Auxly Cannabis Group, a consumer packaged goods company in the cannabis products market, entered into two agreements that will strengthen its balance sheet, reduce debt and support long-term growth:
- A non-binding agreement to amend and restate the sompany’s existing syndicated credit facility led by the Bank of Montreal (BMO)
- An exchange agreement with Imperial Brands pursuant to which all amounts owing by the company under the outstanding convertible debenture held by Imperial Brands will be settled in common shares of the company and pre-funded warrants to purchase shares.
The restatement of the credit facility is aimed at enhancing the company’s liquidity and providing increased flexibility to allocate capital toward strategic growth initiatives. Concurrently, the settlement of the Imperial Brands convertible debenture through the issuance of equity instruments is aimed at eliminating over $21 million of debt from the company’s balance sheet.
“This refinancing marks a significant milestone for Auxly, resulting in a stronger, more resilient company,” Hugo Alves, CEO of Auxly, said. “These transactions will significantly reduce our debt, strengthen our balance sheet and give us the flexibility to invest in innovation and growth. The actions support our objective of achieving sustainable, profitable growth and creating long-term value for all of our stakeholders.”
“These transactions materially improve and simplify our capital structure,” Travis Wong, chief financial officer of Auxly, said. “As a result of the refinancing, we anticipate the removal of the going concern uncertainty disclosure from our financial statements which is a clear reflection of our strengthened financial position and the growing stability of our operations.”
The company has entered into a non-binding agreement providing indicative terms for an amendment and restatement of Auxly Leamington’s existing credit facility agreement with a syndicate of lenders led by BMO. The key modifications to be provided under the amended credit facility will include the following:
- Borrower: The company will replace Auxly Leamington as the borrower.
- Facility Structure: Credit facility of $50.7 million consisting of:
- Term loan of $36.2 million
- Revolving facility of $10 million to be used for working capital and corporate requirements
- Existing equipment leases of $4.5 million
- Term: Two years with an option to extend for an additional year for $100,000
- Updated Financial Covenants: Revised covenants which provide the Company with the flexibility to support its long-term growth strategy
- Security: The amended credit facility will be secured by all, or substantially all, of the assets of the company and its subsidiaries (rather than primarily the assets and equity of Auxly Leamington as is the case under Auxly Leamington’s existing credit facility).
The company and the lenders are working towards a definitive binding amendment and restatement agreement for the amended credit facility, although there can be no assurance that a definitive amendment and restatement agreement with the lenders will be reached.
The company and Imperial Brands have entered into the exchange agreement pursuant to which, and subject to the execution of the amended credit facility on the terms provided in the term sheet:
- Imperial Brands will convert the remaining $1 million principal amount owed under the debenture into 1,234,568 shares at a conversion price of $0.81 per share in accordance with the terms of the debenture
- Imperial Brands will convert approximately $1.39 million of accrued interest under the debenture into shares at a per-share conversion price of $0.0811, equal to the trailing 5-day volume-weighted average trading price of the shares on the Toronto Stock Exchange as of the date hereof
- The company will issue to Imperial Brands pre-funded warrants to acquire up to 90,883,618 shares in exchange for a certain amount of additional interest, and all remaining accrued interest owed under the debenture will be forgiven. Each warrant will entitle an affiliate of Imperial Brands to purchase one share for a nominal exercise price at any time prior to December 31, 2028, provided that the number of warrants exercisable for shares that may be exercised at any time prior to the expiry date will be limited to such number of warrants for which the issuance of corresponding underlying shares would not result in Imperial Brands owning more than 19.9% of all the then outstanding shares.
Upon the completion of the principal conversion and the interest conversion (assuming such completion occurs), the debenture will be cancelled and there will be no further amounts owing thereunder, and Imperial Brands will own and control approximately 19.9% of all issued and outstanding shares.
The execution of the amended credit facility and the completion of the transactions contemplated by the exchange agreement are expected to occur on or about June 30, 2025, subject to the satisfaction of certain conditions precedent, including (in the case of the transactions contemplated by the exchange agreement) the receipt of the required approval from the TSX.
