EnerVest Announces Plan to Enhance Long-Term Unitholder Value
CALGARY, ALBERTA--(Marketwire - Feb. 9, 2009) - NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA
EnerVest Diversified Management Inc. ("EnerVest Management"), the Manager of EnerVest Diversified Income Trust ("EnerVest" or "the Fund") (TSX:EIT.UN), today announced the EnerVest Value Enhancement Plan, a series of important initiatives intended to increase long-term, sustainable value for EnerVest unitholders.
The EnerVest Value Enhancement Plan includes steps to enhance EnerVest's investment portfolio and its management, to improve service and communication to unitholders and their advisors, and to maintain the financial strength, flexibility and sustainability of the Fund. Some of the Plan's proposed initiatives will require unitholder approval of amendments to the Fund's Declaration of Trust at a Special Meeting of unitholders anticipated to be held by early April 2009 (the "Special Meeting").
The creation of a new management team at EnerVest in the fall of 2008 coincided with the onset of the most challenging financial markets seen in decades. This provided both the opportunity and the incentive to carry out a comprehensive, strategic review of the Fund and its structure. Management conducted an internal analysis and also commissioned external, independent research into the needs and goals of unitholders and advisors.
"We determined that there is demand for the fundamental features of EnerVest as a large, diversified, income-producing closed-end investment fund," said Jacob Roorda, President and CEO of EnerVest Management. "After talking with many of our investors, we also established that prudent adjustments are needed to ensure EnerVest will remain an attractive, compelling and competitive investment choice well into the future. We believe the EnerVest Value Enhancement Plan meets those requirements and is the best route to sustainable, long-term value for all unitholders."
Key features of the EnerVest Value Enhancement Plan are:
Enhancing the Investment Portfolio
As previously announced, EnerVest has begun the transition of the Fund's portfolio towards income generating securities and away from income trust investments in anticipation of the federal government's pending tax changes in 2011. The Fund is now holding a broader range of income-producing investments, including corporate debt, convertibles and preferred shares. Currently, approximately 40% of the portfolio is invested in securities that will not be affected by these tax changes. This enables EnerVest to remain an income-generating fund while also taking advantage of unprecedented market opportunities to purchase corporate debt at depressed prices, while maintaining an acceptable level of risk.
At the request of EnerVest Management, the portfolio manager is providing additional resources to enable it to expand its investment decision-making capabilities consistent with the broader investment mandate.
Sustaining Financial Strength and Flexibility
"Our priority is long-term sustainable income and value for unitholders. To achieve this in the current economic environment we must preserve the portfolio's capital to ensure we can make the timely investment choices that are vital to enhance future performance. Preserving capital means ensuring that our distribution is sustainable and well supported by portfolio returns. While the Fund announced in September 2008 its intent to maintain the level of distribution for the following 12 months, subsequent market conditions necessitate a change. Many of the investments in the EnerVest portfolio have been influenced by the current, difficult economic and business conditions. For example, the oil and natural gas trusts have been affected by low oil prices and many business trusts are reducing distributions to preserve their capital," said Mr. Roorda. "We recognize the importance of the distribution to our unitholders, but we believe a reduction in the monthly distribution now is an important and necessary step in preserving EnerVest's liquidity and flexibility for the longer-term benefit of all of our unitholders."
Effective with the February distribution scheduled to be paid in March 2009, EnerVest will reduce its monthly distribution from the current $0.07 per unit to $0.05 per unit. On an annualized basis, the distribution will be $0.60 per unit, representing a yield of 19% based on the most recent trading price of the units. This change will apply to unitholders of record on February 27, 2009.
Renewing Our Commitment to Investor Service and Communication
The new EnerVest Management team has taken action to provide unitholders and their advisors with a higher level of service and improved, more frequent, communications. This initiative includes the appointment of a new Director of Investor Relations, who will lead Enervest's IR team and is directly responsible for managing the Fund's relationships with unitholders and the investment community. Management is also committed to more regular and varied communication to ensure investors and advisors are fully informed on Fund activities and direction.
"We understand that investors and advisors have a wide array of investment choices in today's markets. We intend to offer compelling and competitive choices and strive to support these choices with 'best-in- class' investor and advisor support," Mr. Roorda said.
