MVC Capital, Inc. (NYSE:MVC) (“MVC” or the “Fund”) announced today
that its largest portfolio holding, U.S. Gas & Electric, Inc.
(“USG&E”), a commercial and residential energy services
company, has entered into a definitive agreement to be acquired by
Crius Energy Trust (TSX:KWH.UN) (“Crius”) for $172.5 million in a
combination of cash, second-lien notes and Crius trust units (the
“Crius Transaction”).
As a result of the Crius Transaction, the purchase agreement
between Equus Total Return, Inc. (NYSE:EQS) (“Equus”) and USG&E
(the “Equus Transaction”), announced on April 24, 2017, has been
terminated, and USG&E has paid a $2.5 million termination fee
to Equus.
Under the terms of the Crius Transaction, USG&E stockholders
will receive aggregate consideration totaling $172.5 million
(including $20.0 million for working capital), plus balance sheet
cash at closing of approximately $11.5 million, less the repayment
of all indebtedness and transaction costs, and subject to a
potential adjustment for working capital, if required. The
aggregate of $172.5 million consists of: (i) $95.0 million in cash;
(ii) $47.5 million in 9.5% second-lien callable notes due in June
2025; and, (iii) Crius trust units valued at the time of this
announcement at approximately $30.0 million, based on a trailing
10-day volume-weighted average price (“VWAP”). The trust
units, which currently yield approximately 7.5%, will be subject to
a six-month lock-up provision. The closing is subject to
certain conditions, including regulatory and USG&E stockholder
approvals, but is not conditioned on financing. The
transaction is expected to close on or about July 5, 2017.
Based on MVC’s ownership stake in USG&E, the fair value of
the consideration that it will receive in the Crius Transaction is
approximately $117.1 million (excluding any illiquidity discount
that will be applied), as compared to the fair value of MVC’s
equity investment in USG&E of $89.4 million, as of January 31,
2017. The $117.1 million is comprised of: (i) estimated cash
of approximately $50.1 million; (ii) second-lien notes with an
estimated fair value of $41.4 million (taking into account certain
potential indemnification adjustments); and, (iii) Crius trust
units valued at the time of this announcement at approximately
$25.6 million, based on a trailing 10-day VWAP.
At the closing of the Crius Transaction, including the repayment
of its two outstanding loans to USG&E, totaling $10.9 million,
and the payment of deferred consulting fees, MVC will receive
consideration of approximately $128.7 million, a 28.4% premium over
the last publicly reported fair value of the Fund’s investments in
USG&E, as of January 31, 2017.
“We are pleased to be able to effectuate a superior transaction
for our shareholders,” said Michael Tokarz, Chairman and Portfolio
Manager of MVC. “We look forward to Crius’s continued growth
and to participating in its upside, which we believe is materially
enhanced by the USG&E acquisition.”
“We appreciate the USG&E management team’s exceptional
efforts in creating value and generating strong free cash flow over
the last 10 years, through a combination of organic customer
growth, acquisitions, market and product expansion, improved
customer retention and exceptional customer service,” said Puneet
Sanan, Chairman of USG&E and Managing Director of TTGA, the
investment adviser to MVC. “We wish them and Crius continued
success.”
Additional Transaction Details
JMP Securities LLC served as financial advisor to
USG&E. Davis Wright Tremaine LLP, Locke Lord LLP and
Fasken Martineau DuMoulin LLP served as legal counsel to
USG&E.
About MVC Capital, Inc.
MVC Capital, Inc. is a business development company traded on
the New York Stock Exchange that provides long-term debt and equity
investment capital to fund growth, acquisitions and
recapitalizations of companies in a variety of industries.
About U.S. Gas & Electric, Inc.
Founded in 2002, U.S. Gas & Electric, Inc. and its family of
companies is a leading provider of energy supply to commercial and
residential customers. As of January 31, 2017, USG&E
served approximately 375,000 residential customer equivalents in 62
utility markets, including the District of Columbia and the
following 11 states: Connecticut, Illinois, Indiana, Kentucky,
Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, and
Pennsylvania.
Forward-Looking Statements
This press release contains certain statements about MVC, Crius
and USG&E that are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. These matters involve risks and uncertainties as
discussed in MVC's periodic reports on Form 10-K and Form 10-Q and
current reports on Form 8-K, filed from time to time with the
SEC. The forward-looking statements contained in this press
release may include or reflect the expected effects on, and
benefits to, MVC, Crius and USG&E of the Crius Transaction,
including; the anticipated timing of the Crius Transaction; the
satisfaction of the conditions to, and the ability to consummate,
the Crius Transaction; the extent of any cash distributions
of realized gains from the Crius Transaction that may be made by
MVC to its stockholders; the future performance of Crius and
its impact on MVC’s interest in Crius; the future ability of MVC
and Crius to pay dividends or make cash distributions (including of
capital gains), which is uncertain; the price or trading volume of
Crius’s trust units, which can fluctuate and is subject to
volatility risk; and MVC's and Crius’s financial results generally;
and also include all other statements in this press release that
are not historical facts. Without limitation, any statements
preceded or followed by or that include the words "targets,"
"plans," "believes," "expects," "intends," "will," "likely," "may,"
"anticipates," "estimates," "projects," "should," "would," "could,"
"positioned," "strategy," "future," or words, phrases, or terms of
similar substance or the negative thereof, are forward-looking
statements. These statements are based on the current
expectations of the management of MVC, Crius, and USG&E (as the
case may be), and are subject to uncertainty and to changes in
circumstances and involve risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
in such forward-looking statements. In addition, these
statements are based on a number of assumptions that are subject to
change. Such risks, uncertainties and assumptions include:
the satisfaction of the conditions to the Crius Transaction and
other risks related to the completion of the Crius Transaction and
actions related thereto; MVC's, Crius’s, and USG&E's ability to
complete the Crius Transaction on the anticipated terms and
schedule, including the ability to obtain regulatory, stock
exchange or other approvals; risks relating to any unforeseen
liabilities, future capital expenditures, revenues, expenses,
earnings, synergies, economic performance, indebtedness, financial
condition, losses, and future prospects; the risk that benefits
from the Crius Transaction may not be fully realized or may take
longer to realize than expected; business and management strategies
and the expansion and growth of Crius’s, and USG&E's
operations; failure to pay dividends or other distributions to
holders of MVC's or Crius’s trust units; the failure to pay
interest to the holders of the second-lien notes; impairment
charges for goodwill; the performance of USG&E and MVC; and the
risk that disruptions from the Crius Transaction will harm Crius’s,
or USG&E's businesses. However, it is not possible to
predict or identify all such factors. Consequently, while the
list of factors presented here is considered representative, no
such list should be considered to be a complete statement of all
potential risks and uncertainties. Unlisted factors may
present significant additional obstacles to the realization of
forward-looking statements. Forward-looking statements
included herein are made as of the date hereof, and neither MVC,
Crius, nor USG&E undertakes any obligation to update publicly
such statements to reflect subsequent events or circumstances. Past
performance of MVC, USG&E and Crius is not indicative of any
future results or performance.
Contacts
Investor Relations:
Jackie Rothchild
MVC Capital
914.510.9400
or
Jeffrey Goldberger / Allison Soss
KCSA Strategic Communications
212.896.1249 / 212.896.1267
Media Inquiries:
Patrick Scanlan
Sard Verbinnen & Co.
212.687.8080
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