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Investment Firm Seeks To Nominate Competing Slate Of Directors To Board Of Retail Supplier Holding Company

Investment Firm Claims Poor Capital Allocation, Cites Debt Of Retail Supplier Holding Company

March 27, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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JCP Investment Management, LLC, a significant unitholder of Crius Energy Trust, issued a letter to the unitholders of Crius in which JCP, "expressed its concerns regarding the Trust’s underperformance and the poor capital allocation decisions under the current leadership team and informed unitholders that it intends to nominate four highly-qualified candidates, Lalit Aggarwal, Anu Dhir, Ali Hedayat and James C. Pappas, for election to the Board of Directors of the Trust’s administrator at the Trust’s upcoming 2018 Annual General Meeting."

In a statement, Crius Energy Trust said that the JCP announcement, "contains a number of inaccuracies," and that the Crius the Board, "is reviewing the announcement and will respond in due course."

"Despite the unnecessary time and money that JCP's action will require, the Board remains focused on continuing to deliver on its plan to maximize value for all unitholders," Crius said

JCP Investment Management, LLC has ownership of 1,173,200 Crius units, making it one of the Trust’s top 5 largest unitholders.

JCP said in the letter to unitholders that, "We believe Crius’ units are significantly undervalued and do not reflect the true earnings power of the Trust’s 1.4 million customers. We have repeatedly attempted to privately reach an amicable resolution with Crius to address our concerns. Despite our sincere efforts to engage constructively with the Trust, we have been disappointed by the lack of urgency exhibited by the Board of Directors of the Trust’s administrator, Crius Energy Administrator Inc. (the 'Board'), to adequately address the issues we have identified, including poor unitholder returns, poor capital allocation decisions and USD$100 million in debt being added to the balance sheet. Accordingly, we were left with little choice but to propose a competing slate of director candidates for election to the Board at the Trust’s upcoming 2018 Annual General Meeting."

JCP said in the letter that, "Crius went public at CAD$10.00 in November 2012 and today, nearly five and a half years later, the units are trading at CAD$7.35. If you had invested in Crius at the time of its IPO at CAD$10.00 per unit, excluding dividends you would have experienced a negative 26% return as of March 23, 2018. When including dividends reinvested in the units, over that same time period your return would still have been only 5.2% compounded."

JCP said in the letter that, "Now in 2018, after a questionable acquisition of U.S. Gas & Electric, Inc. ('USG&E') in 2017, the Board has added USD$100 million in debt to the Trust’s balance sheet and has announced that it will stop increasing distributions and is comfortable nearly doubling the amount of debt to 2x leverage."

JCP said in the letter that, "In connection with the acquisition, Crius implied that the Trust would achieve a synergy run-rate of USD$100 million Adjusted EBITDA. However, based on the Trust’s recent release on March 8th, it does not appear that the Trust will achieve such a run-rate in the near term, if it will ever be realized at all. This leads us to believe that the Board and management team either were wrong about the potential synergies or did not understand the business being acquired. We believe the apparent lack of planning and execution is unacceptable."

JCP said in the letter that, "the number of outstanding units increased by approximately 42% in order to complete the acquisition of USG&E. Assuming all things being equal, it would take a proportionate increase in EBITDA to make the acquisition accretive. Clearly, this has not been the case."

JCP said in the letter that, "With respect to solar, Crius has continuously spent cash to try and make its solar investment work. In 2017 alone, solar was a negative USD$4.6 million in Adjusted EBITDA."

JCP said in the letter that, "Related to our views about the poor returns and capital allocation decisions, we believe that unitholders would be better served if the Trust used its cash flow to de-lever the business while focusing on existing operations and cost savings ... While in many other operating businesses 2x debt to EBITDA may be manageable, we do not believe it is prudent for the Trust due to the nature of Crius’ business."

James C. Pappas is the Managing Member of JCP Investment Management, LLC, an investment firm. He previously worked for Goldman Sachs, in its Investment Banking / Leveraged Finance Division

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