Dye and Durham Ltd. DND-T stock rose 9.1 per cent on Friday after the acquisitive, heavily indebted legal software vendor said it had priced a series of refinancing transactions that will provide it with greater fiscal flexibility.
D&D has been under pressure to improve its flagging share price, which has been dragged down in part by its high indebtedness and weakness in the real estate market, which affects its revenues. The company’s ratio of debt to operating profit over the 12 months ended Dec. 21 was 6.3, deemed “high” by Moody’s Canada in a report this week, although the company cut its leverage slightly with a $139.5-million bought deal stock offering in February.
In March, D&D, which has built its business through a string of acquisitions and by subsequently sharply increasing customer fees for using its products, revealed activist hedge fund Engine Capital, which typically targets undervalued companies, had requested a meeting of its shareholders. The hedge fund, which owns 5.1 per cent of its stock, is looking to secure three of the seven seats on the company’s board.
Debt service has been a big weight on D&D: net financing costs in its second quarter ended Dec. 31 were $49.1-million, or 44.5 per cent of revenues, up from 36 per cent of revenues a year earlier.
With a set of debt transactions D&D priced on Friday, the company aims to accomplish two key objectives: it will reduce interest expenses by around $20-million annually, said one market participant briefed by the company. The Globe and Mail is not identifying the source because they are not authorized to discuss the matter. D&D did not disclose the interest savings in its release.
More significantly, the refinancing will allow D&D to replace a complex series of credit facilities with Ares Capital Management LLC that could have proven financially troublesome for the company next year. Those facilities, totalling $1.795-billion, had three components: a term loan and a delayed draw term loan facility maturing December, 2027, plus a line of credit maturing one year earlier. But D&D also has $345-million in convertible debentures with Ares maturing on March 1, 2026. According to its deal with Ares, if D&D had any of those debentures outstanding on Sept. 30, 2025, the maturities on its Ares commitments would have moved forward to that date, less than 18 months from now.
In its release Friday, D&D said it had priced and allocated US$350-million of a senior secured Term Loan B facility – a form of term loan to institutional investors – maturing in 2031. The facility will bear a floating interest rate equal to 4.25 percentage points above the Secured Overnight Financing Rate, a measure of the cost of borrowing money overnight collateralized by U.S. Treasury securities
The facility replaces costlier debt that paid 5.75 percentage points above a benchmark known as the Canadian Dollar Offered Rate. It is also subject to a credit spread adjustment between different key benchmarks and the interest margin could be cut by 0.25 percentage points if the company achieves a specified improved debt leverage ratio.
D&D has also priced US$555-million of senior secured notes due 2029 paying 8.625 per cent interest – 431 basis points above benchmark U.S. Treasury notes. It is also entering into a $105-million line of credit that will mature in 2029.
D&D plans to use part of the new financing to buy back some or all of its convertible debentures.
The refinancing, expected to close April 11, pushes debt maturities from as early as next year to 2029 and “addresses the risk that the existing credit facilities’ maturity would have accelerated” to Sept. 30, 2025, the company said in a release.
“They definitely get better flexibility” out of the proposed refinancing, Canaccord Genuity analyst Robert Young said in an interview. “I think that’s positive. And it doesn’t appear the convertible debentures are a risk on the balance sheet any more.”
D&D has taken other measures in recent months to lighten its financial burden including reducing capital and operating costs and launching a strategic review of non-core assets with an eye to potentially divest its financial services infrastructure business. Its goal is to reduce its debt-to-adjusted operating earnings ratio to less than four times.
Sean Silcoff