The Brick announces recapitalization transaction designed to enhance liquidity and operating flexibility, and preliminary financial results for the first quarter of 2009



    
    /NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN
    THE U.S./
    

    EDMONTON, May 7 /CNW/ - (TSX: BRK.UN) - The Brick Group Income Fund (the
"Brick" or the "Fund") announced today its preliminary financial results for
the first quarter of 2009 and a recapitalization transaction designed to
enhance the Brick's liquidity and operating flexibility. The transaction
includes:

    
    -   a $110 million fully committed financing (the "Offering") comprised
        of the sale of debt units (the "Debt Units"), each Debt Unit
        consisting of $1,000 principal amount of 12% senior secured
        debentures (the "Debentures") and 1,000 Class A Unit purchase
        warrants (the "Warrants");

    -   a new asset-based credit facility (the "Asset-Based Credit Facility")
        with available borrowings initially expected at $65 million; and

    -   the repayment of all of the Brick's outstanding senior indebtedness
        of approximately $140 million.
    

    "Management and the board of trustees of the Brick believe that the
recapitalization transaction provides the necessary financial flexibility and
capital resources to manage the business in the current economic environment,"
said Kim Yost, President and CEO. "As expected, the continued deterioration of
consumer confidence negatively affected our first quarter results. However, we
have taken action to provide the financial foundation to help weather the
current economic storm. Of key importance to us in entering into the
recapitalization transaction was the repayment of our existing senior debt and
the elimination of the financial covenants that currently exist. As part of
the recapitalization transaction we will replace our existing senior debt with
the issuance of Debt Units and the Asset-Based Credit Facility, each of which
contain no financial covenants. The Asset-Based Credit Facility is well suited
to our business and provides us with much needed flexibility in this difficult
economic environment."
    "We thoroughly explored a number of financing options during the past few
months," said Nick Bobrow, Chief Financial Officer. "We believe this
transaction effectively balances the long-term interests of our investors and
the Fund's capital needs during the current economic downturn. In particular,
the proposed recapitalization provides the Brick with an additional $24
million of immediate liquidity after repaying all of our existing senior debt.
As a result, the completion of the recapitalization transaction should satisfy
the Brick's liquidity requirements."
    The Offering will comprise a public offering of up to $25 million in each
of the provinces of Canada pursuant to a short form prospectus (the "Public
Offering"), and an $85 million private placement to accredited investors under
an exemption from the prospectus requirements of applicable securities laws
(the "Private Placement"). The Fund has filed and received a receipt for a
preliminary short form prospectus in connection with the Public Offering in
each of the provinces of Canada. The Public Offering is being led by RBC
Capital Markets, together with a syndicate of agents that includes CIBC World
Markets Inc. and GMP Securities L.P.
    The Fund has received commitments from Fairfax Financial Holdings Limited
("Fairfax") and William Comrie ("Comrie"), the Fund's two largest existing
unitholders, to invest $40 million and $20 million under the Private
Placement, respectively, and from two other institutional investors to acquire
an additional $25 million of the Private Placement. Fairfax has also agreed to
provide a stand-by commitment to purchase all of the securities offered under
the Public Offering that are not acquired by public investors for a fee of
$500,000, payable upon the earlier of the closing of the recapitalization
transaction ("Closing") and June 3, 2009. The commitments of Fairfax and
Comrie are subject to certain conditions, including the completion of the
recapitalization transaction. RBC Capital Markets will act as the exclusive
placement agent to the Fund in connection with $15 million of the Private
Placement. No agent or underwriter has acted on the remainder of the Private
Placement, including the sales to Fairfax and Comrie.
    As of the date hereof, Fairfax and Comrie own 8,380,200 and 21,561,983
class A trust units ("Class A Units"), respectively, representing
approximately 15% and 40% of the outstanding Class A Units, respectively, on a
fully diluted basis. Following Closing, Fairfax and Comrie will own $40
million and $20 million principal amount of Debentures, respectively,
representing approximately 36% and 18% of the outstanding principal amount of
Debentures, respectively, and assuming the exercise of all Warrants (but not
the exercise of the stand-by commitment of Fairfax), will own 48,380,200 and
41,561,983 Class A Units, respectively, representing approximately 29% and 25%
of the outstanding Class A Units, respectively, on a fully diluted basis.
Fairfax's ownership position could be substantially higher in the event of the
exercise of all or a portion of its stand-by commitment. Assuming the exercise
of the stand-by commitment of Fairfax in full, Fairfax will own $65 million
principal amount of Debentures, representing approximately 59% of the
outstanding principal amount of Debentures and Fairfax will own, assuming the
exercise of all Warrants, 73,380,200 Class A Units, representing approximately
45% of the outstanding Class A Units on a fully diluted basis. Accordingly,
assuming the exercise of all Warrants (particularly upon the exercise of the
stand-by commitment of Fairfax in full), Fairfax may be in a position to
materially impact control of the Brick. Following the Closing, if insiders
were to act together, including Fairfax and Comrie, or Fairfax alone, they may
be in a position to either pass or block votes of holders of Debentures,
Warrants and Class A Units.
    The Debentures will mature on May 30, 2014 and will bear interest at a
rate of 12% per annum, payable in cash semi-annually in arrears on December
31st and June 30th of each year commencing on December 31, 2009.  The
Debentures will not be redeemable by the Fund prior to the maturity date. 
However, upon a change of control of the Fund (which is deemed to occur upon a
