Outstanding Debt Remains Unchanged; Net Debt to Adjusted EBITDA Ratio Remains at All-Time Low

Fresh off beating analyst guidance by 30%, Barranquilla based glass and aluminum manufacturer Tecnoglass, Inc. (NASDAQ: TGLS) announced last week that it has amended its senior secured revolving credit facility to increase the borrowing capacity under its committed Line of credit from $50 million to $150 million, reduce its borrowing costs by an approximate 130 basis points, and extend the initial maturity date by one year to the end of 2026.

Borrowings under the credit facility will now bear interest at a rate of LIBOR with no floor plus a spread of 1.75%, based on the company’s net leverage ratio, compared to a prior rate of LIBOR with a floor of 0.75% plus a spread of 2.50%. The company expects the amendments to provide approximately $3 million of incremental interest expense savings on an annual basis at current outstanding borrowings.

Tecnoglass CFO Santiago Giraldo (Photo: Loren Moss)

“We’re extremely proud of our outstanding track record of financial performance and cash generation. Today’s announcement further demonstrates to our customers, employees, partners and shareholders that our business momentum is very strong and our growth investments are paying off. This transaction, which was widely oversubscribed, reduces our cost of capital while significantly enhancing our liquidity and financial flexibility. Through this refinancing, we now estimate total annual savings of approximately $15 million at current levels of outstanding borrowings, since entering into our inaugural US Bank syndicated facility in October of 2020,” said Santiago Giraldo, Tecnoglass Chief Financial Officer.

The facility was led by PNC Bank N.A as Administrative Agent; with Citizens Bank N.A, BBVA USA, CIT Bank and Wells Fargo Bank N.A serving as Joint Lead Arrangers.

“This upsized revolver positions us exceptionally well to fund future growth initiatives and to further capitalize on opportunities in the quarters and years ahead. We are extremely encouraged by the overwhelming support received by the syndicate of US and European based banks that understood the strong tailwinds in our business as well as our structural competitive advantages that are allowing us to outpace the industry and gain incremental market share. The syndicate composition and the financial costs achieved in this transaction validate the success of our strategy as a ‘US centric’ company,” added Giraldo.

The deal increases the currently untapped committed facility from $50 Million to $150 Million And reduces all-in interest from 3.25% to 1.90% at current rates.

Finance Colombia: I’m here with Santiago Giraldo, the CFO of Tecnoglass; on NASDAQ, that’s TGLS. Congratulations, you guys just closed on a $300 million-dollar (US) credit facility. So first, maybe you can tell us a little bit about the motivation behind that financing package.

Santiago Giraldo: We are very excited with the outcome, it was definitely a transformational transaction for the company. If you look at the way that we were being financed before and what we are going to be able to do with this facility moving forward is day and night really. I mean we are going to save about 11 million dollars of interest on a yearly basis, which is a substantial amount, and the driver was really trying to be more seen as an US-based company, right? I mean I think we were being financed as a LatAm company but the reality is that Tecnoglass does over 90% of its business into the US, and as a growing part of the business, it could become 95% over time, I don’t know, but the idea behind this new structure was to basically be able to approach existing and new relationship banks with the idea that Tecnoglass should be able to finance itself  in the same way as its US-based peers, right? And I think  it was a very successful outcome seeing that five new US and European based banks were able to recognize that and were able to recognize our competitive advantages and what we are doing, even in a very difficult time so that was the main driver and as a result of that we are shaving 450 basis points out of our financing costs which is which is great.

Finance Colombia:  I think it’s a real vote of confidence, I saw that BBVA is the leading administrator and then you’ve got ING Bank, you’ve got Citizens Bank, which is a US bank, Sabadell is taking part in it, so I do think that that speaks to investor confidence. Now it’s in two parts, right? There’s a revolving part and there’s a term loan part of that…how’s that structured?

