It appears that Sundial Growers (NASDAQ: SNDL) is interested in that of Zenabis Global (TSX: ZENA). The company this morning announced that it has acquired a special purchase vehicle via an all cash transaction, to acquire $58.9 million in outstanding senior secured debt owed by Zenabis Investments.
The acquisition of the debt, which was acquired for $58.9 million in cash, may be a sign of things to come for Zenabis investors. Presently, the debt bears an interest rate of 14% per annum while also containing a royalty that comes into effect once Zenabis hits certain cannabis sales targets, with the royalty being as high as 3.5% of net cannabis revenues. Furthermore, the debt is secured against all the cannabis assets related to Zenabis.
With respect to the royalty, fees begin once the firm hits $20.0 million in quarterly net cannabis revenue, with a royalty of 3.5% being applied to net cannabis revenues through to revenues of $25 million. If cannabis revenues are between $25 million and $30 million, the applicable rate falls to 3.0%, and if revenues are between $30 million and $37.5 million the rate falls to 2.5%. Finally, if Zenabis’ quarterly net cannabis revenues exceed $37.5 million, the applicable royalty rate falls to 2.0%. The royalty is in place for 32 fiscal quarters.
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More significantly however, the debt contains certain principal repayments under the terms of the debt, which includes a $7.0 million lump-sum payment due December 31, 2020.
Whereas Zenabis’ lenders previously were open to negotiating their outstanding debt quite frequently, the change in ownership might spell trouble for the cannabis operator given a publicly-traded company will likely be less lenient on payments schedules not being met. Zenabis as of September 30 had just $4.8 million in cash, however it recently announced that it expects to close the sale of Zenabis Delta on December 30 for $6.65 million.
If the payment on its debt is made on time, the company will likely just barely be able to pay. Given the timing of the transactions, investors will get a glimpse into the financial shape of the firm following the debt payment once the next round of financials are filed.
Following the acquisition of the debt, Sundial is said to have $51 million remaining in company coffers.
Sundial Growers last traded at $0.46 on the Nasdaq.
Information for this briefing was found via Sedar and Sundial Growers. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
