Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dye & Durham conference call. I would now like to turn the call over to Ross Marshall, Investor Relations on behalf of Dye & Durham. Mr. Marshall, you may begin your conference.
Thank you, Ina, and good afternoon. Before we start, we'd like to remind you all that amounts discussed on today's call are denominated in Canadian dollars, unless otherwise indicated. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dye & Durham and its business, and disclosure regarding possible events, conditions, or results that are based on information currently available to management, which indicate management's expectation of future growth, results of operations, business performance, and business prospects and opportunities. Such statements are made as of this date hereof, and Dye & Durham assumes no obligation to update or revise them to reflect events, disclosures, or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results.
Given these risks and uncertainties, one should not place undue reliance on these statements and information. A number of these risks or uncertainties could cause actual results to differ materially from the forward-looking information discussed today. Certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection contained in the forward-looking information. Please refer to the forward-looking statements and future-oriented financial information sections of our public filings, without limitation, our MD&A, Annual Information Form, and our press release issued today, for additional information about material factors and assumptions that were applied in the forward-looking information and could cause results to differ materially from this forward-looking information. Joining us on the call today are Matt Proud, Dye & Durham Chief Executive Officer, and Frank DiLiso, Dye & Durham Chief Financial Officer. A question and answer session will follow the formal remarks for research analysts.
I now turn the call over to Matt for his opening remarks. Matt?
Thanks, Ross, and good afternoon, everyone. This morning we announced a series of actions to improve our balance sheet flexibility, and somewhat reduce debt. The outcome is relatively straightforward, but how we get there is complicated, so we wanted to address it directly with everybody. In the aggregate, Dye & Durham is successfully extending the maturity of a portion of our convertible debentures by 2.5 years on favorable terms for an increased yield to maturity of 2.4%. This is the right move for the company and its shareholders. We're reducing the 2026 convertible debentures balance by CAD 95 million to CAD 250 million, and we're reducing our overall convertible debt by CAD 10 million, with the issuance of CAD 85 million of new convertible debentures.
These actions provide us with increased flexibility to further optimize our balance sheet in the future, and they're an initial step forward in deleveraging the balance sheet, improving our long-term capital structure. The refinancing of our CAD 95 million of 2026 unsecured convertible debentures is primarily funded with new 2028 unsecured convertible debentures and cash on hand. It's important to note, while we're buying at a 16.9% yield to maturity and selling at a 19.3% yield to maturity, this represents an increase of 2.4% in our subordinated cost of capital. We wouldn't undertake this transaction if it were just one-sided and we were issuing up 19.3% paper. It has to be looked at in the aggregate. We believe it's important to recognize both sides of the trade, again, rather than just focusing on one.
The full details can be found in the press release we issued this morning, and more details will be available in the circular we expect to file next week, subject to regulatory requirements. We expect the transaction to close around November 28th. The refinancing results in a normalized, nominal interest increase in interest and a decrease in convertible debt outstanding. The 2026 Convertible Debentures have a 3.75% interest rate, while the new 2028 ones have a 6.5% rate. Our cash interest increased by just under CAD 2 million. The new annualized interest paid on the blended debenture is 4.45% or CAD 14.9 million annual cash interest a year, compared to CAD 12.9 million previously.
We view this as nominal, given the benefits of the 2.5 years of extended maturity and the CAD 10 million reduction in convertible debt. Slide 7 of the presentation provides a side-by-side comparison of the particulars of the old versus the new debentures. Again, we're buying at 16.9% yield to maturity and selling at 19.3. The straight price on the new debt is CAD 40, which is beneficial to equity holders. Keep in mind, the original CAD 345 million of convertible debenture due March 1, 2026, has a springing maturity, which allows the senior debt to mature on September 1, 2025. While this transaction is...
This is, while this is still two years away, this transaction addresses CAD 95 million of the CAD 345 million, which the company must address by September first, 2024, to avoid the senior and convertible debenture becoming current. This is a positive outcome and an initial step forward to optimizing our capital structure, which we'll continue to address moving forward. As we are entering the market with a substantial issue of bid, for transparency, we confirm this, this afternoon in the press release, that our Q1 fiscal 2024 financial results are in line with expectations, and we'll be available to discuss those results during the upcoming earnings call in late November, in late October. With that, I'll turn it back to the operator for Q&A, and Frank and I are both available for your questions. Operator?
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received, and should you wish to cancel your request, please press the star followed by the two. Once again, that is star and one to ask a question. And your first question comes on the line of Mr. Robert Young from Canaccord Genuity. Please go ahead.
Hi, good evening. Maybe the first question will just be on the last statement you made there. You said that the FQ1 financial performance was in line with the expectations. What can you elaborate, like, what expectations? Is that consensus expectations, your management expectations, RR targets? Just maybe if you can give a little more color around what, you know, expectations are in that context.
Yeah, thanks, Rob. Good, good question. At the last earnings call, we were asked how management was feeling about Q1 results, and we said they would roughly be in line with Q4 results. And so our expectations, they will still be in line with Q4 results. So Q1 will look similar to Q4.