Santiago Giraldo: Right, so our outstanding debt right now is about $240 million, so what we are thinking about doing is taking out all the non bond debt, which we have about $30 million or so and we are going to do that at the end of this month, and then when the call premium on the bond falls off or falls down in January we are going to take out the bonds so there’s going to be two drops on the term loan and that’s going to total about $240-250 million with some cash going to the balance sheet and then we are going to have a five-year committed $50 million revolver, which is not something that you typically see with LatAm corporates, to have a committed revolver but you know given everything that we just saw happening this year I think it makes perfect sense to have that financial flexibility to be able to have that pocket of money to tap into on a committed basis…we are going to have that extra $50 million dollar facility in there for working capital needs, for opex or any other kind of one-off strategic transaction if it were to take place.

Finance Colombia: Smart, and  you know, speaking of that I noticed that you guys also were able to close on a land parcel and you were able to do that with really no, obviously no bank financing but no cash as well, you were able to do kind of an innovative structure to that transaction, right?

Santiago Giraldo: Yes, so that was the last piece of the Saint-Gobain transaction we were also excited to complete that, if you recall we did an equity raise last year where we raised about $35 million dollars and there was a land contribution that was pending so we were able to do that in exchange for shares as opposed to cash. The sellers wanted to take shares as opposed to cash given how we view that the shares are very undervalued right now and there is still kind of a lot of upside to them and hopefully as we complete this refinancing and report results moving forward we are going to see these shares kind of coming back to where they need to be but that was that was the driver so yes, you’re absolutely right I mean, on an absolute basis we are going to be able to save that cash to reinvest in the business and we are able to do this at attractive terms for the company because if you look at the price of the shares that were used to pay for that land, they were issued at a 33%t premium over the closing price when the transaction took place.

Finance Colombia: Well it sounds like not only a win-win situation, it preserves cash flow, it reminds me of—In the US where we would see a lot of creative financing, but it also speaks to that confidence, not just you know, the financing packages speaks to international investor confidence and US investor confidence, but then to be able to close on a deal like that it speaks to even local investor confidence, and I think that there’s a lot more awareness of Tecnoglass locally as one of the largest companies in the country,  but still with your growth prospects being in the United States and still having a relatively small part of the market, the upside potential is really large.

Tecnoglass expands its borrowing capacity, significantly reduces cost of capital, lowers interest expense by an estimated $11 million USD annually, and extends maturity to 2025.

Tecnoglass intends to use the net proceeds to repay all outstanding borrowing under its previous credit facilities, such as the company’s existing $210 million unsecured senior notes, which bear interest at a rate of 8.2% and mature in 2022. The company says these are expected to be redeemed in full following a step down in redemption price at the end of January 2021. Tecnoglass plans to use the remaining proceeds and available cash for ongoing working capital needs and general corporate purposes.

“This larger facility, with its improved pricing and flexibility, is supported by a very strong syndication of U.S. and European based lenders who underwrote this agreement with a clear recognition of Tecnoglass as a solid U.S.-focused company. The significantly improved terms of the facility underscore our record of growth, our improved cash generation, and our greater than 90% of revenues derived from the U.S. We believe the significant reduction of our cost of capital, including anticipated annual cash interest savings of approximately $11 million on current outstanding borrowings, positions us exceptionally well to fund growth initiatives and to further capitalize on market opportunities. We thank all of our new and existing lenders for their continued support of our industry-leading margin business,” said Santiago Giraldo, Tecnoglass Chief Financial Officer.

In other news, Tecnoglass closed on a land parcel for its Vidrio Andino joint venture with Saint-Gobain, where the companies plan a new float glass manufacturing facility located near Barranquilla. The land transaction was completed on October 28, 2020 for a purchase price of $10.9 million in aggregate value, paid in Tecnoglass ordinary shares issued at a price of $7.00 per share, which represents an approximate 33% premium based on the stock price as of the closing date of October 27, 2020.

BBVA USA acted as Administrative Agent, with Citizens Bank, N.A., ING Bank N.V., and Sabadell Bank acting as Joint Lead Arrangers for the credit facility.

Photo courtesy Tecnoglass