Canadian producer Hexo Corp. (TSX: HEXO) (Nasdaq: HEXO) is dodging a bullet this week, as it sidesteps the consequences of missing the terms of some of the debt it owes.
On Monday, the struggling firm said the holder of its senior secured convertible note, HT Investments MA LLC, has waived its rights related to Hexo breaching the terms.
The company provided notice to the lender on March 11 that it wouldn’t be in compliance with a covenant stipulating that it have positive adjusted earnings before interest, taxes, depreciation and amortization for the three months ended Jan. 31.
So why did the lender waive the default? Earlier this month, Tilray Brands, Inc. (Nasdaq: TLRY) (TSX: TLRY) agreed to buy US$211 million of Hexo’s senior debt, in exchange for a significant equity position in the rival firm.
Originally, the terms had to be met by May 17 but, “The company, the noteholder and Tilray have agreed to extend the end of forbearance date in the event that they remain engaged in good faith negotiations to consummate the proposed transaction,” according to a statement.
If Hexo had been held to account for defaulting, HT Investments could have declared the debt or any portion of it be payable immediately for cash at 115 per cent of the outstanding principal owing. The original amount owing was US$360 million, but has been reduced through redemptions by the debt holder to US$208.7 million.
The note is due in May 2023.
Last week, Hexo elected seven new members to its board, following the efforts of activist shareholder Adam Arviv. Investors also voted to consolidate the firm’s stock to keep its listing on the Nasdaq.
Previously, CEO Scott Cooper said his top priority has been to fix “a very challenged balance sheet” since he joined in November.
Company stock fell 6 per cent Monday to US$0.53 on the Nasdaq.