KP Tissue Inc. (Mississauga, Canada) reported Nov. 19, 2018 that Kruger Products L.P. (KPLP) and certain of its subsidiaries have closed financing transactions to fund the previously announced TAD2 Project of $575 million in the Brompton area of Sherbrooke, Quebec, to build a new, state-of-the-art tissue plant featuring Canada’s largest and most modern TAD paper machine along with related converting equipment and infrastructure. Furthermore, the existing debt related to the Memphis TAD1 Project was also refinanced with more favorable terms and conditions.

"We are very pleased to announce that the financing associated with the TAD2 Project is now completed. The financing structure will be non-dilutive to KPT shareholders but will require higher leverage ratios during the construction and start-up period of the project. The financing in place provides us with the flexibility to execute the project and with terms and conditions supporting solid long-term returns for our shareholders. As indicated before, this significant investment in capital expenditures is central to our long-term North American growth strategy in the ultra-premium paper tissue segment," said Dino Bianco, CEO of KP Tissue and KPLP.

The Financings include credit facilities in aggregate amounts of US$198 million and $123.5 million (the Project Facility) and US$147 million (the KTG Facility) made available to certain subsidiaries of KPLP under a credit agreement with American AgCredit FLCA, as administrative agent, and National Bank of Canada, as Canadian administrative agent; the issuance of a $105 million convertible debenture by Kruger Products Sherbrooke Inc. (KPSI), the entity that will construct and operate the TAD2 Project, to Investissement Québec (IQ); a senior secured credit facility (the Nordea 2 Facility) in an amount of US$48.8 million made available to KPLP under a credit agreement with Nordea Bank Abp, filial i Sverige, as original lender and administrative agent; and a $50 million factoring facility (the Factoring Facility) made available to KPLP under a receivables purchase agreement with The Bank of Nova Scotia. The package of TAD2 Project financing for the entire $575 million investment is expected to have a weighted average cost of capital in the 5-7% range.

KPLP will use funds from the Nordea 2 Facility and the Factoring Facility as well as cash on hand to fund a $125 million equity investment in KPSI, with half of such investment having occurred upon the closing of the Financings and the remainder to be funded over the following two years. Funds from the KTG Facility have been used to refinance existing indebtedness of TAD Canco Inc. incurred for the TAD1 project under a credit agreement with Caisse de dépôt et placement du Québec. The Project Facility and the KTG Facility are both non-recourse to KPLP.