SunStream USA was officially formed Friday by Sunstream Bancorp, a subsidiary of SNDL Inc. (Nasdaq: SNDL), in preparation for the signing of restructuring documentation with Surterra Holdings, Inc., who operates as Parallel. This significant move marks a strategic shift for SNDL as it seeks to rebalance its existing investments.
On Thursday, Talladega LP, owned by SunStream affiliates, and other secured creditors of Parallel entered a strict foreclosure agreement. This agreement will result in CDXX TransCo, LLC taking ownership of certain cannabis operations in Florida, Massachusetts, Texas, and Nevada that were previously owned by Parallel.
Assets to be acquired include:
- 45 Surterra Wellness dispensaries and cultivation facilities in Florida.
- 3 New England Treatment Access dispensaries and a cultivation facility in Massachusetts.
- 2 Goodblend retail pick-up locations and a small cultivation facility in Texas.
- A Nevada joint venture with Cookies and minor real estate assets.
Parallel’s net revenue in Q2 2023 was $52 million, which when annualized equates to $208 million. CDXX TransCo will have about $100 million in debt, with Talladega holding $42 million, significantly reducing Parallel’s debt. SunStream USA will have a two-thirds equity stake in CDXX, with senior noteholders owning the remaining one-third.
This foreclosure agreement follows a lengthy restructuring process, initially financed by Talladega with a $150 million loan in May 2021. Parallel defaulted on this loan and other indebtedness in September 2021. After negotiations and bridge financing, the Parallel foreclosure is set to close in Q4 2023, subject to regulatory approval and closing conditions.
SunStream USA is set to become a U.S.-based platform and is expected to include one or more independent third-party investors. The venture will operate independently of SNDL. Under consideration is the issuance of non-voting and non-participating exchangeable securities in SunStream USA, which could potentially be converted into common equity or equity-like securities in the future, subject to specific conditions.
SNDL is also expected to exercise board nomination rights in SunStream USA, with CEO Zach George possibly serving on the board.
George expressed optimism about the potential benefits of this restructuring move: “The restructuring of non-performing credit investments in SunStream is a notable opportunity to rebalance the risk-reward of SNDL’s existing investments.”
SNDL currently holds a 50% stake in SunStream.
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