Monday, 25 March 2013

Carfinco’s Bought Deal Financing – Additional Clarification

TSX: CFN
Shares outstanding: 24.65 million
Shares fully diluted: 24.65 million

---------------------------------------------


This morning’s news that Carfinco Financial Group had accepted a $15 million bought deal from three investment firms took many by surprise in light of the fact that the company has not taken new equity for close to half a decade.

GMP Securities L.P., Stonecap Securities Inc. and Industrial Alliance Securities Inc. are buying 1.54 million shares from treasury at $9.75 per share as well as 720 thousand shares in total from two directors, David Rosenkrantz and David Prussky.   

In speaking with management, we learned that the directors agreed to the financing at a special board meeting yesterday, Sunday the 24th.

It was also noted that Mr. Rosenkrantz and Prussky had agreed to offer stock to the total offering to increase the size for the underwriters as they believed there was market demand.

Based on insider reporting, Mr. Rosenkrantz and Mr. Prussky continue to hold significant positions.

In our discussion with management, it was made clear that this financing was NOT done to raise additional equity at the request of its banking syndicate and there has been no such request. In fact, CFN’s financial leverage ratios are well in excess of any banking covenants.

We have seen the stock slide from the $11 range since mid-March when the company released its 2012 yearend financials. Even though earnings continued their year over year increase, the annualized loss rate on finance receivables increased 2.3% to 15.1% from 12.8%. While the market may have concerns about the increase, our conversation with management pointed out that this is within the norm and is not an indication of dark clouds on the horizon.

Today’s news release stated that the funds will be used to reduce indebtedness, for general corporate purposes and for potential future acquisitions. We note that the last point for use of funds is the first time we have seen this indicated in a news release.