Good to see capital is still relatively at the ready for expansion plans. CEO Hadley Ford touts this as an example of reducing iAnthus’ ‘cost of capital’ – and thus provides a glimpse into what their existing cost of capital is.
You can read all about it here. The gist:
- $50MM is available in 2 tranches, stated as fully secured by not only existing assets, but also *future* ones – which implies it isn’t fully secured now, but that a portion of lending under it needs to be spent specifically on assets. Like having an allowance that can’t be used to buy candy, or anything else your mother doesn’t want you to.
- Each leg is 3 year terms at 9% interest payable quarterly
- Prepayment of the loans can be accelerated after year one – but that choice is pricy: 9% in year one (the entire interest to be paid), and 4.5% in year two. Not much wiggle room.
- Lenders are given $10MM in 3 year warrants ($5MM for each tranche) at a 25% premium to the share price. The filing isn’t yet up on Sedar, but I assume ‘completion’ of a tranche means when it’s issued.
- Valuing forward option grants is a little tricky, but the 25% number is the meaningful bit.
What’s notable here (to myself) is delayed optionality being introduced to the cost of the financing: we’ve mainly seen raises with warrants fixed price and up front, not deferred. There’s a bit of funky language in here as well – that the warrants granted are “in an amount equal to 20% coverage of each tranche”. Whatever ‘coverage’ means. Again, we’ll have to wait for the filing on Sedar, but I’ll assume it’s an equivalent to the share value at the the time of issuance.
I get the all-in effective interest rate on this financing to be around 17%. Given their previous financings, it’s an improvement.
They’ve got about $58MM in long-term debt now (another $37MM of that in current), $46MM in derivative liabilities (Note 14), and another $20MM in Long-Term Liabilities. While they report $797MM in assets – Goodwill makes up $555MM of that number. Eesh.
All this is driven by $10MM in reported sales last quarter, that generated a gross margin of $500k. Yep. $500k. Goodness me. All wrapped up in some of the most complex financials I’ve seen in sector.
Shareholders should be thrilled at the prospect at this cash supporting ‘near-term growth efforts’ I reckon. They could seriously use growth in anything but liabilities. Improving cost of capital incrementally sure as heck ain’t gonna do that. I thumb-nailed their cost of capital around 27% last year, and it’s certainly bearing out now as the liabilities mount.
As it stands, I’m curious how tight the paper is on the lending – in preventing paying out current debt – and turning this ‘financing’ into a ‘refinancing’. With only $97MM in actual fixed assets, there’s a chance this ‘financing’ and its’ secured status turning into an acquisition.
iAnthus needs to generate cashflow. Badly. Now.