change in ownership of 662/3% of the Fund's Class A Units), the Fund will be
required to make an offer to purchase the Debentures, in whole or in part, at
a price equal to 110% of the principal amount of the Debentures plus accrued
and unpaid interest. The Debentures will be secured by a first charge on all
of the real estate and equipment owned indirectly by the Brick, and a security
interest, ranking subordinate to the security for the Asset-Based Credit
Facility, which covers all other assets, including inventory and accounts
receivable.
    Each Warrant will entitle the holder to purchase one Class A Unit, at any
time prior to 5:00 p.m. (Eastern time) on May 27, 2014 at a price of $1.00 per
Class A Unit, subject to certain anti-dilution adjustments (including, without
limitation, in the event of: (i) a rights offering completed at a price that
is less than 95% of the market price of the Class A Units at the time of the
rights offering; (ii) if the Brick conducts an issuer bid that is not
conducted pursuant to an exemption from the issuer bid requirements of
applicable securities legislation and the fair market value of the
consideration offered for a Class A Unit under such issuer bid exceeds the
closing price of a Class A Unit on the next trading day following the last
date deposits could have been made pursuant to such issuer bid; or (iii) if
the Brick issues Class A Units (or securities convertible into or exchangeable
for Class A Units) pursuant to a non-public offering at a price that is less
than 95% of the market price of the Class A Units at the time of such
offering).
    Closing of the Offering is subject to certain conditions, including the
receipt of all necessary approvals including regulatory approvals and the
approval for listing on the TSX of the Class A Units issuable on exercise of
the Warrants. Although the Fund has agreed to use its commercially reasonable
efforts to obtain approval from the TSX to list the Debentures and Warrants,
closing of the Offering is not conditional on the listing of the Debentures
and Warrants. There can be no assurance that a listing of the Debentures and
Warrants will be obtained.
    The Asset-Based Credit Facility provides for maximum borrowings of up to
$130 million (of which approximately $65 million is expected by management to
be available at Closing to partially fund the repayment of the Brick's
outstanding indebtedness and to provide the Brick with enhanced financial
flexibility), will have a term of 36 months and is subject to the satisfaction
of certain conditions, including completion of GE Capital's due diligence, the
negotiation, execution and delivery of definitive loan documentation, and the
Fund raising at least $60 million under the Offering. The amount available to
be drawn under the Asset-Based Credit Facility will vary from time to time
based on the level of the Brick's inventory and accounts receivable.
    It is anticipated that the Closing will occur on or about May 28, 2009.
The closing of each of the components of the recapitalization transaction is
conditional on the closing of the others. RBC Capital Markets is acting as
financial advisor to the Fund in connection with the recapitalization
transaction.
    A committee of trustees of the Fund free from interest in the
recapitalization transaction and unrelated to the parties involved in the
recapitalization transaction has recommended, and the board of trustees of the
Fund has unanimously approved (with one of Comrie's appointed nominees to the
board of trustees abstaining due to a conflict of interest), entering into the
recapitalization transaction and concluded that (i) the Fund is in serious
financial difficulty; (ii) the recapitalization transaction is designed to
improve the Brick's financial condition; and (iii) the terms of the
recapitalization transaction are reasonable for the Brick in the
circumstances.
    The Fund has applied to the TSX for an exemption from the requirement to
seek unitholder approval for the Public Offering and the Private Placement
(which would otherwise be required due to (i) the number of Class A Units
potentially issuable pursuant to the exercise of the Warrants; (ii) the
exercise price of the Warrants is at a discount to the market price of the
Class A Units; (iii) insiders of the Brick are acquiring Warrants exercisable
for Class A Units representing greater than 10% of the issued and outstanding
Class A Units; and (iv) the recapitalization transaction could materially
affect control of the Brick) pursuant to Section 604(e) of the TSX Company
Manual on the basis of the Fund's financial hardship. Closing of the
recapitalization transaction is conditional on receipt of an exemption from
the TSX from the requirement to obtain unitholder approval. The TSX has
advised the Brick that reliance on this exemption will automatically result in
a TSX de-listing review to confirm that the Brick continues to meet TSX
continued listing requirements. Management believes that the de-listing review
is a routine procedure when using this exemption and the Fund currently
complies with applicable TSX listing requirements and expects to continue to
comply with such requirements following completion of the recapitalization
transaction. After giving effect to the Public Offering and the Private
Placement, 164.2 million Class A Units will be outstanding on a fully diluted
basis, representing a 203% increase over the current 54.2 million Class A
Units outstanding.
    The Brick is also relying on the financial hardship exemption from the
requirement for a formal valuation and minority approval contained in
Multilateral Instrument 61-101 - Protection of Minority Security Holders in
Special Transactions in connection with a related party transaction.
    Unfortunately, despite previously announced proactive measures (such as
reducing, and then suspending, distributions and revising the financial
covenants of the Brick's senior secured credit facilities and senior secured
notes), the continued deterioration of economic conditions and the resulting
impact on the Brick's financial results over the first quarter of 2009 has
severely constrained the Brick's liquidity. On the basis of these difficulties
and the limited prospects for any near-term improvement in economic
conditions, the Fund determined that the recapitalization transaction was
necessary and advisable to provide confidence to the Fund's customers and
suppliers and allow the Brick to continue operating for the foreseeable
future.

