in this press release.FOR FURTHER INFORMATION PLEASE CONTACT: John A. CarnellaRoyal Host Inc.President and Chief Executive Officer902.470.4550ORMichael McFetersRoyal Host Inc.Chief Financial Officer902.470.4515