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.

According to Fitch: “The ratings reflect Tecnoglass’ competitive cost structure, above-average growth profile supported by its solid order backlog, long-term relationships with customers and robust demand for its products. The ratings are tempered by its production site concentration and high working capital needs, which have resulted in weak cash flow from operations during periods of rapid growth. The ratings also reflect the high cyclicality of the new construction industry that leads to cash flow volatility.”

To allay any cash flow concerns and support that rapid growth Fitch observed, Tecnoglass late last year closed on a syndicated $300 million USD credit facility at extremely competitive interest rates, significantly lower than the notes’ issue rate.

“We were able to refinance all of our outstanding bond debt with a syndicate of banks mainly comprised of US and European based lenders, about 10 in all,” Tecnoglass CFO Santiago Giraldo told Finance Colombia today. “The facility was well oversubscribed. And we were able to attain that thanks to the fact that the lenders recognize that Tecnoglass has a sustainable advantage over the competition, and they understood that we are very much exposed to the housing segment, single family and multi family residential, segments which are outpacing the rest of the economy.”

“So while there were challenges surrounding the COVID-19 pandemic, what ended up happening last year is that construction was deemed an essential business in the US and construction never stopped. So basically, we were able to continue moving along, executing our backlog, and growing our residential segment benefitted by very low mortgage rates. So it was a good year and we are expecting to continue the growth this year now that things are recovering, and the construction industry is now moving forward with projects that were put on hold during 2020.”

Tecnoglass management will hold a webcast and conference call on Wednesday, March 2 at 10am Eastern time. To listen to the call and view the slides, please visit the Investors section of Tecnoglass’ website at www.tecnoglass.com. Please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those unable to access the webcast, the conference call will be accessible by dialing 1-877-705-6003 (domestic) or 1-201-493-6725 (international). Upon dialing in, please request to join the Tecnoglass Fourth Quarter 2020 Earnings Conference Call.

“I would add that we got financed at very low rates similar to those of US based companies. Right now, we are going to be at LIBOR + 250 on a 5-year term, which is 500 basis points lower than what we previously had on our bond issuance. So that is a recognition that lenders saw Tecnoglass as a company with operations in Colombia but a business model in a target market that is US-centric, so they are underwriting that risk based on what they see for the US market as a whole,” concluded Giraldo.

Also see: Interview: The Right Strategy Is The Key to Tecnoglass Having a Record Year Despite Pandemic

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

The project will contribute to improve the effectiveness in managing government priorities by strengthening the planning, monitoring and evaluation capacities of the central government. Additionally, it is expected to have a positive impact on the provision of priority public goods and services for the citizens of Colombia.

This program marks a milestone in the Government Centers initiative as it is the first IDB loan focused exclusively on the implementation of Delivery units. The program complements the traditional model of the Government Center (CoG) with the incorporation of sophisticated cutting-edge technologies such as artificial intelligence that will generate data and project scenarios in order to support timely decision-making in those strategic programs for the country.

The project will be directly managed by the Presidency of the Republic of Colombia, which through this program will acquire strategic information and processes for decision-making, and the public sector institutions.

The IDB loan has a repayment term of 15 years, a grace period of 15 years and an interest rate based on LIBOR.

According to the IDB, the proposed reforms will aim to solidify macroeconomic stability, boost development, encourage public/private partnership financing, strengthen regulation of the financial system, promote financial inclusion, and heighten the country’s ability to monitor progress in these areas. The loan has a 20-year term — with a 5.5-year grace period — as well as a LIBOR-based interest rate

“Among other things, the program will seek to ease the access of micro-, small-, and mid-sized enterprises to financing through the use of secured transactions and electronic invoices as financial collateral,” said the Washington-based bank in a statement. “It will also deepen the structuring of productive infrastructure projects through the Financiera de Desarrollo Nacional (FDN).”

Another goal of the $450 million USD in funding will be to help raise transparency within the financial system and hasten the development of Colombia’s capital markets. Both of these initiatives are seen as key steps as the Andean nation continues down the path of trying to join the Organization for Economic Cooperation and Development (OECD). Such progress will also help in terms of establishing deeper financial integration within the Pacific Alliance framework, according to the IDB.

