TORONTO, March 02, 2018 -- On February 28, the market price of Crius Energy Trust ("Crius Energy" the "Company" or the "Trust") (TSX:KWH.UN) units declined significantly in response to false and misleading statements made in a blog posting by an anonymous, self-described short seller of our Trust units (the "Short Seller"). While it is not the Company's practice to respond to bloggers or commenters in investor forums, we believe that given the magnitude of the impact on the price of our units as well as the malicious nature of the statements made by the Short Seller, it is in the best interests of our unitholders for us to respond. Furthermore, Crius Energy believes that it has identified the persons and entities responsible for the blog post. The Trust intends to take appropriate measures, both in the courts and with appropriate securities regulatory authorities, to address the harm done to our unitholders.
Crius Energy's Responses to the Anonymous Short Seller
Set out below are Crius Energy's responses to the principal contentions advanced by the Short Seller in the blog posting.
1. "Questionable" Dividend Payout Ratio Adjustments are Appropriate and Common
The three "questionable" adjustments that the Short Seller refers to in its blog post are appropriate and commonly made by other companies when presenting their payout ratio. They are:
- Changes in operating assets and liabilities. Changes in operating assets and liabilities is commonly excluded from payout ratio calculations, and the exclusion thereof from the Company's dividend payout ratio is consistent with industry practice.
- Legal reserves and associated legal fees. Legal reserves and associated legal fees have been excluded on the basis that such expenses and fees are not expected to be recurring. The Company has provided transparent reporting of this adjustment and explicitly sets out what the dividend payout ratio would have been without this adjustment in the Distributable Cash section of the Company's Q3 2017 MD&A.
- Maintenance capital expenditures. Maintenance capital expenditures includes all capital expenditures, but excludes acquisitions. Management believes this approach is consistent with industry practice and that acquisitions are a potential/opportunistic use of the Company's liquidity and/or Distributable Cash, rather than a deduction from it.
2. We Have Ample Liquidity
We have ample available liquidity to operate our business and execute our strategy.
As of September 30, 2017, the Company had total cash and availability of US$69.5 million, consisting of US$24.3 million of cash and cash equivalents and US$45.2 million available under the Company's credit facilities. The Company also has a legal reserve of US$13 million, representing management's estimate of the total exposure from material legal and regulatory matters, which has remained unchanged over the past several quarters and is unchanged following the recently announced settlement. Payments owed under any settlement are expected to be spread over an 18-month period. The ratio of our net debt relative to our pro forma last twelve months of Adjusted EBITDA for the period ending September 30, 2017 is less than one (1) times Adjusted EBITDA.
3. We Borrow at Market Rates
The weighted average interest rate on our outstanding debt was 7.6% as of September 30, 2017, with only a part of our debt – the Sellers Note issued as consideration for the acquisition of U.S. Gas & Electric, Inc. in July 2017 – carrying a 9.5% interest rate. The Sellers Note: (i) is subordinated to our other outstanding indebtedness; (ii) has an 8-year term; (iii) has no amortization; and (iv) has no prepayment penalty.
4. We Have No Association With Platinum Partners
Platinum Partners never invested in Crius Energy, nor any of our predecessor companies. Since Crius Energy's IPO in November 2012, no individual affiliated with Platinum Partners has held a management or director position with Crius Energy Trust or any subsidiary, and our Chief Executive Officer, Michael Fallquist, and our Chief Financial Officer, Roop Bhullar, have had no relationship with Platinum Partners.
Prior to Crius Energy's IPO in November 2012, Michael Fallquist and Roop Bhullar were employed at Commerce Energy, a company that received funding from an affiliate of Platinum Partners in 2008. In the early startup phase of Regional Energy Holdings, Inc. ("Regional Energy"), a company that combined with Public Power, LLC to form the Company, it occupied rent free space at Carnegie Hall (152 W 57th Street in New York) for less than 12 months before relocating to Connecticut. Furthermore, while David Levy was a director of Regional Energy until March 2012, and was considered as a potential Board member at the time of Crius Energy's IPO in November 2012, he was never offered a seat on our Board and has never had any role in the governance of our Company. From that point forward, Levy has been a passive equity holder only – holding an immaterial number of Trust units (0.67%). Based on our records, no other individuals with current or past associations with Platinum Partners currently own any Trust units.
5. We Changed our Auditor as Routine Business
Crius Energy's decision to change auditors in 2017 was not driven by any conflict or disagreement with its former auditor. Consistent with standard protocol, this was confirmed by the former auditor in a notice letter publicly filed by the Trust on March 31, 2017.
The change in auditor made good business sense for Crius Energy. Under accounting protocols, the lead partner of the former auditor was only eligible to serve in that role for a period of seven years after which they were required to rotate off the audit engagement in 2017. The Board recognized that the transition would be an opportune time to formally request competitive fee proposals to evaluate alternative audit firms, including the previous auditor, seeking an auditor appropriate for a Toronto Stock Exchange listed company with a market capitalization under C$500 million. Following this review, Grant Thornton was selected based on its experience with Toronto Stock Exchange listed companies, international reputation and presence, extensive U.S. deregulated energy industry experience, availability of locally-based partners, and a fee structure aligned with Crius Energy's size.
Short Seller's Allegations Rejected by Independent Research Analysts
Crius Energy's responses to the Short Seller's blog post are supported by independent research analysts. Two independent investment advisors have recently published research reports rejecting the contentions in the short seller's blog posting. Under the heading "Short Report Claims Without Merit", one analyst report said "(w)e do not believe this short report has any merit", following which the report addresses point by point the short seller's key claims.
About Crius Energy Trust
With over 1.4 million residential customer equivalents, the Company provides innovative electricity, natural gas and solar products to residential and commercial customers through exclusive partnerships, direct-to-consumer, digital, and broker marketing channels. Our unique brands offer consumers a broad suite of energy products and services including fixed and variable contracts, renewable energy, and bundled products to support their energy needs beyond what is offered by their local utility. Company growth is achieved organically with customers acquired through our diversified marketing channels and through accretive acquisitions in the deregulated energy and solar industries, where there is a significant opportunity to participate in the consolidation of market participants. The Company currently sells energy products in 19 states and the District of Columbia with plans to continue expanding its geographic reach. The Company is well-positioned to deliver capital appreciation and stable distributions to investors.
Material information pertaining to Crius Energy may be found on SEDAR under the Trust's issuer profile at www.sedar.com or on the Trust's website at www.criusenergytrust.ca.