Conifex Timber Inc. has announced the completion of a first amendment to its credit agreement with Wells Fargo Capital Finance Corporation Canada. This amendment is aimed at restructuring Conifex's lumber business credit facility and includes provisions for additional short-term liquidity and the continuation of funding for revolving loans. The need for this amendment arises in the wake of a significant downturn in the lumber market, where Benchmark SPF lumber prices saw a 50% reduction in 2023, leading to a negative EBITDA for Conifex, contrasting sharply with a positive EBITDA of $46.7 million in the previous year.
The amendment secures the credit facility against substantially all assets of Conifex's lumber business and comes after the company's liquidity challenges and accumulating losses made it difficult to meet the fixed charge coverage ratio requirements of the original facility. Despite these challenges, regulatory changes in British Columbia in 2023 have led to operational improvements for Conifex, contributing to a reduction in EBITDA losses in the fourth quarter of 2023 compared to the third quarter.
Looking ahead, Conifex is cautiously optimistic about the potential for further improvement in EBITDA in the first quarter of 2024, given a 10% increase in Benchmark SPF lumber prices from the previous quarter. The amendment with Wells Fargo provides Conifex with breathing room until May 31, 2024, during which time the company is required to secure replacement funding sufficient to repay the facility in full. Conifex has engaged Raymond James Ltd. to assist in this process.
In conjunction with the lumber business credit facility amendment, Conifex's subsidiary, Conifex Power Limited Partnership, has amended its power business credit facility, which includes the release of certain restricted cash to pay down the lumber facility. The power term loan now carries a stepped-up interest rate starting at 7.35%. Conifex is also reviewing the long-term financing of its power business, which may lead to new or replacement lenders and could be influenced by various business initiatives.