Limiting Future Exchange Offerings
Although exchange offerings can be beneficial in enabling the Fund to access new investments on favourable terms, these offerings can also cause value dilution for existing unitholders. To avoid this, Management's policy is to only proceed with an exchange offering if it is in the best long-term interest of unitholders. The policy will limit exchange offering financings when the unit price is trading at a discount to net asset value greater than approximately 10%.
Special Unitholder Meeting
As part of the EnerVest Value Enhancement Plan, EnerVest Management will ask unitholders to approve amendments to its Declaration of Trust that would allow it to restructure and provide features better suited to changed market conditions while retaining the fundamental strengths and features of the Fund. Changes to the Declaration of Trust require approval by two-thirds of unitholders voting at the Special Meeting.
Full details of the proposals in the EnerVest Value Enhancement Plan requiring unitholder approval will be provided to all unitholders in a Circular to be distributed in advance of the Special Meeting. The Fund cannot and will not solicit proxies in favour of the proposed amendments in advance of the mailing of the Circular. However, for the information of unitholders, these amendments will include:
- Voluntary, Periodic Cash Redemptions
The Fund proposes to offer unitholders a voluntary cash redemption once every calendar year. This would be offered at a price equal to 95% of the net asset value at the time of redemption. The Fund would offer to redeem, on each redemption date, up to 10% of outstanding units. Redemption dates will be determined by the Manager at its discretion provided that each redemption date is at least six months, and no more than 18 months, after the previous redemption date. The initial redemption date will be in 2009, with the actual timing to be announced after the Special Meeting. This initiative is intended to provide unitholders with additional liquidity at price levels which are potentially higher than the market price of their units.
- Amendment to the Manager's Termination Fee
The Fund is proposing an amendment by which the Manager would reduce the fee it would receive on termination of the Fund, which is currently equal to five years of estimated management fees. In return, and to compensate for the added administrative costs of the periodic redemptions, the Manager would receive a fee equal to 5% of the net asset value of the Units being redeemed. The cumulative fees paid on any redemptions will be deducted from any final termination fee to be paid to the Manager.
- Additional Amendments
Management is also proposing additional amendments to the investment activities and operational efficiencies of the Fund to ensure alignment with the best interests of unitholders. These changes include amendments allowing for further flexibility in managing the investment portfolio as described above and the consolidation of units to maintain unit market prices at levels acceptable for margin accounts.
"Each element of the EnerVest Value Enhancement Plan is designed to contribute to the long-term strength and performance of the Fund. We also expect the Plan to contribute to the management of the unit price discount to net asset value at sustained and beneficial levels for unitholders," Mr. Roorda said. "We are continuing to make permitted enhancements to unitholder value now while we await unitholder approval on the additional initiatives. We will continue to provide unitholders and financial advisors with updated information regarding all of these initiatives."
Full details on the elements of the EnerVest Value Enhancement Plan requiring unitholder approval will be provided in a Circular to be issued in relation to the Special Meeting. It will be mailed to all unitholders and interested advisors and at that time, will be available at www.enervest.com and at www. sedar.com.
Conference Call and Webcast
EnerVest will hold a conference call and webcast for unitholders and investment advisors to discuss the EnerVest Value Enhancement Plan on Tuesday, February 10. Management will provide a brief presentation and be available to answer questions.
Date: Tuesday February 10, 2009
Time: 10:00 am MST (12:00 pm EST)
Call in number: 1-416-340-2216 or 1-866-898-9626
Media are invited to participate in listen-only mode. Interviews with EnerVest management are available through the contact listed below.
EnerVest Diversified Income Trust is Canada's largest and most liquid closed-end investment fund. Listed on the Toronto Stock Exchange under the symbol EIT.UN, the Fund is an actively managed diversified portfolio of income securities.
Certain statements included in this news release constitute forward-looking statements. The forward-looking statements are not historical facts but reflect EnerVest Management Ltd.'s and its affiliates (the "Administrator") current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Although the Administrator believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. The Administrator undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information whether as a result of new information, future events or other such factors which affect this information, except as required by law.
The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.