Connect First Credit Union provided $30 million in debt capital facilities to Decibel Cannabis Company. The facilities consist of $28.5 million of term debt and a $1.5 million authorized overdraft against government receivables.
The funds will be used to repay Decibel’s $26.8 million existing debt and to provide additional funds for working capital.
The credit facilities mature five years from the closing date and amortize over a 10-year term (prior debt was on an average of a five year amortization term).
The financing resulted in $3.2 million of immediate gross proceeds and an additional $1 million of principal repayment savings on Dec. 31, 2020. The proceeds will support Decibel’s continued sales growth and working capital requirements.
The committed interest rate under the credit facilities is a five-year fixed rate of 4.75% for the term debt and prime plus 1% for the authorized overdraft. This reflects a blended interest rate reduction of approximately 1.7%, representing approximately $360,000 of annual interest savings for Decibel over the full year of 2021.
The credit facilities have two annually tested financial covenants, a debt service coverage ratio of not less than 1.40:1.00, and a debt to equity ratio of not greater than 0.75:1, which will commence following Decibel’s 2021 year end (Dec. 31, 2021). The debt to equity ratio in subsequent years will step down to 0.50:1 beginning in 2022. The credit facilities also have a monthly current ratio covenant of not less than 1.25:1 beginning January 2021. Decibel’s 12-month forecast projects compliance with all financial covenants.
The company expects to repay its credit facilities with ATB Financial on or before Jan. 5 as part of its closing and funding mechanics with First Calgary.
Decibel is a producer of cannabis products for retailers.
