Flow Capital Announces Completion of $17 Million Investment By Flow Priority Return Fund II LP

Announcement

October 15, 2020

TORONTO, October 15, 2020 – Flow Capital Corp. (TSXV: FW) (“Flow Capital” or the “Company“) announces that it has completed a first close of $17 million, of up to $25 million (the “Investment Amount”), through its Flow Priority Return Fund II LP (“LP II” or “Fund II”), against the grant of a royalty interest in certain of its existing investments to the Fund (the “Transaction”).

Under the Transaction, a collection of institutional and high net worth investors have subscribed for senior A or F units of the newly-created Fund II. Fund II may also, at its option, issue such further senior A, F or H units on a subsequent close, with the return attached to the senior H units being determined by the general partner of Fund II. In exchange for the Investment Amount, the Company has granted to Fund II a royalty interest in 8 of the Company’s existing investments (the “Underlying Royalty Contracts“).

This follows the successful redemption of its $10 million Flow Priority Return Fund LP (“LP I” or “Fund I”). A majority of the LP I investors have invested in LP II. Pursuant to the terms of Fund II, the Company is subscribing for such number of subordinated units as is equal to 25% of the capital raised in senior units issued in Fund II.

Upon completion, the capital raised from the LP II will bring the cash balance of the Company to approximately $14.3 million. “The capital raised in this LP II will help Flow to continue to grow its portfolio of revenue-linked royalty and venture debt investments in high-growth companies,” said Alex Baluta, CEO of Flow Capital.

Under the terms of the Transaction:

an amount equal to the lesser of the (i) sum of 9% per month of the outstanding Investment Amount (the “Class A Return”) and 10% per month of the outstanding Investment Amount (the “Class F Return”) or (ii) royalty payments received by Flow Capital from the Underlying Royalty Contracts will be paid to investors (collectively, the “Preferred Return“);
any cash buyout payments received by Flow Capital from the Underlying Royalty Contracts will be used to redeem senior A and F units of Fund II held by investors in priority to subordinated units as and when such buyout payments are received by Flow Capital, until the preferred units are fully redeemed;
if by the fifth anniversary of the establishment of Fund II there has been less than 50% in redemptions of senior A and F units, the Company will redeem, at every quarterly period thereafter, such number of senior A and F units as is equal to 20% of the Adjusted Net Royalty Payments divided by the applicable unit redemption price, until such time as there have been 50% in redemptions of senior A and F units; and
Flow Capital will have no obligation to make any payments to Fund II unless and until it receives corresponding royalty and buyout payments under the Underlying Royalty Contracts.

With respect to the 8 Underlying Royalty Contracts:

since the dates of the original investments, the revenues of the 8 investee companies have collectively increased by approximately 63%, and are on a run rate to generate approximately $145 million in aggregate annual revenues;
the royalty payments received from the 8 investee companies represents an interest coverage over the interest payable on the preferred units of approximately 2.4X; and
Flow Capital has earned an approximate 89% cash-on-cash return from the 8 investments to date. This cash-on-cash return represents the royalty payments received from the start of the respective investments over the amount invested.

Certain officers and directors of Flow Capital participated in the Transaction and, as such, the Transaction may constitute a related party transaction under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), but is otherwise exempt from the formal valuation and minority approval requirements of MI 61-101 by virtue of Sections 5.5(b) and 5.7(1)(f) of MI 61-101. No special committee was established in connection with the Transaction or the participation of the applicable officers and directors in the Transaction, and no materially contrary view or abstention was expressed or made by any director of the Company in relation thereto. Further details will be included in a material change report that will be filed by the Company in connection with the completion of the Transaction. The Company did not file the material change report more than 21 days before the expected closing date of the Transaction as the details of the Transaction and the total amount to be invested by the applicable officers and directors were not settled until shortly prior to the closing of the Transaction, and the Company wished to complete the Transaction on an expedited basis for sound business reasons.

This news release does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities referenced herein in the United States. The securities referenced herein 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 or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

About Flow Capital

Flow Capital Corp. is a diversified alternative asset investor and advisor, specializing in providing minimally dilutive capital to emerging growth businesses. To apply for financing, visit www.flowcap.com.

For further information, please contact:

Flow Capital Corp.

Alex Baluta
Chief Executive Officer
alex@flowcap.com

1 Adelaide Street East, Suite 3002,
PO Box 171,
Toronto, Ontario M5C 2V9

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Forward-Looking Information and Statements  

This press release contains certain “forward-looking information” and “forward-looking statements” within the meaning of applicable securities legislation. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Flow Capital’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Flow Capital’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. By identifying such information and statements in this manner, Flow Capital is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements. Forward-looking information in this press release includes, but is not limited to, the quantum and timing of payments to be made by Flow Capital under the terms of the Transaction and the expected cash balance of Flow Capital following the completion of the Transaction.

An investment in securities of the Company is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the relative speculative and illiquid nature of an investment in the Company; the volatility of the Company’s share price; the Company’s ability to generate sufficient revenues; the Company’s ability to manage future growth; the limited diversification in the Company’s existing investments; the Company’s ability to negotiate additional royalty purchases or other forms of investment from new investee companies; the Company’s dependence on the operations, assets and financial health of its investee companies; the Company’s limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of certain of the Company’s investments; the Company’s ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company; the Company’s ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel; dilution of shareholders’ interest through future financings; and general economic and political conditions; as well as the risks discussed in the Company’s public filings. Although Flow Capital has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this press release, Flow Capital has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect the Company’s business and its ability to identify and close new opportunities with new investees are material factors that the Company considered when setting its strategic priorities and objectives, and its outlook for its business, including its ability to satisfy required payments under the Transaction. Although Flow Capital believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements.

The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and Flow Capital does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward- looking information and statements attributable to Flow Capital or persons acting on its behalf is expressly qualified in its entirety by this notice.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.