    PRELIMINARY FINANCIAL RESULTS FOR THE FIRST QUARTER OF 2009

    The Brick also announced its preliminary financial results for the first
quarter of 2009, which were negatively impacted by the weakening Canadian
economy and declining consumer confidence. While the unaudited interim
consolidated financial statements for the three months ended March 31, 2009
have not yet been finalized, and therefore the following figures should be
considered preliminary and subject to change, the Brick advises that:

    
    -   consolidated sales and operating revenue are expected to be
        approximately $271 million, representing a decrease of approximately
        17% compared to the same quarter of 2008;

    -   consolidated EBITDA is expected to be approximately negative
        $2 million, representing a decrease of approximately $15 million from
        the $13 million positive EBITDA reported in the same quarter of 2008;

    -   consolidated net loss (prior to any impairment charge as described
        below) is expected to be approximately $9 million compared to net
        income of $4 million in the same quarter of 2008, representing a
        decrease of approximately $13 million;

    -   sales and operating revenue is expected to increase by approximately
        21% in the financial services segment to approximately $17 million,
        and to decrease by approximately 19% in the retail segment to
        approximately $254 million; and

    -   same store sales growth is expected to be approximately negative 21%,
        compared to negative 2% in the same quarter of 2008.
    

    In addition, as the Brick's first quarter sales and EBITDA were
significantly below management's expectations, under Canadian generally
accepted accounting principles this shortfall, as well as other factors,
triggered an interim review of the Brick's goodwill and indefinite life
intangible assets to determine whether an impairment charge was necessary.
This interim review is currently underway. The amount of impairment, if any,
will be announced when the Brick releases its 2009 first quarter results and
unaudited interim consolidated financial statements. If an impairment charge
is determined to be necessary, the Brick will be in default of the adjusted
Debt/EBITDAR covenant under its senior operating credit facility when its
trustees approve the Fund's financial statements for the three-months ended
March 31, 2009 (which is expected to occur on or about May 12, 2009), unless
it obtains the consent of all of the lenders in its senior operating credit
facility to exclude this charge in the covenant calculation. If this default
occurs, a cross default will be triggered under the Brick's senior secured
notes. The Brick is currently seeking the consent of the lenders to exclude
any potential charge in the covenant calculation. It has received a similar
consent in conjunction with its December 31, 2008 year end impairment charge.
The covenant breach does not prohibit the entering into of the
recapitalization transaction and, upon Closing, the Brick will no longer be
subject to this financial covenant.
    Management expects that final unaudited interim consolidated financial
statements for the three months ended March 31, 2009 will be released on or
about May 12, 2009.

