Canopy Growth Corporation (NASDAQ: CGC) announced that it has entered into a credit agreement with Funds advised by King Street Capital Management, L.P. Under the Credit Agreement, the company has raised a $750 million in a senior secured term loan. Canopy also said it has the ability to obtain up to an additional $500 million of incremental senior secured debt pursuant to the Credit Agreement.
“We are delighted to welcome King Street as our anchor debt investor and look forward to building value for both our credit and equity investors over time,” said Mike Lee, EVP, and CFO of Canopy Growth. “This transaction further strengthens Canopy’s balance sheet, provides additional capital to invest in high-return growth opportunities, and marks a key milestone for us as we work towards achieving a more efficient capital structure”.
In February, Canaccord Genuity downgraded Canopy Growth to a Sell rating. Cormark Securities also downgraded the stock from Market Perform to Reduce. Benchmark also downgraded the stock from Buy to Hold. The stock was lately trading at $34. down from the company’s 52-week high of $56.
“We have been impressed with the growth of Canopy as a leader in the Canadian market and look forward to providing this strategic capital as Canopy further expands its business,” said Noah Charney, Managing Director at King Street.
Last month, Canopy recorded an eye-popping net loss of $829 million. Canopy said that this was a $720 million wider loss than the previous quarter and blamed the loss on impairment and restructuring charges and other related charges of $416 million. $382 million of those related charges were as a result of the announcement on December 9, 2020. Canopy shocked investors at the time when it announced it would cease operations at several sites, plus its outdoor cannabis grow operations in Saskatchewan. The company said those decisions were the partial outcome of an ongoing end-to-end review designed to improve its margins. At the time, Canopy said it expected to record estimated total pre-tax charges of approximately $350 -400 million in the third and fourth quarters of Fiscal 2021.
The Term Loan Facility has no amortization payments and matures on March 18, 2026. The gross proceeds, net of fees and expenses, will be used by Canopy Growth for working capital and general corporate purposes, including without limitation, growth investments, acquisitions, capital expenditures, and strategic initiatives. The Term Loan Facility has a coupon of LIBOR plus 8.50% and is subject to a LIBOR floor of 1.00%. Giving effect to the net proceeds from the Term Loan Facility, the company’s estimated pro forma cash, cash equivalents, and short-term investments position as of December 31, 2020, would have been approximately CAD$2.5 billion.