Dollarama boasts Q4 ‘healthy balance sheet and strong free cash flow’

By Devika Patel

Knoxville, Tenn., March 30 – Dollarama Inc. management said that the company is in a strong financial position and has even increased its dividend following a quarter that generated “strong free cash flow.”

The company also completed a March offering of floating-rate notes that enabled it to pay down debt under its revolver, which accrues interest at a higher rate.

“We continue to generate excess free cash flow well above our investment needs,” chief financial officer Michael Ross said on the company’s fourth quarter earnings conference call on Thursday.

“Our healthy balance sheet and strong free cash flow support the board’s decision to increase the quarterly dividend by 10% to C$0.11 per common share,” he said.

Ross said that the company’s recent sale of floaters helped it pay down higher rate debt under its revolver.

“On March 16, we issued senior unsecured notes in aggregate principal amount of C$225 million, bearing interest at a floating rate of [CDOR plus 59 basis points].

“The notes have a three-year term.

“These new notes were given a rating of BBB with a stable trend by DDRS.

“Net proceeds of the offering were used to repay variable-rate indebtedness outstanding under our credit facility, as the rate on the notes is lower than we pay on our revolving credit facility,” Ross said.

Ross noted that the company is at the higher end of its targeted leverage ratio, but stressed that the company plans to remain investment grade, since it enjoys benefits from the improved interest rates.

“We’re at around 2.7x net debt to EBITDAR and our intention is always to stay below that mark,”

“We want to remain investment grade and to benefit from the favorable interest rates that we’re getting.

“We’ve just reduced that rate so that the accretion gets better.

Notes

On March 9, Dollarama said it priced C$225 million of three-year floating-rate senior notes at par to yield CDOR plus 59 basis points in a Canadian private placement offering.

The series 2 notes (DBRS: BBB) are due March 16, 2020.

RBC Capital Markets (Canada) Ltd. and CIBC World Markets Inc. were the bookrunners.

The Montreal dollar store operator plans to use the proceeds to repay debt outstanding under its revolving credit facility and for general corporate purposes.

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