The debt troubles facing Parallel are exposing the risk to other companies. Innovative Industrial Properties (NYSE: IIPR) gets 10% of its revenues from Parallel and Sundial’s (OTC: SNDL) joint venture with SAF Group called Sunstream Bancorp owns some defaulted debt.
In March 2021, Sundial Growers Inc. formed a 50/50 joint venture with SAF Opportunities LP, a member of the SAF Group called SunStream Bancorp Inc. The Joint Venture’s first mandate was the formation of a special opportunities fund with commitments from third-party limited partners alongside an initial commitment from Sundial of $100 million.
Sunstream is the owner of $145 million of Junior notes owned by Parallel Cannabis and those notes are in default – exposing Sundial to the loss. According to the lawsuit filed by disgruntled investors, the notes were purchased shortly after the joint venture was formed and was likely the venture’s first investment or one of the first investments. The notes were purchased on May 7, 2021. The lawsuit actually attributes the purchase to SAF Group, but Sunstream’s spokesperson did confirm that it was Sunstream that owned the debt, not SAF Group.
Parallel used the Junior Note to refinance seller financing provided by the sellers of New England Treatment Access (“NETA”). NETA is a cannabis facility that Parallel acquired in 2019. The Junior Note carries an annual non-default interest rate of 14.25%. Sunstream may have felt some comfort in the language of the Junior Note that stated Parallel couldn’t incur any more debt, but the company is alleged to have done just that.
According to the court filing, “On December 16, 2021, Parallel received an even more alarming default notice—this time for the Junior Note—in the form of a Notice of Default, Election of Default Rate and Reservation of Rights to the Company (the “Junior Lien Notice”) from Talladega LP, the Administrative Agent and Collateral Agent for the Junior Note holders. The Junior Lien Notice informed the Company that it had failed to (i) maintain the required debt-service-coverage ratio; (ii) maintain specified adjusted consolidated EBITDA as of September 30, 2021; and (iii) “pay Catch-Up [a]mount[s]” due as of September 30, 2021.”
Sunstream’s Silence On Parallel
Sunstream has made a big deal out of most of its investments. It has lent money to Jushi (OTC: JUSHF) and the SPAC Greenrose Acquisition Corp. Michigan-based Skymint also got financing from the joint venture. However, one would be hard-pressed to find any mention of the $145 million investment in Parallel. Despite the numerous press releases crowing about these deals and more, there is little information about the purchase of the notes from Sunstream or Sundial.
Sunstream has also let it be known it was planning to go public. Sunstream IVXX Investment Corp. announced that it has submitted a draft registration statement on a confidential basis to the U.S. Securities and Exchange Commission for a proposed initial public offering of its common stock. Could a dud investment affect that IPO?
In July 2021, Sundial increased its commitment to SunStream Bancorp Inc. to $538 million from its previously announced commitment of $188 million. In October 2021, Sundial reported it was buying the common shares of Alcanna Inc., and after extending the closing date, completed the transaction at the end of March. The valuation fell from an all-stock deal valued at $346 million to and combination of cash and stock valued at $320 million. So, it seems as if it’s business as usual at Sundial. However, analysts covering Sundial will no doubt want to know if the effects of this default will bleed into Sundial’s books.
April 6, 2022 at 2:40 pm
Sadly, this wouldn’t be the first blemish. The Greenrose commitment was ultimately terminated: https://www.sec.gov/Archives/edgar/data/1790665/000121390021058699/ea150513-8k_greenroseacq.htm
July 13, 2022 at 9:15 am
This article misrepresents Sunstream Bancorp, as it is actually SAF Group who owns the Parallel debt, not Sunstream. This is clear from your own article that you linked. Please correct this, if it was unintentional. SAF group has its own investments completely separate from the Sunstream Bancorp joint venture, and Sundial has no attachment to those. Thanks
July 13, 2022 at 9:28 am
It is a 50/50 joint venture. That means Sundial is exposed to any defaults by Parallel. We stand by the story.
July 13, 2022 at 9:39 am
That would be true if it were Sunstream that owned the debt, not SAF group. I’m sorry, but that’s a fundamental misunderstanding. I’m not sure how else to explain that. Sundial is exposed to defaults by companies to Sunstream Bancorp, NOT SAF Group. Sundial owns half of Sunstream, not half of SAF group.
July 13, 2022 at 10:14 am
We love the feedback and your interest in the story. We never said Sundial is on the hook for all of SAF Group’s investments. It isn’t. However, Sundial does own part of the Sunstream joint venture (50%), which does own the defaulted debt. At some point, the company has to disclose its joint venture is holding defaulted debt to shareholders. They deserve to know what is going on with their company’s joint ventures. Plus, if it tries to bring Sunstream public, it has to inform those potential shareholders that its first big investment is in trouble. This jt venture is a tiny part of SAF’s holdings, so it wont’ hurt them as much, but it’s a big number for Sundial/Sunstream.
July 13, 2022 at 2:20 pm
Do you have any evidence that it is Sunstream which owns the defaulted debt? The court document repeatedly refers to SAF, not Sunstream and the only evidence I’ve seen you supply so far is, “The lawsuit actually attributes the purchase to SAF Group, but Sunstream’s spokesperson did confirm that it was Sunstream that owned the debt, not SAF Group. ” But, you give no direct quote, nor any way to contact Sunstream or proof of your findings, which makes it seem dishonest. Do you know the name of the spokesperson who confirmed this?
July 14, 2022 at 8:44 am
Yes, the company confirmed its ownership in an email to me and asked to remain unnamed.