TIDMIDE
RNS Number : 6842M
IDE Group Holdings PLC
10 January 2019
IDE Group Holdings Plc
("IDE", the "Group" or the "Company")
GBP10 million Loan Note Issue
IDE, the mid-market network, cloud and IT Managed Services
provider, announces that it proposes to raise GBP10 million by way
of an issue of secured loan notes ("LNs") in two tranches. Under
the first tranche, GBP5.3 million of LNs (the "First Tranche LNs")
have been subscribed for by two existing shareholders of the
Company, MXC Guernsey Limited ("MXC"), a wholly owned subsidiary of
MXC Capital Limited, and Blake Holdings Limited ("Blake"), a
company controlled by Richard Griffiths (the "Initial
Subscribers"). The second tranche of GBP4.7 million (the "Second
Tranche LNs") will be made available to all other shareholders by
way of an open offer (the "Open Offer"). The proceeds of the issue
of the First and Second Tranche LNs will be used to repay IDE's
GBP8.25 million debt facilities with National Westminster Bank plc
("Natwest") consisting of a revolving credit facility ("RCF") of
GBP4.75 million and an overdraft of GBP3.5 million (together, the
"Facilities") and to provide additional working capital for the
Company.
Background to and Reasons for the LN Issue
On 15 October 2018 the Company announced the completion of its
strategic and operational review and the sale of 365 ITMS Limited,
one of the Group's subsidiaries. It also announced that the
restructuring of the businesses that remained within the Group,
being IDE Group Manage Limited and IDE Group Connect Limited, was
ongoing.
To that end, a total of GBP7.2 million of annualised staff cost
reductions have been implemented, along with other operational cost
savings including, inter alia, a reduction in software licencing
costs and property costs. The Company has also reached a settlement
in relation to an outsourced service contract which will result in
a saving of c.GBP3 million over the next three years. The Directors
believe that following these cost savings, the Group now has a
proportionate cost base.
The Directors are also pleased to announce that in addition to
this progress having been made in relation to the Group's cost
base, several of the Group's material customers have renewed their
contracts with IDE, some on a multi-year basis; these contracts
have a total contract value of c.GBP3.6 million. The Directors
believe that this is testament to the level of service IDE
provides.
Throughout the difficulties that faced IDE during 2018, the
Group's bankers, Natwest, remained supportive of the Company. The
proceeds of the 365 Sale were used to reduce IDE's level of debt,
however, the Group's remaining RCF of GBP4.75 million is fully
drawn and it has c.GBP1 million headroom on its GBP3.5 million
overdraft facility. Natwest has informed the Company that it would
like full repayment of the Facilities and the Directors believe
that the LN Issue will enable IDE to repay the Facilities, provide
additional working capital and deliver longer-term funding for the
Group, thereby affording security for all the Group's
stakeholders.
Terms of the LNs
The LNs have a term of six years (the "Term") and an annual
coupon of 12%, which is rolled up, compounded annually and payable
at the end of the Term. The LNs carry an arrangement fee of 2.5 per
cent., payable at the end of Term, and an exit fee of 2.5 per
cent., also payable at the end of the Term. The LNs are secured on
the Company's assets, though the First Tranche LNs are subordinated
to the Facilities with Natwest until such Facilities have been
fully repaid. Thereafter, the LNs will have first charge over the
Company's assets. The LNs can be redeemed at any time at the
Company's option, however, should the Company opt to redeem the LNs
prior to the end of the Term, all interest due until the end of the
Term will become payable, together with the arrangement and exit
fees, upon such early redemption.
The Open Offer
In order to allow all shareholders of the Company to participate
on the same terms as the Initial Subscribers, under the terms of
the Open Offer, qualifying shareholders will be invited to
subscribe for the Second Tranche LNs, pro rata (over all the LNs)
to their existing shareholdings on the basis of 1 GBP1 LN for every
40 existing ordinary shares held as at the record date, being 5.00
p.m. on or around 9 January 2018, at a price of GBP1 per LN,
payable in full on application and free of all expenses.
The First Tranche LNs represent the pro-rata entitlement of the
Initial Subscribers of the total GBP10 million of loan notes to be
issued, being GBP4.3 million for MXC and GBP1 million for Blake.
Therefore, MXC and Blake are not entitled to participate in the
Open Offer. However, the Company and MXC have entered into an
underwriting agreement whereby to the extent that other
shareholders do not subscribe for all the Second Tranche LNs, MXC
will forthwith subscribe for any balance of such Second Tranche LNs
not so subscribed for (the "Underwriting Agreement"). Kestrel
Opportunities, a cell of Guernsey Portfolios PCC Limited
("Kestrel"), a 9.1 per cent. shareholder of the Company, has
undertaken to fully subscribe for its entitlement to the Second
Tranche LNs, being GBP0.9 million.
A further announcement in respect of the Open Offer and details
of how to subscribe for the Second Tranche LN's will be made in due
course. It is expected that the Open Offer will complete in
February.
The MXC Underwriting Agreement and Guarantee
The Company and MXC have entered into the Underwriting Agreement
under which IDE will pay MXC a fee equal to 5 per cent. of the
value of the Second Tranche LNs subscribed for by it and a fee
equal to 2.5 per cent. of those Second Tranche LNs subscribed for
by other shareholders.
MXC has also given a guarantee in favour of Natwest (the
"Guarantee") whereby MXC has agreed to guarantee IDE's RCF with
Natwest and under which it has, inter alia, undertaken with Natwest
that if IDE does not pay any amount due under the RCF it shall upon
demand pay that amount as if it were the principal debtor. MXC is
not receiving a fee for providing the Guarantee.
As MXC is a substantial shareholder of the Company, it is deemed
to be a related party pursuant to the AIM Rules for Companies (the
"AIM Rules"). The entry into the Underwriting Agreement is
therefore a related party transaction for the purposes of Rule 13
of the AIM Rules. Ian Smith, Executive Director, is not independent
for the purposes of the related party transaction given that he is
a substantial shareholder and CEO of MXC. The other directors of
IDE, Andy Parker and Max Royde, are both deemed independent for
these purposes and consider, having consulted with the Company's
nominated adviser, finnCap, that the terms of the related party
transaction are fair and reasonable insofar as the shareholders of
the Company are concerned.
Andy Parker, Executive Chairman of IDE, commented:
"I am pleased to be able to announce that we have secured new
debt funding for IDE and that we are able to offer all shareholders
the opportunity to participate in such funding. The Loan Notes
provide long term funding for the Group, providing a secure
financial platform on which we can build. Significant work has been
put into right-sizing the business and I am pleased with the
progress we have made. We start the new financial year with a cost
base proportionate to our level of contracted revenue."
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
IDE Group Holdings Plc Tel: +44 (0)344
Andy Parker, Executive Chairman 874 1000
finnCap Limited Tel: +44 (0)20 7220
Nominated Adviser and Broker 0500
Corporate finance: Jonny Franklin-Adams/
Scott Mathieson/ Hannah Boros
ECM: Tim Redfern/ Richard Chambers
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END
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