Business Context and Reporting Period
Company: Advanced Emissions Solutions, Inc. (ADES)
Filing Date: December 7, 2018 (Report Date: December 13, 2018)
Event: Completion of the acquisition of 100% of ADA Carbon Solutions, LLC ("Carbon Solutions") and entry into a material definitive financing agreement.
Key Financial Metrics
- Acquisition Price: $75.0 million plus fees.
- Financing Structure:
- $70.0 million Term Loan from Apollo Credit Strategies (less $2.1 million original issue discount).
- $8.6 million of assumed capital leases.
- Term Loan Terms: 36-month term; interest rate of 3-month LIBOR (1.5% floor) + 4.75% per annum; quarterly principal payments of $6.0 million starting March 1, 2019.
- Existing Debt: Approximately $15.6 million outstanding under Carbon Solutions' capital and operating leasing arrangements (due 2018–2025).
- Liquidity Covenants: Minimum cash balance of $5.0 million required beginning December 31, 2018.
Material Changes
The Company completed the acquisition of Carbon Solutions, a North American leader in mercury capture using powdered activated carbon for coal-fired power plants and industrial markets. This transaction re-acquires a business in which ADES previously held a 50% interest (relinquished in 2011). The acquisition was funded primarily through new debt financing rather than existing cash reserves.
Guidance, Outlook, and Risks
- Covenants: The Loan Agreement requires expected future net cash flows from the refined coal business to be at least 1.75 times the outstanding Term Loan principal. Annual dividends and buybacks are capped at $30 million, contingent on no defaults and expected future net cash flows exceeding $100 million.
- Collateral: The Term Loan is secured by substantially all assets of ADES and subsidiaries, including cash flows from Tinuum Group LLC and Tinuum Services LLC, excluding ADES' equity interests in those entities.
- Financial Reporting: Historical financial statements and pro forma financial information for Carbon Solutions are not included in this filing; they are expected to be filed in an amendment (Form 8-K/A) within 71 days.
Investor Verification Checklist
- Verify the historical financial performance of Carbon Solutions once the Form 8-K/A is filed.
- Confirm the Company's ability to meet the $5.0 million minimum cash balance covenant as of December 31, 2018.
- Assess the projected "expected future net cash flows from the refined coal business" against the 1.75x leverage covenant requirement.
- Review the full text of the Term Loan and Security Agreement (Exhibit 10.1) for additional restrictive covenants.