Brink’s levers up to fund acquisitions, organic growth, build war chest

By Paul Deckelman

New York, Nov. 29 – Brink’s Co. increased its debt load and leverage in 2017 to fund a series of acquisitions – but the Richmond, Va.-based provider of secure cash transport, ATM machine servicing and other money processing and security guard services in the United States and in select countries internationally believes the addition was worth it, giving it the size and scope to continue as the top industry player in three of its top 10 markets representing 80% of its overall revenue, and as the second-biggest in the other seven markets.

“We have a very strong balance sheet that enables us to invest in growth, both organically and M&A,” declared Ron Domanico, the company’s executive vice president and chief financial officer on Wednesday.

More borrowing to fund acquisitions

Domanico told participants at the Bank of America Merrill Lynch Leveraged Finance Conference in Boca Raton, Fla., that the company’s debt and leverage picture was “pretty stable” in 2015 and 2016, with total debt in each of those years at $427 million and $421 million, respectively, and net debt at $269 million in 2015 and $247 million in 2016. Its leverage ratio of net debt as a multiple of trailing 12-month adjusted EBITDA stood at 0.9 times in 2015 and a svelte 0.7 times in 2016.

But 2017 saw the company make a total of six acquisitions for a total of approximately $373 million. In October, it closed on its acquisition of Temis Cos., a French provider of cash-in-transit, money processing and ATM services, for approximately $71 million.

In July, it completed its largest acquisition – the $209 million purchase of Maco Transportadora de Caudales SA, and Argentine cash-in-transit and money processing company.

Earlier in the year, there were four other acquisitions totaling $93 million, in the U.S., Brazil, Chile and a smaller Argentine company.

Those largely debt-funded acquisitions increased total debt to $791 million at the end of the 2017 third quarter on Sept. 30, with net debt also rising, to $570 million, awhile leverage roughly doubled to 1.4 times.

Domanico told the conference participants that the company’s adjusted trailing 12-month EBITDA grew from $306 million at the end of 2015 to $342 million in 2016, and to $407 million at the end of September. He noted that “if you add the pro forma acquisition impact for the completed transactions,” which does not include the Temis acquisition that closed the following month, “that would add an incremental $40 million of TTM EBITDA, for $447 million, an increase of almost $140 million over our 2015 results.”

He added that on that basis, pro forma leverage at Sept. 30, figuring in the additional EBITDA, would stand at 1.3 times.

Discussing Brinks’ capital structure and available committed borrowing capacity under its credit facilities, including its main revolving credit facility and two smaller facilities, Domanico told the conference “if you look at our capital structure, in 2016, we ended the year with approximately $481 million of available committed capacity. We used the bulk of that to complete the acquisitions I discussed previously, and at the end of September, we only had approximately $100 million of availability to continue to execute our strategic plan.”

A capital markets trifecta

Brinks turned to the credit markets last month, executing a three-pronged financing strategy.

It increased the size of its senior secured revolver to $1 billion from $525 million previously, extending the maturity to October of 2022 from March of 2020. The new revolver, the CFO said, carries a floating interest rate based on Libor plus a margin, with the current rate approximately 3%.

Concurrently with lining up the revolver, Brink’s closed on a $500 million five-year secured term loan A, also due in October 2022, with “similar” floating rates and amortizing at 5% per year.

And the company visited the junk bond market for its first-ever bond deal, issuing $600 million of new 4 5/8% senior notes due 2027. That regularly scheduled forward calendar issue priced at par on Oct.5 after having been upsized from an initially announced $500 million. While some of the proceeds were slated to repay revolver, term loan and certain other debt, the remaining proceeds were to be used for working capital, capital expenditures, acquisitions and for other general corporate purposes.

According to the investor presentation slides the company put together to accompany Domanico’s appearance at the BofA conference, some $473 million of the bond deal proceeds are currently held in cash. That, plus the revolver proceeds and other availability, as well as the $221 million of cash the company had on its books at the end of September, gives Brink’s “Firepower of $1.5B to Execute Acquisition Strategy,” the presentation declared.

“Accessing the debt markets last month increased our available committed capacity to $1.5 billion,” the CFO confirmed.

He noted that following the refinancing, the company’s ratings from Standard & Poor’s and Fitch are BB+, while Moody’s Investors Service rates it at Ba1.

Domanico further noted that Brink’s debt is denominated 86% in U.S. dollars, 6% in euros and 3% in Mexican pesos. The company forecasts its weighted average cost of debt in 2017 at 4.3% and at 4.7% in 2018, both pre-tax.

According to the investor presentation, the company has $168 million of debt due during the remainder of this year, then no significant maturities due until 2022, when any revolver borrowings come due, along with the $394 million of term loan debt that will still be outstanding after the yearly amortization payments. No other debt is due after that until the new bonds mature in October of 2027.

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