The inevitable has finally happened. Hexo Corp (TSX: HEXO) this morning formally indicated that it has defaulted on its outstanding senior secured convertible note that was issued in May 2021. Fortunately, the lender has waived the event of default under the note as a result of a recent transaction with Tilray Brands (TSX: TLRY).
The event of default follows Hexo failing to reach certain covenants that were outlined as part of the debt. Under the covenants, the company was to post positive Adjusted EBITDA for the three month period ended January 31, 2021. The firm apparently has had another poor quarter, with negative adjusted EBITDA again expected, triggering the event of default.
The lender reportedly was provided notice last Friday that this requirement under the terms of the debt would not be met. The saving grace for Hexo here appears to be the fact that Tilray for some reason has decided to acquire the debt, resulting in the current lender, HT Investments MA LLC, waiving the event of default until May 17, or the date until the transaction with Tilray is terminated.
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Earlier this month, it was announced that Tilray had reached an agreement with HT Investments to acquire the Hexo debt. Under the terms of that arrangement, Tilray would acquire up to US$211 million of the senior secured convertible notes at a 95% of the value. As part of the agreement Tilray has agreed to modify certain aspects of the debt, including the maturity date of the loan, the removal of covenants related to EBITDA targets and liquidity requirements, as well as a modification on the terms of repayment.
Currently, US$208.7 million remains outstanding under the convertible note. If the transaction were to fall through with Tilray, HEXO would be required to repay 115% of the outstanding principal amount of the debt in cash should the lender elect to not waive the event of default.
Hexo Corp last traded at $0.70 on the TSX.
Information for this briefing was found via Edgar and the companies mentioned. 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.
