The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sunshine Holdings is “testing the waters” with a $20 million preference share offering, its chairman revealing that the proceeds will be used for balance sheet restructuring.

Franklyn Wilson told Tribune Business that the well-known holding company was seeking to “better match assets to liabilities” with funds raised from investors in the Bahamian capital markets.

Confirming that the preference share issue is live, Mr Wilson indicated that the prevailing ‘low interest rate’ and high banking system liquidity environment had encouraged Sunshine Holdings to tap the capital markets.

He said the idea for an alternative approach to bank financing came from the offering’s lead arranger/placement agent, CIBC FirstCaribbean International Bank.

“Sunshine Holdings has been in existence for 43 years or so, and we’re a very private company,” Mr Wilson told Tribune Business.

“As the company has grown, there’s a sense that it could be in the company’s interest to test the market to get a sense if there’s an opportunity to better match the assets of the company with the liabilities.....

“CIBC did an assessment that it would be a company that the market had some interest in, and we said: ‘Go test the waters’.”

Mr Wilson emphasised that Sunshine Holdings was not seeking financing for acquisition purposes, but instead to reduce and/or replace existing balance sheet debt. The company is essentially looking to reduce debt servicing costs and boost cash flow.

“We have no plans to immediately buy any new business,” he told Tribune Business. “This isn’t about us being leveraged. We’re just trying to restructure the balance sheet as a result of the prevailing economic climate, which suggests it may be favourable.”

Sunshine Holdings’ main interests include 100 per cent equity stakes in Arawak Homes, and its Sunshine Insurance (Agents & Brokers) and Sunshine Finance affiliates. It also holds the greatest indirect stake in RoyalStar Assurance, the property and casualty underwriter, at 36 per cent, and is the largest shareholder in BISX-listed FOCOL Holdings with 23 per cent of the company.

“We are different from many other companies that have been to the market because we’re diversified,” Mr Wilson explained. “We’re diversified in businesses that the public knows - Arawak Homes, Sunshine Insurance and Sunshine Finance, and are the lead investor in FOCOL and RoyalStar.

“These are all companies that are known, so we will see what the market says. We have never done it before.”

The Sunshine Holdings offering is a private placement, meaning it is targeted only at select institutional and retail investors - the likes of pension funds, insurance companies, investment banks and high net worth individuals. Members of the Bahamian public should not try to get involved.

Confidential documents seen by Tribune Business reveal that the preference share issue could be “upsized” to $35 million depending on investor demand - indicating that Sunshine Holdings is prepared to accept more than the $20 million ‘floor’.

Depending on whether $20 million or $35 million is raised, the offering will take Sunshine Insurance’s total issued preference share capital to between $39.92 million and $54.92 million. Some 14 different preference share classes are already on the company’s books.

The ‘new’ preference shares carry a 6.5 per cent interest coupon and 10-year maturity, with the principal redeemed in equal 25 per cent annual instalments beginning in the seventh year post-closing.

Confirming the offering’s rationale, the supporting documentation: “Proceeds from the offer will reduce the issuer’s interest cost, lengthen the maturity profile of its liabilities to be better aligned with the asset profile, as well as enhance Sunshine Holdings’ cash flow management.”

Financial data supplied to investors showed that Sunshine Holdings’ total assets increased by 27 per cent in the five years to end-2014, closing last year at around $169 million.

The company said its total assets would be $29.221 million higher if its FOCOL Holdings stake had been measured at market value as opposed to book value. The former measurement, based on FOCOL’s $6 per share price at July 31, 2014, valued its FOCOL equity at $47.434 million, as opposed to the $18.213 million ‘book value’.

And, while Arawak Homes’ landholdings and deposits had been valued in Sunshine Holdings’ statements at ‘cost’, the latter said it was “confident that the current market value of the land reserve is significantly in excess of the book value, which as at July 31, 2014, was about $24 million”.

Sunshine Holdings added that its “conservative” approach was reflected by its relatively low leverage, with a debt-to-equity ratio of 0.77 times’ based on its 2013 audited financial statements. Its total debt at July 31 last year stood at around $71.069 million.

“As a Bahamian enterprise, few can compare to Sunshine Holdings in terms of its continuity, stability, growth, diversification or reputation,” the offering memorandum read.

“Sunshine Holdings has demonstrated a level of continuity in operations and management which is only rivalled by a few Bahamian companies. From all of the companies listed on BISX, only J. S. Johnson, FamGuard and FINCO would have been founded prior to independence and retained the same effective management and control.

“This level of stability has enabled the issuer [Sunshine Holdings] to grow organically, maintaining relatively low leverage position throughout its history.”

Mr Wilson, meanwhile, told Tribune Business that CIBC FirstCaribbean was “in the market, talking to people” about investing in the preference shares.

When asked when it would close, he responded: “We won’t leave it out there for ever.”

The documents seen by Tribune Business show that last Friday was scheduled to be the closing date for subscriptions, with all funds received - and the offering closed - come Thursday, February 5.

Whether these deadlines will be met is uncertain, but dividends on the preference shares are due to be paid semi-annually, starting on August 5 this year.

Mr Wilson owns a majority 56.79 per cent equity stake in Sunshine Holdings, with the next largest shareholder being Progressive Liberal Party (PLP) chairman, Bradley Roberts.

CIBC FirstCaribbean appears to be co-ordinating the Sunshine Holdings preference share issue from Trinidad, given that the executives listed as ‘contacts’ in the offering document mostly have Trinidadian phone numbers.

“We’re pleased that CIBC saw fit of our company that they offered to arrange it,” Mr Wilson told Tribune Business. “The bank thinks enough of us, we’re a good company and we have the strength to do it.”