Canopy Growth's Strategy To Deleverage Balance Sheet By $437M And Enhance Financial Flexibility

Canopy Growth Corp. (TSX: WEED) CGC announced measures to enhance its financial flexibility and reduce its debt.

The company has entered into a series of agreements, including redemption agreements with certain holders of its unsecured senior notes and agreements with lenders under its term loan credit agreement.

“We are pleased to have worked constructively with our lenders to reach these agreements which enable Canopy Growth to preserve cash, and further improve its balance sheet through accretive and meaningful reductions in its overall debt,” said Canopy Growth CFO Judy Hong.

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Key Points

• The company anticipates a significant reduction in its total debt of approximately $437 million within the next six months.
• Annual interest expense savings are estimated to range from $20 to $30 million.
• By repaying the principal owed under the credit agreement, the company will capture a discount between 93% and 95% of the par value.
• The ability to prepay the remaining loan at par eliminates the need to pay a call premium.
• Enhanced equity capitalization will be achieved by converting approximately 41% of the existing notes into common shares, according to a press release procured by Benzinga.

Moreover, as part of the agreements, Canopy Growth will redeem a portion of its outstanding senior notes due in July 2023, settling approximately $193 million in principal amount with a combination of cash, common shares of the company and newly issued convertible debentures.

“We believe these latest milestones, in addition to actions Canopy Growth has taken to strengthen its balance sheet and its continued execution on the cost reduction program, will provide investors and all of our stakeholders with increased confidence in our path to long-term value creation,” Hong said.

See Also: Canopy Growth FY23 Net Revenue Declines 21%, Announces Remedial Actions Against BioSteel

The company will also make a cash payment of $93 million to reduce $100 million of principal indebtedness under its credit facility. Further reductions in principal are expected upon completion of certain asset sales, per the release.

A spokesperson on behalf of lenders under the credit facility commented. “We are pleased to have been able to come to an agreement with Canopy Growth that will strengthen its balance sheet and provide a path towards continued improvements in its financial position. We look forward to continuing to work with the Company to ensure a successful outcome for all stakeholders.”

The company stated that by strengthening its financial position, it will be well-positioned to maintain its leadership role in the North American cannabis market, which is projected to be valued at approximately $50 billion by 2026.

Price Action: On Friday, just before the market closed, CGC shares were trading 38.52% down at $0.3996 per share.

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Photo: Courtesy Of Markus Winkler On Unsplash