Debra Borchardt
Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) has entered into a series of agreements, including privately negotiated redemption agreements with certain holders of its unsecured senior notes due July 15, 2023, and agreements with certain of its lenders under its term loan credit agreement dated March 18, 2021, that will have the overall effect of deleveraging its balance sheet.
NASDAQ Warning
In addition to the balance sheet moves, Canopy also told investors that NASDAQ notified the company about its stock falling below $1 for over 30 days. The stock closed at 65 cents on Thursday, but news from the NASDAQ was attributed to the stock falling another 19% in early trading. Shares looked to be selling at 52 cents as trading opened on Friday.
Debt Moves
“We are pleased to have worked constructively with our lenders to reach these agreements which enable Canopy Growth to preserve cash, and further improve its balance sheet through accretive and meaningful reductions in its overall debt,” said Judy Hong, Chief Financial Officer, Canopy Growth. “We believe these latest milestones, in addition to actions Canopy Growth has taken to strengthen its balance sheet and its continued execution on the cost reduction program, will provide investors and all of our stakeholders with increased confidence in our path to long-term value creation.”
Canopy Growth said in a statement that it is expected to cut its total debt by approximately $437 million over the next 6 months and lower annual interest costs by approximately $20 to $30 million. One effect of these moves is that Canopy will be able to hold onto roughly $92 million in cash by settling approximately $193 million aggregate principal amount of the Existing Notes.
In addition to preserving capital, Canopy will be able to whittle down $100 million of principal indebtedness under the credit facility with a cash payment of $93 million. The company also said it expects further principal reductions at $0.95 on the dollar upon completion of certain asset sales.
“We are pleased to have been able to come to an agreement with Canopy Growth that will strengthen its balance sheet and provide a path towards continued improvements in its financial position. We look forward to continuing to work with the Company to ensure a successful outcome for all stakeholders,” said a spokesperson on behalf of lenders under the Credit Facility.
Analysts Throw In The Towel
The investment community also seems to have given up on the company. Green Market Report wrote that the company’s long-term issuer default rating (IDR) was downgraded by Fitch Ratings from CCC- to RD due to recent debt swaps and operational concerns, the firm wrote in a memo Thursday.
Fitch indicated that the downgrade reflected the agreements between Canopy Growth, 11065220 Canada Inc., and some convertible noteholders, which agreed to exchange their debt for common shares. Following the completion of the exchange, Fitch reassessed the IDR, upgrading it back to CCC-.
“The post-exchange IDR of ‘CCC-‘ reflects Canopy’s current liquidity position including actions taken to reduce the high cash burn rates and recent asset sales and the uncertain path to profitability due to executional risks around its operating strategies,” Fitch said.
Earlier this week, Eight Capital equity research analyst Ty Collins gave Canopy a zero price target. He cited the company’s cash levels and massive ongoing losses with little strategy for profitability.
