In early June, shares of Armtec Infrastructure Inc. plummeted after the company suspended its dividend following a big quarterly loss. Suddenly, public sentiment had turned against the firm and analysts everywhere were slashing their target ratings.
About a month later, along came Brookfield Asset Management , which offered up a $125-million credit facility that would allow the Guelph-based supplier of water and drainage pipes and pre-cast concrete products to repay its existing lenders in full. For its act of kindness, Brookfield was granted warrants to buy about 4.5 million common shares, or about 15 per cent of the company, at a strike price around $4.40.
Almost instantly, Brookfield’s warrants were in the money as the new credit facility gave investors enough confidence to send Armtec’s shares roaring up to $4.72. Sadly for the new lender, the credit agreement hadn’t been finalized.
That deal has now closed, but Armtec’s share are back down about 27 per cent to $3.45. It turns out Armtec has released some bad news in the time being. On Friday the company announced it would take a $140-million writedown of goodwill, intangible assets and property, plant and equipment in its next quarterly earnings, and it also provided some negative guidance for margins in two business units for its next set of quarterly earnings.
That’s bad news for the investors that bought into Armtec’s $58-million financing back in April at $16.20 per share. These buyers were burned after the company suspended its dividend worth $1.60 per share a year just two months later.
Now that the two-year credit agreement with Brookfield has closed, the company has $90-million available to pay back current creditors. The second tranche of $35-million will be made available if the company meets some due diligence thresholds. Because the loan has such a long payback period, there's still lots of time for Brookfield to profit on the deal.