Clearford Water Systems looks to restructure debt in bid to stave off bankruptcy

Clearford operations

Clearford Water Systems says it’s looking to restructure its mounting debt in a bid to stave off bankruptcy after racking up an accumulated deficit of more than $90 million.

In a news release Friday, the embattled Ottawa cleantech firm said it intends to make a proposal to its creditors under the federal Bankruptcy and Insolvency Act. The move effectively gives Clearford 30 days to lay out a plan for repaying its debts as it tries to keep its head above water.

The company said it believes offering the proposal is “the most expeditious and economical manner of addressing the interests of its creditors and allowing it to carry on its operations uninterrupted.”

Toronto-based consulting firm KSV Advisory has been appointed Clearford’s trustee and will work with the firm to come up with a repayment plan. Clearford said its subsidiary companies, including Clearford Waterworks, its water treatment system operations division, and UV Pure Technologies, its water purification arm, are not part of the proposal and will continue to operate as usual.

As a result of Thursday’s filing, the TSX Venture Exchange has halted trading of Clearford’s shares, which have been in a free fall in recent years. After selling for as much as 18 cents in November 2017, the firm’s stock was trading at just one and a half cents at Thursday’s market close.

In Friday’s release, Clearford said there is “no certainty as to timing or likelihood that the common shares will recommence trading on the TSX-V.”

Strategic review

The water treatment firm’s move to restructure its debt comes just over two years after its board of directors launched a review of “potential strategic alternatives” aimed at bolstering Clearford’s long-term viability. 

At the time, the board said those options included selling the firm, entering into a joint venture with a competitor, recapitalizing the company or taking on new long-term debt financing.

On Friday, Clearford said management will work with the board of directors and other advisers “to maximize the realizable value of the company’s residual assets.” Clearford said if it fails to reach an agreement with its creditors, it “will result in the company becoming bankrupt.”

According to regulatory filings last November, Clearford employed 93 people at offices in Ottawa, Toronto, Hamilton, Sarnia and Ahmedabad, India.

Clearford CEO Kevin Loiselle and representatives of KSV Advisory did not immediately respond to requests for an interview.

Friday’s announcement follows a years-long stretch of sustained losses for Clearford, which designs, sells and maintains sewage treatment and water purification systems. 

Over the years, the firm has gradually diversified its offerings through a series of acquisitions aimed at expanding its customer base and adding new revenue streams. 

In late 2014, it paid $2.5 million for Toronto’s UV Pure Technologies, which uses ultraviolet emissions rather than potentially toxic chemicals such as chlorine to purify water. Three years later, Clearford acquired Ontario-based Koester Canada, a wastewater solutions and equipment supplier, in a $7.8-million deal. The company made another move in 2019, acquiring Ontario’s ASI Water and Wastewater through its Clearford ASI subsidiary in a cash-and-share transaction worth $6 million.

In laying out its M&A strategy in 2017, the company said acquisitions were part of its new business model that would allow Clearford to act more like a utilities operator, offering a full suite of water and wastewater solutions to municipalities and private developers. The shift came amid the departure of longtime chairman Rod Bryden and management warnings that Clearford could be forced to fold if it could not find a way to stem mounting losses.

Management continued to sound an upbeat tone the following year. Loiselle said the firm’s “strategic business plan is working” in the wake of marquee contract wins such as its deal to provide wastewater treatment systems for Amazon’s one-million-square-foot distribution facility on Boundary Road in Ottawa. 

“There is a real sense that the company has turned a corner, with the fourth quarter of 2018 marking a new beginning for Clearford and significant revenue growth starting in 2019,” the CEO said in a statement in November 2018.

Continued deficits

But while the moves were successful in spreading Clearford’s sources of income – less than five per cent of the firm's revenue now comes from its legacy business of designing and building water treatment systems – the company has continued to post regular deficits while adding new debt.

According to its most recent financial statements, Clearford had an accumulated deficit of $91.3 million as of last Sept. 30 – double its running deficit of about $45 million five years earlier. In addition, the firm had taken on nearly $65 million in long-term loans to help fund its operations and M&A activities.

Clearford posted revenues of about $4.5 million for the quarter ending Sept. 30, 2021, up from $4.2 million a year earlier. Meanwhile, the firm’s net loss quadrupled year-over-year to nearly $4 million.

“Whether and when the company can attain profitability and positive cash flows is uncertain,” Clearford management wrote in financial documents filed last November, adding there was “significant doubt about the company’s ability to continue as a going concern in the near term.”

In the filings, Clearford said its “continued existence is dependent upon its ability to secure additional financing and to attain profitable operations.” 

While management said it was attempting to address the firm’s financial woes, it added “there is no assurance” those efforts would be successful.