Okay, got it. And then going forward, capital deployment priority. Yeah, I think you said in the prepared remarks that today's action is an initial step, and you've also said that deleveraging is the key to cash going forward. So I mean, there's a lot of other uses of capital you've talked about. You know, can you talk about what the priorities are? Are you gonna maybe look at buyback, given where the stock is? Do you have any planned M&A in the near term, tuck in or otherwise, internal investment competing for cash flow? Or like, how much of the cash flow is gonna be earmarked for deleveraging? Maybe if you could talk about capital allocation.
Yeah. So a few things. There's various ways to delever. You can grow and delever that way from a ratio perspective. You can use the cash you generate to pay down debt. And those are the two kind of primary ways you can do that. Look, we're focused on growing the business, Rob. And as we grow the business, we'll naturally delever it. But we've heard kind of the message loud and clear from the market that they want us to pay down debt. And we hear you, and we demonstrate that by our commitment today. We also paid down debt in Q1 with the proceeds from the TMG divestiture.
And over time, we're gonna delever, you know, through a combination of those two drivers to a debt EBITDA leverage ratio below four times when factoring in both, you know, any convertible debt that's way out of the money and the senior debt. But it doesn't happen overnight. So I hope that answers your question.
Okay. Last question is just high level. Like you noted, it's a complex release, and so I was hoping you could highlight, I mean, what's the key benefit in management's view of the actions today? Is it the flexibility you get? Is it the CAD 10 million reduction in debt and the deleveraging that implies? Like, what is the key benefit you're getting? And then I'll pass the line.
Yeah, the key benefit is we're turning out CAD 95 million in debt for 2.5 years. We take it in the aggregate in a pretty good package for the company. You know, it's an increased yield to maturity of 2.5%, actually 2.4%. This is a strong trade in our view. It is complex. When you look at it in the aggregate, it's good for the company. As I mentioned, 2 years out, there is a springing maturity on the seniors, so getting rid of this convert in advance of that is important. So this is the first step in a series of actions we believe to do that.
Okay. Thank you. I'll pass the line.
Thank you, and your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please proceed.
Hi. Most of my questions have been asked. I think I just have one, which is, how did you come up with the CAD 95 million number? You know, why not more, why not less? Was that just a function of, you know, the market conditions and, you know, where maybe investor sense are at as far as refinancing? Or just any color on that would be helpful.
Yeah, I mean, Thanos, this is Frank. So it's really a matter of, you know, market and what, and what, what we thought they could, they could take on. So, you know, as we announced today, a portion of this is already a bought deal, that we were able to arrange with, with Canaccord. So really it's just, understanding what the market dynamics are and, and, you know, looking at it from, you know, from a, a net benefit perspective. I think we still look at it as a net reduction of CAD 10 million in convertible debt. That was an important metric for us. And as Matt mentioned, the extension of, CAD 95 million being the 2.5 years extension.
So it really was a way that we could look at the market and what it could actually bear.
All right. That's it for me. Thanks.
Thank you. And your next question comes from the line of Kevin Krishnaratne from Scotiabank. Please proceed.
Hey there. Good afternoon. Just one for me. You know, Matt, just given the comments you've mentioned earlier, the focus on growth, is it safe to assume then that asset sales are something that you're probably not looking at? Just any commentary there on that, that is another lever for delevering. Thanks.
Yeah, no, I don't think I said that. Look, we're committed to getting the debt below that 4x ratio as soon as possible. Again, it doesn't happen overnight. You know, so I don't know, I don't, I didn't comment one way or another on that. That's not something we've committed to or not to do. You know, there's obviously, we do have assets we could sell, but again, that takes time.
So, we're looking at multiple levers to kind of delever quite quickly. Okay. Okay. Thanks a lot for the clarification. I'll pass it. That's all for me. Thanks.
Thank you. Once again, should you have a question, please press star four by one on your telephone keypad. Your next question comes on the line of Mr. Scott Fletcher from CIBC. Please proceed.
Hi, good afternoon. I just wanted to ask a question on the focus on the converts here. Given your comments on the impact it has on the springing maturity, should we expect that your future efforts to delever will be focused on these converts, given the two-year timeframe you're looking to sort... Is that a fair way to think of the debt repayment?
Yeah, that's great. I mean, look, either the converts are gone or there are different converts there, the senior debt doesn't spring, and it goes out till 2027 on fairly favorable terms. So you know, over the next year, we're gonna deal with the remaining two diffuse converts. And yeah, so the debt does not go current. Again, you have two years until it springs, but you don't wanna be in a position where it ever goes current, so we're dealing with it now.
And then sort of the follow-up to that is, given you have two years, why now versus, I guess, waiting?
Well, 1 year before the 2, you know, your debt goes current, and it wouldn't be good to have, you know, all your senior and your convertible debt sitting current on your balance sheet, even though it's just an accounting movement. I just think it sends a really bad message. So, you know, it's important to be ahead of things.
Okay, thanks. That's all for me.
Thank you, Mr. Marshall. There are no further questions at this time. Please proceed.
Thanks, everyone, for taking some time on Friday to join us. That's all we've got for you today, and we look forward to updating you on the financial performance at the end of October when we announce the Q1 results. Have a great weekend.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect.