Canadian cannabis producer Canopy Growth reached a deal with noteholders to trade 255.4 million Canadian dollars ($198 million) of debt for shares and cash, thereby reducing a substantial portion of its convertible debt set to mature next year.
According to the arrangement reached with a limited number of noteholders, including parent company Constellation Brands, Canopy will acquire the outstanding 4.25% unsecured convertible senior notes due 2023 in exchange for common shares and approximately CA$3 million in cash.
The deal effectively means Constellation will own more of Canopy and other shareholders less.
“By addressing a substantial portion of our soon-to-mature convertible debt we are deleveraging our balance sheet, preserving capital, and reducing interest payments by over C$10.9M annually,” Canopy Chief Financial Officer Judy Hong said in a statement to MJBizDaily.
“These actions are critical as we navigate broader economic headwinds and will enable us to continue investing in the highest potential areas of our business to drive future growth.”
The transaction’s initial closing is “anticipated to be June 30, 2022,” according to the release.
On closing, roughly 34,073,160 Canopy shares will be issued to the noteholders.
Constellation, via subsidiary Greenstar Canada Investment Limited Partnership (GCILP), agreed to sell CA$100 million in notes – half of its CA$200 million in convertible debt holdings.
GCILP will receive between 21,929,914 and 30,701,880 Canopy shares, effectively increasing Constellation’s position by 5.4%-7.6% of the issued and outstanding shares.
Constellation currently holds 142,253,802 Canopy shares, representing 35.3% of the Canadian company.
Earlier this week, Fitch downgraded its rating for Canopy to CCC, the agency’s fifth-lowest rating.
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Fitch said it could cut Canopy’s rating again if the Smiths Falls, Ontario-based company pursues a repayment/refinancing of notes worth roughly CA$600 million that Fitch considers a distress debt exchange.