After the market closed on Monday, Curaleaf announced that it has received commitments for a private placement of 8.0% Senior Secured Notes due 2026 for aggregate gross proceeds of $425 million. It’s the largest single debt financing of any publicly-traded US cannabis company in history and at a rate that is also one of the lowest seen within the industry.
Joseph Bayern, Chief Executive Officer of Curaleaf (OTC: CURLF) said, “This offering will allow us to refinance our existing debt at a materially lower interest rate and provides us with additional financial flexibility to execute our strategic growth initiatives. While this initial offering provides more than enough liquidity to refinance our existing debt and meet current needs, the new Indenture provides us a new degree of flexibility to raise debt financing to ensure we have ample liquidity to meet our needs now and into the future.”
Stifel analyst Andrew Partheniou issued a note on the debt saying he maintains a buy rating on the company and a C$31 ($24) price target. His report stated, “We estimate the MSO could save roughly ~$20m of annual cash flow from refinancing (the largest outstanding rate at 13.0%), which translates to a ~13% accretion to our existing 2023e EPS forecast. Overall, we see the favorable terms as fruits of the company’s expansive footprint with the only MSO having a national presence, an attractive exposure to three REC market conversions in the tri-state area, and international optionality with the incoming German government indicating the desire to legalize cannabis.”
Partheniou went on to add that Curaleaf could issue additional notes as needed under a trust indenture for up to $200m, subject to leverage ratios among other conditions. “The transaction is expected to close Dec. 15, 2021 with proceeds expected to be used for refinancing and working capital,” he noted. “Proforma this deal, refinancing its entire existing debt of ~$360m, repayment/financing fees and previously announced M&A, we estimate CURA’s proforma cash balance at ~$200m excluding potential proceeds of ~$155m from ITM securities. Its debt position paints an equally favorable picture at an estimated proforma ~$400m and a healthy ~8.5x interest coverage ratio or 1.4x debt/EBITDA. As a result, we believe the company could take on that additional financing and retain a strong balance sheet, providing for continued ammunition for further M&A or to fund organic growth initiatives across its vast platform.”
Stifel further illustrated the interest rate Curaleaf scored by comparing it to other MSOs and the rates they have been subject to. Some rates not are much better than a traditional credit card.
The analyst went on to state that his positive outlook on CURA is based on: “1) CURA being the largest cannabis company in the world, providing the benefit of not only ideal diversification with respect to state markets and the only company with a true national presence but also an attractive volume of deal flow; 2) a strong M&A track record with over $1b in deployed capital while also completing every transaction announced; and 3) best-in-class access to capital with the largest equity financing in the history of the US industry.”