    This press release is not an offer to sell securities in the United
States. The Debentures and Warrants have not been and will not be registered
under the United States Securities Act of 1933, as amended, (the "U.S.
Securities Act") or any state securities laws, and may not be offered or sold
within the United States except in transactions which are exempt from the
registration requirements of the U.S. Securities Act.

    About the Brick

    The Brick, together with its subsidiaries, is one of Canada's largest
volume retailers of household furniture, mattresses, appliances and home
electronics, operating under five banners: The Brick, United Furniture
Warehouse, The Brick Superstore, The Brick Mattress Store, and Urban Brick. In
addition, through its corporate sales division, the Brick services the
subdivision, condominium, and high-rise builder market. The Brick's retail
operations are located in British Columbia, Alberta, Saskatchewan, Manitoba,
Ontario, Québec, Prince Edward Island, Nova Scotia, New Brunswick, and the
Yukon Territory.

    Forward-Looking Statements

    This news release contains "forward-looking statements" within the
meaning of applicable Canadian securities laws, including (but not limited to)
statements about the Brick's consolidated sales and operating revenue,
consolidated EBITDA, consolidated net loss, sales and operating revenue in the
financial services and retail segments, same store sales growth and goodwill
and indefinite life intangible asset impairment charges for the first quarter
of 2009, the anticipated impact of the recapitalization transaction on the
Brick, the financial flexibility and capital resources necessary to manage the
business in the current economic environment, and similar statements
concerning anticipated future events, results, circumstances, performance or
expectations, that reflect management's current expectations and are based on
information currently available to management of the Brick and its
subsidiaries. The words "may", "will", "should", "believe", "expect", "plan",
"anticipate", "intend", "estimate", "predict", "potential", "continue" or the
negative of these terms, or other expressions which are predictions of or
indicate future events and trends and which do not relate to historical
matters, identify forward-looking matters.
    Reliance should not be placed on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors, which may
cause the actual results, performance or achievements of the Brick to differ
materially from anticipated future results, performance or achievement
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those set forth in the
forward-looking statements include, but are not limited to, the risk that
relationships with suppliers (including the availability and terms of supplier
credit) fail to improve or deteriorate further, that costs may be difficult to
manage and that availability under the Asset-Based Credit Facility may be less
than expected and those risks and uncertainties detailed in the section
entitled "Risk Factors" in the Brick's Management's Discussion and Analysis,
Annual Information Form, preliminary short form prospectus dated May 6, 2009
filed in connection with the Public Offering and in other filings on
www.sedar.com. Additionally, the preliminary financial results for the
three-month period ended March 31, 2009, as set forth herein, are preliminary
and unaudited and subject to change. The preceding list is not an exhaustive
list of possible factors. These and other factors should be considered
carefully and readers are cautioned not to place undue reliance on these
forward-looking statements. The Brick undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, other than as required by applicable
law.

    Non-GAAP Financial Measures

    EBITDA is not an earnings measure recognized by GAAP and does not have a
standardized meaning prescribed by GAAP. Therefore, EBITDA may not be
comparable to similar measures presented by other issuers. Investors are
cautioned that EBITDA should not be construed as an alternative to net income
as determined in accordance with GAAP, as an indicator of performance or of
cash flows from operating, investing and financing activities, or as a measure
of liquidity and cash flows. References to "EBITDA" are to earnings before
interest, income taxes, amortization and non-cash asset impairment charges.
Management of the Brick believes that EBITDA is a useful financial measure as
it represents a starting point in the determination of cash available for
distribution to unitholders.





For further information:

For further information: Kim Yost, President and CEO, The Brick, (780)
930-6300, investor@thebrickgroup.ca; Nick Bobrow, CA, Chief Financial Officer,
The Brick, (780) 930-6300, investor@thebrickgroup.ca


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