US Solar Fund is planning a fixed-price tender offer at $0.764 per share (equivalent to the 31 December 2023 NAV of $0.78 per share, less 2% for the costs of administering the tender offer). Shareholders may choose to tender for sale some or all of their shares, subject to an upper limit of $19m being returned to shareholders.
The terms will be set out in a circular to be issued in the next week, which will be voted on by shareholders at a meeting to be scheduled for 21 May 2024, which is the same date as the company’s Annual General Meeting.
Dividend cut
In order to “improve operational cash dividend coverage during the remainder of the year”, the board thinks it would be prudent to reduce the target dividend for 2024 to 2.25 cents per share from 5.66 cents per share in 2023. The board will revise the dividend target for 2025 in light of any improvement in the coverage as a result of successfully completing a refinancing.
Refinancing Plans
Last year the company’s operational cash dividend cover was 0.50x. To improve this and shareholder’s returns, the board has undertaken an exercise to explore likely terms for a refinancing of the company’s senior debt facilities.
The board intends to carry out a potential refinance by shifting the compay’s debt structure towards longer-dated debt through the US private debt markets. This requires the company to obtain an investment grade rating.
If successful, the refinancing may permit additional capital returns to shareholders as well as an increase in operational cash dividend coverage for 2025 and beyond. There is also an oportunity to release the cash that currently supports a letter of credit, plus there may be proceeds from breaking the interest rate derivatives associated with the current debt facilities.
Subject to market conditions, the board expects the overall process to be concluded in Q4 2024.
[The market seems to have taken this well. Despite the bad news of the dividend cut, the shares are up 8.4% at the time of writing – suggesting perhaps that investors were well aware that the dividend was not sustainable.]
USF : US Solar cuts dividend as implements new tender offer