Auxly Expands Credit Facility and Strengthens Financial Foundation
Auxly Strengthens Financial Position with New Agreements
Auxly Cannabis Group Inc. (TSX: XLY) (OTCQB: CBWTF) is making significant moves in the cannabis products market, announcing two critical agreements aimed at strengthening its balance sheet. These strategic decisions will assist the company in reducing debts and setting a foundation for sustained growth.
Enhancements to Credit Facility
The first step in this strategic realignment is a non-binding agreement, known as the Term Sheet, to amend and restate the existing syndicated credit facility with the Bank of Montreal, referred to as BMO. This improvement is poised to enhance liquidity, making it easier for Auxly to allocate resources towards its growth initiatives.
Details of the Amended Credit Facility
Key modifications expected in the Amended Credit Facility include:
- Borrower: The borrower will be restructured to replace Auxly Leamington.
- Facility Structure: This credit facility is expected to include a total of $50.7 million, composed of:
- A term loan of $36.2 million
- A revolving facility of $10.0 million for working capital needs.
- Existing equipment leases totaling $4.5 million.
- Term: Two years, with an option for a one-year extension for a fee of $100,000.
- Financial Flexibility: The covenants are designed to provide greater flexibility, assisting in achieving long-term objectives.
- Security: The facility will be secured by the majority of the company's assets, rather than just those of Auxly Leamington, as was the previous model.
While discussions are underway with lenders to finalize a binding amendment, successful completion is not guaranteed.
Settlement with Imperial Brands
Alongside the credit facility amendments, Auxly has also reached an agreement with Imperial Brands, allowing them to settle outstanding amounts owed under a convertible debenture through a stock exchange.
Terms of the Exchange Agreement
Under the Exchange Agreement, Imperial Brands will convert approximately $2.39 million of obligations into shares. This includes:
- Principal Conversion: Conversion of $1.0 million loan principal into shares at a rate of $0.81 each, totaling 1,234,568 shares.
- Interest Conversion: About $1.39 million of accrued interest converted into shares at a lower price corresponding to recent trading data.
- Additional Warrants: The agreement will provide Imperial Brands with pre-funded warrants for up to 90,883,618 shares in exchange for the accrued interest. Each warrant allows for acquisition at minimal exercise costs.
Upon these conversions, the outstanding debenture will be nullified, granting Imperial Brands approximately 19.9% control of the company’s shares.
Looking Forward
The execution of the Amended Credit Facility and completion of the Exchange Agreement are projected on or around the end of the month, contingent on meeting specific conditions. The actions taken will situate Auxly well for future growth, positively impacting its stakeholders.
Insights from Leadership
Hugo Alves, CEO of Auxly, expressed the importance of these agreements: "This is a significant milestone for Auxly, marking our shift towards a stronger balance sheet and operational stability." Meanwhile, CFO Travis Wong emphasized that these transactions will remove previous uncertainties and enhance the company’s capital structure.
About Auxly Cannabis Group Inc.
Auxly Cannabis Group Inc. is a prominent player in Canada’s consumer packaged goods sector for cannabis products. With a commitment to improving the lives of its consumers through trusted, quality products, Auxly aims to emerge as a global leader in this evolving industry.
Frequently Asked Questions
What was the purpose of Auxly's recent agreements?
The agreements aim to strengthen Auxly’s balance sheet by amending their credit facility and settling debts, enhancing financial stability.
How will the amended credit facility benefit Auxly?
The amended facility will improve liquidity and provide flexible capital allocation for strategic initiatives in growth.
What impact will the settlement with Imperial Brands have?
The settlement will eliminate over $21 million in debt, significantly strengthening Auxly's capital structure and reducing interest obligations.
What are the main components of the amended credit facility?
The facility consists of a term loan, revolving credit for working capital, and improved covenants providing greater flexibility.
What percentage of shares will Imperial Brands control after the agreement?
Following the agreement, Imperial Brands is expected to control approximately 19.9% of the total shares.
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