The problem with buying securities in debt-laden firms, is that eventually, the capital inflows dry up and the debt overtakes the assets. A phenomenon becoming all to familiar in the cannabis space – see iAnthus Capital (CSE: IAN) – Pyxus International (OTC: PYXSQ) is the latest firm to experience the effects of taking on too much debt with no means to sufficiently service that debt.
After having filed for Chapter 11 bankruptcy back in June, a ruling was made this week by a US bankruptcy court on the matter, which found that there “was not sufficient value in the assets for shareholders to receive anything.” A report on the matter put out by Law360 yesterday identified that even with adjustments unfavorable to debtors, it still wasn’t possible for any value to be extracted for shareholders.
While the Chapter 11 filing made by Pyxus back in June identified that it was only for its US based operations, and not its international assets which include its Canadian cannabis operation FIGR Brands, it will affect shareholders whom bought into the company for exposure to these operations. The company has since been delisted from the New York Stock Exchange following the filing, dropping down to the OTC markets.
Equity security holders had tried to make an argument that the $1.388 billion valuation provided by Pyxus was incorrect and that at least $37.5 million was available to be recovered for shareholders, however the Judge sided with Pyxus on the matter, agreeing that the debt load of $1.7 billion left no room to provide anything to shareholders. Senior creditors are first in the priority line, while equity holders remain last – leaving nothing for the common shareholder.
The current plan envisioned by Pyxus involves the elimination of $440 million of its roughly $1.0 billion in secured debt, in addition to new inflows of $260 million via a debtor-in-possession financing. Second lien debt holders would only recover roughly 30% of their monies as a result of the filing, if approved, while equity holders are to receive nothing.
Pyxus International last traded at $0.23 on the OTC Markets.
Information for this briefing was found via Pyxus International and Law360. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.