Another chapter in the ongoing travails of Zenabis ($ZENA) was begun today with the announcement of a $60MM revolver (I prefer to think of their story is more analogous to a Norse Saga). A revolving credit facility is typically variable in both the amount that can be drawn, and in the interest rates charged. And $ZENA once again demonstrates an amazing level of resiliency in obtaining incremental credit (honestly, that’s all they seem really good at).

Funnily enough, we’d drawn parallels between the outfits last November. As well as highlighting the timing of cashflow (via horticulture seasonalities) to satiate debt.

The revolver is pricey, of course. But not as pricey as the deal they did with RCM Capital Management….the one that go them into a pickle in the first place. As more information has come out with respect to Sundial’s ($SNDL) purchase of the debt, it’s revealed that $SNDL didn’t in fact buy the debt, they bought RCM. Same difference regarding the liability, but a tighter mechanism to acquire assets via the default mechanism.

The revolver has a notional interest rate lower than the RCM money, but unspecified fees (and a 2.4% standby fee) will increase the total cost. Still, there is likely savings to be had.

The current claims of the creditor has left $ZENA in a state of declared ‘default’. Here’s the process:

1. Default Event
2. Notice of Default
3. Cure Period
4. Event of Default
5. Demand

$ZENA’s currently disputing #1 by press release, they dumped Bevo Farms (in what I see as a forced sale), and found a last minute forward buyer (White Knight #1) that likely wants the same thing as $SNDL: sales. And now, a credit facility that could let them off the hook.

If sales (and not assets) are what’s being sought after in-sector (they are), look for more creative ways (like this) in-sector for companies to get them without walking the more traditional ‘merger’ or ‘acquisition’ route. The capital structures and asset distress present in many Canadian shops will enable deals to be done that aren’t normally even possible in more stable industries.

GoBlue has mused whether White Knight #1 will be the one who ‘buys sales’ in a M&A. I think it’s a given.

I also think he got it slightly wrong ascribing $SNDL as being ‘Snidely Whiplash’ in a recent piece. $ZENA’s management is the one who put those sales (represented by ‘Nell’) in peril, and to me, $ZENA’s management is really Snidely….desperately trying to keep her. There’s just more than one Dudley trying to untie her from the tracks.

I believe that’s how $ZENA’s shareholders should look at this.

$SNDL’s reaction/action will be the interesting part. If the the target was missed here….they’ll probably keep shooting until they hit something.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $SNDL or $ZENA