“Furthermore, issuance of the Financial Inclusion Act’s implementing regulations and implementation of financial education initiatives will provide enhanced access of unbanked persons to financial services,” stated the bank. “This operation is being carried out under the Programmatic Policy-Based Loan modality, designed to provide financial support to priority reforms in member countries.”

An IDB loan of $30 million for the Institutional Strengthening of the Mining and Energy Sector program is designed to improve transparency and efficiency.

This sector shows institutional weaknesses in generating, sharing and using information about mining and energy activities. These shortcomings limit the capacity of authorities to plan, control and offer services to the sector, and lower the levels of accountability toward citizens.

Colombia’s government, which has signed on to the Extractive Industries Transparency Initiative (EITI), has identified transparency as the starting point for strengthening its institutional capacities, in line with the international experience of advanced countries that are rich in natural resources.

The principal beneficiary will be the Minminas: The Ministry of Mines and Energy and its related agencies.

Among the project’s goals is the design and implementation of a strategic command panel and a business intelligence module. It will also seek to redesign the institutional procedures at the National Mining Agency. And it will strengthen the Mining and Energy Planning Unit’s capacity for generating coordinated data that will allow the other institutions in the sector to improve their planning and delivery of information services.

To increase transparency, the project will seek to review and improve the information available in the controls module of the MapaRegalías platform, designed to visualize the incomes and investments financed with resources from extractive industries.

The loan will be for 15 years, with an interest rate based on LIBOR.

Cover photo: Minister of mines & Energy Tomás González, and Viceminister of Mines, Maria Isabel Ulloa, review the area of a mining accident in Amagá Antioquía. Image courtesy of Minminas.

Bank of America and HSBC Securities served as global coordinators, joint bookrunners and mandated lead arrangers. The rest of the syndicate was made up of Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking as mandated lead arrangers and joint bookrunners, and Citigroup Global Markets, JP Morgan Securities, and Mizuho Bank as lead arrangers.

The loan was authorized by the Ministerio de Hacienda y Credito (Finance Ministry) on December 22, by degree #4783, and the deal was signed on December 29 by the banks and Juan Esteban Calle Restrepo, general manager of EPM.

83% of the loan will go towards energy, such as the Ituango Hydroelectric Project, and 17% will go towards EPM’s waterworks businesses.

The loan is disbursable over a 12 month period and has a term of 5 years. The interest rate is LIBOR+1.40%. The loan will finance the investment plan and $12.4 billion 2016 budget for EPM, approved by the board of directors on November 24 of last year.

“This operation represents a diversification of the sources of financing for our enterprise, and the consolidation of a long-term commercial relationship with this important group of international banks that back the growth strategy and diversification of projects and businesses of Grupo EPM,” said Calle.

“The competitive conditions practiced in this operation ratify the trust and the solid reputation that EPM projects in the international financial environment, even amidst an economic landscape of high volatility in international markets.”

Over the next four years, EPM plans to make $2.4 billion USD in investments to develop expansion projects, modernization and growth in the energy, gas, and water sectors, along with social responsibility and environmental programs that will contribute to sustainable growth of the enterprise and the areas in which it operates.

Photos of loan closing courtesy of EPM

The reforms are designed to promote an increase in financing for productive development, expand the financial inclusion of people and micro, small and medium enterprises that do not have access to banks; strengthen the regulation, supervision and transparency of the financial system; and develop the capital market.

The funds will improve access to credit by companies, especially small and medium sized enterprises, and allow infrastructure financing by public-private partnerships through the development of capital markets and the Latin America Integrated Market, as part of the Pacific Alliance.

They will also increase public trust, by improving the standards for regulating and supervising the financial system expanding access to banks so that people can use bank services and thereby reduce the vulnerability of their home economies.

This operation is carried out at as a Programmatic Loan in Support of Policy Reforms, a quick-disbursement facility designed to lend budgetary support to priority reforms in IDB member nations.

The IDB loan will be disbursed over a one-year period. It has a grace period of 12 years, 8 months, and an interest rate based on LIBOR.