Investors React as Tilray’s Debt Refinancing Plan Triggers 20% Stock Plunge

The announcement was met with a further downtick in stock price, highlighting investor concerns.

Tilray Brands Inc. (Nasdaq: TLRY) (TSX: TLRY) shares plummeted by more than 20% in Friday morning pre-trade after the company announced the pricing of its $150 million unsecured convertible senior notes offering, triggering concerns about shareholder dilution.

The news comes after the cannabis-lifestyle and consumer packaged goods company said yesterday that it would take on more debt to refinance existing obligations and pay down debt, thereby diluting existing stakes.

Tilray has priced the notes, due 2027, at an interest rate of 5.20%, which will be payable semiannually. The initial conversion price represents a 12.5% premium over Tilray’s closing share price of $2.36 on May 25.

The move is part of Tilray’s plan to refinance a significant portion of its debt due in June 2024. The decision also aims to lock in a lower fixed interest rate and extend the debt maturity to 2027.

As a result, the company said the balance sheet is expected to strengthen with additional cash proceeds of $15 million or potentially $37 million if the over-allotment option is fully exercised. That would bring Tilray’s total cash, cash equivalents and marketable securities to about $440 million, it said.

In addition to the offering, Tilray said it has entered into a share lending agreement with an affiliate of Jefferies Group, lending 38.5 million newly-issued shares, which the company will not receive any sale proceeds from.

“We successfully executed a favorable refinancing which demonstrates the strength of our company and investor confidence in our management team and strategic plan,” CEO Irwin Simon said in a Friday statement.

Despite Simon’s optimistic outlook, the announcement was met with a further downtick in stock price, highlighting investor concerns around the dilution of existing shareholder stake and the additional debt burden. Following the news, the offering is expected to close on May 31.

In an effort to mitigate the impacts of the new debt, Tilray will also repurchase a portion of its outstanding 5% convertible senior notes due at the end of this year and 5.25% convertible senior notes due 2024.

That shoring is financed through the net proceeds from the current offering. The company said that the net proceeds are anticipated to be around $144.8 million or approximately $166.6 million if the underwriters exercise their option to purchase additional notes in full.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.


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