Charah expects to pay down term loan, revolver but leverage will rise

By Devika Patel

Knoxville, Tenn., March 27 – Charah Solutions, Inc. expects its net leverage ratio to increase in 2019, despite its plans to pay down term loan and revolver debt once it receives “substantial” unrecovered project development costs from Duke Energy Corp. in the second half of this year.

The company’s net debt to adjusted EBITDA ratio is expected to rise, not due to more debt but because of lower expected EBITDA.

Despite the net leverage increasing, the company expects leverage will eventually fall again during 2020.

“We expect to receive a substantial cash payment from Duke Energy for unrecovered project development costs in the second half of 2019 [related to the Brickhaven project],” president and chief executive officer Scott Sewell said on the company’s fourth quarter and year ended Dec. 31, 2018 earnings conference call on Wednesday.

“After we receive the Brookhaven-related payment later this year, we expect to repay a portion of our term loan and amounts outstanding under our revolver, which will strengthen our balance sheet and improve our financial flexibility,” interim chief financial officer and treasurer Nick Jacoby said on the call.

“However, we expect our leverage ratio to increase over the course of the year because of lower expected EBITDA,” Jacoby said.

The company expects the net leverage to rise up to a turn from its 2.5x current level.

“We ended 2018 at 2.5x, down almost a full turn from [our leverage ratio as of] the IPO,” Jacoby said.

“That ratio will increase between now and the time we make that paydown from the Brookhaven proceeds.

“But we see it ending the year somewhere say between where we are today and maybe where we were pre- IPO, and then obviously, as the EBITDA grows based on the pipeline conversion towards the end of the year and into 2020, we see it moving down further from there,” Jacoby said.

Adjusted EBITDA for the fourth quarter was $22.9 million, up 12% from the year-ago period.

Adjusted EBITDA for 2018 was $98.8 million, an increase of $22.8 million or 30% from the 2017 level of $76 million.

As of Dec. 31, 2018, the company’s gross consolidated debt stood at $257 million.

The company's cash balance as of Dec. 31, 2018 was $6.9 million, compared to $32,264,000 as of Dec. 31, 2017. Its liquidity was approximately $50 million at year-end.

Charah is a Louisville, Ky.-based service provider to the regulated utility industry.

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