Atlas aims for IG rating, touts 2020 debt sales, decreased leverage

By Devika Patel

Knoxville, Tenn., March 23 – Atlas Corp. plans to keep taking steps to improve its balance sheet with an eye on achieving an investment-grade credit rating in order to limit its cost of capital.

The company conducted several capital markets transactions in 2020, improving liquidity and giving the balance sheet more flexibility.

“As CFO, my expectation is that we actively manage our balance sheet and while appreciating that 2020 was a busy year for the team, we still have a lot to do,” chief financial officer Graham Talbot said on the company’s investor day presentation on Tuesday.

“In addition to managing our liquidity and funding growth across the energy and maritime platforms, we need to constantly improve the quality of our balance sheet by reducing the cost of capital, diversifying our funding sources, extending maturities and continuing on our stated path to achieve an investment-grade corporate credit rating.

“The timing of achieving an investment-grade credit rating is not for the headline: It is to drive down our cost of capital, thereby continuing to increase the distance between us and our competitors.

“We have good access to capital so the challenge is not to obtain capital, but to find the right capital to progressively optimize our capital structure,” Talbot said.

Leverage has improved considerably in the last three years.

“We have a strong balance sheet and the liquidity to execute our current growth pipeline, as well as the flexibility to evaluate new opportunities,” Talbot said.

“We’re also seeing increasing opportunities to access the capital markets on both a secured and unsecured basis.

“Over the last three years, the team managed to improve the net debt to adjusted EBITDA ratio by 1.1x, even after absorbing growth of 38 vessels coupled with a rise to a very high sustained utilization, plus freeing up eight more unencumbered vessels.

“This is quite an achievement and a lot of progress in a fairly short period of time,” he said.

The company completed several capital markets transactions in 2020, including two green financings.

“In 2020, we undertook several key steps to drive continuous improvement in our capital structure,” Talbot said.

“A $250 million sustainability-linked loan facility was added to our portfolio, increasing it to approximately $1.8 billion at year-end.

“This aligns our capital structure to green, sustainability-linked financial incentives, consistent with our ASG principles,” he said.

Seaspan Corp. sold green notes and exchangeable notes in two sales.

“Seaspan executed an initial placement in the unsecured credit market of $201.3 million of 3.75% exchangeable senior notes,” Talbot said.

“In January 2021, Seaspan issued $200 million in senior unsecured sustainability-linked bonds in the Nordic market, which is again creating increasing alignment to green initiatives and further diversifying our capital base with increased unsecured tranches.

Subsidiary APR Energy Ltd. also raised $285 million.

“APR closed a $285 million financing during 2020, providing continued flexibility and liquidity,” Talbot said.

“The package included a revolver, a term loan and a fixed-rate privately placed component,” he said.

Seaspan garnered an investment-grade credit rating.

“Seaspan achieved an investment-grade BBB- senior secured rating from Kroll bond rating for our portfolio lending facility,” Talbot said.

“This is great progress and sets the scene for the future,” he said.

On March 9, 2020, Atlas reported that it closed $285 million senior secured financing on behalf of APR Energy.

The financing program consisted of pari passu senior secured loan facilities, including a $50 million revolving credit facility, a $135 million term loan facility and a $100 million fixed-rate institutional private placement tranche from funds managed by the global infrastructure debt team at BlackRock.

Citibank NA acted as structuring agent.

The bank syndicate for the revolver and term loan was led by Citi, Export Development Canada, Bank of Montreal and Toronto-Dominion Bank and also included Canadian Western Bank, HSBC Bank Canada and Bank of America, NA.

On Dec. 17, 2020, Atlas priced $175 million of five-year exchangeable notes at par at the cheap end of talk with a coupon of 3.75% and an initial conversion premium of 27.5%. The Rule 144A offering had a $26.25 million greenshoe, which was fully exercised on Dec. 22, lifting the total deal size to $201.25 million.

Price talk was for a coupon of 3.25% to 3.75% and an initial exchange premium of 27.5% to 32.5%.

The notes were issued by subsidiary Seaspan and exchangeable for Atlas shares.

BofA Securities Inc. and BMO Capital Markets Corp. were active bookrunners.

Citigroup Global Markets Inc. and Wells Fargo Securities LLC were passive bookrunners.

The notes are non-callable until Dec. 20, 2023 and then subject to a 130% hurdle.

They are putable upon a fundamental change.

They will be settled in cash, shares or a combination of both.

In connection with the offering, the company entered into capped call transactions with a cap price of $17.85, which represents a premium of 75% over the last reported sales of stock.

The effective interest cost for the company due to the call spread will be 5.5%.

Proceeds were earmarked to cover the cost of the call spread and for general corporate purposes, which may include capital expenditures, potential acquisitions and the pre-delivery of payments for Seaspan’s newbuilding vessels.

On Jan. 21, Seaspan priced $200 million of 6˝% three-year sustainability-linked bonds.

DNB Markets and Fearnley Securities acted as joint bookrunners.

Net proceeds were earmarked for general corporate purposes, which may include repayment of debt.

Atlas is a Vancouver, B.C.-based global asset manager whose subsidiaries, Hong Kong-based Seaspan and APR, operate in maritime and energy sectors.

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