FOR IMMEDIATE RELEASE
Sundial Announces Successful Amendments with Senior Lenders, US$18 Million Convertible Notes Issuance and Close of Bridge Farm Sale
“This announcement marks an exciting day for Sundial. Financial flexibility and balance sheet health are critical to our ability to execute on Sundial’s operating strategy,” said Zach George, Sundial’s Chief Executive Officer. “With our improved capital structure and streamlined operations, we have reduced our annual cash obligations, including debt service costs, by more than $50 million. Sundial is now in a much better position to take advantage of the expected continuation of the strong consumer demand and increased sales levels we have experienced to date in 2020. This restructuring would not have been possible without the constructive stance and professional approach taken by our lenders. I want to thank our employees and shareholders for their loyalty and support as we navigated through this challenging process.”
Summary of Net Debt (expressed in millions of Canadian dollars):
|Senior Secured Credit Facility||79.3||79.3|
|Term Debt Facility||115.0||-|
|Second Lien Convertible Notes||-||73.2|
|Subordinated Convertible Notes (1)||-|
|Total Net Debt (2)||179.4||143.6|
|Total Annual Interest Expense||14.7||3.8|
|Total Annual Debt Service||31.6||10.1|
(1) US$18.0 million face value
(2) Total debt less total cash
Senior Secured Credit Facility Amendments for Added Financial Flexibility
Sundial has entered into an agreement with its senior lenders to amend and restate its syndicated senior secured credit agreement. As a result of Sundial meeting all previous terms outlined by its lenders, the Company received a waiver of its Q1 2020 covenants and reduced financial covenants to comprise only a minimum cash balance covenant of $2.5 million until December 31, 2020 or later, and an additional capital raise covenant of US$10 million by December 1, 2020. Principal repayments of $2.1 million per quarter have been rescheduled to commence on September 30, 2020.
$45 Million Debt Reduction and Conversion of Remaining Term Debt for Second Lien Convertible Notes and Warrants
In addition, the Company has extinguished (i) $45 million outstanding under its $115 million term debt facility (the “Term Debt Facility”) as part of the consideration in the Bridge Farm disposition and (ii) $70 million, plus $3.2 million in deferred interest, outstanding under its Term Debt Facility in exchange for the issuance of $73.2 million of secured second lien convertible notes that bear no interest, mature on June 5, 2022 and are convertible into common shares at US$1.00 per share, subject to adjustments. The conversion price of the notes is subject to adjustment in the event the Company sells shares of common stock or common stock equivalents for less than US$1.00 per share in the future, subject to customary excluded issuances. The Company also issued 17.5 million warrants with an exercise price of US$1.00 and 17.5 million warrants with an exercise price of US$1.20, in each case expiring on June 5, 2023 and subject to adjustments, to the holder of the second lien convertible notes. The holder will initially be restricted from converting its notes into common shares and exercising its warrants. The elimination of the Term Debt Facility will result in $10.9 million in annual interest expense savings.
Issuance of US$18 Million Subordinated Convertible Notes and Warrants
Sundial issued US$18 million in senior unsecured subordinated convertible notes (the “Subordinated Convertible Notes Offering”) with accompanying warrants to institutional investors for proceeds, net of original issue discount, placement agent’s fees and other expenses, of US$13.3 million.
The notes mature on June 5, 2022 and will not bear interest except in the case of default. The notes are not secured by any assets of Sundial and are convertible into Sundial common shares at the election of the purchasers at a price of US$1.00 per share, subject to adjustments. The conversion price of the Notes is subject to adjustment in the event the Company sells shares of common stock or common stock equivalents for less than US$1.00 per share in the future, subject to customary excluded issuances. Sundial also issued warrants to purchase 14,457,059 Sundial common shares to the purchasers with an exercise price of US$0.9338 per warrant. The warrants will expire 3.5 years from the date that the underlying shares become freely tradable. The subordinated convertible notes and associated warrants are immediately exercisable. Net proceeds from the Subordinated Convertible Notes Offering will be used for general corporate purposes.
Canaccord Genuity LLC and AltaCorp Capital Inc. acted as placement agents for the Subordinated Convertible Notes Offering and were issued an aggregate of 1,080,000 warrants to purchase Sundial common shares at an exercise price of US$1.00 per warrant. The placement agents will initially be restricted from exercising their warrants.
Sundial has provided customary registration rights with respect to the common shares underlying the second lien convertible notes, the subordinated convertible notes and warrants.
This press release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the Company and that will contain detailed information about the Company and management, as well as the Company’s financial statements. The Company intends to register some or all of the common shares underlying the second lien convertible notes, the subordinated convertible notes and warrants for sale in the United States.
Closing of Bridge Farm Group Sale
Sundial is also pleased to announce it has closed the sale of its U.K. subsidiary, Bridge Farm Group (“Bridge Farm”) to a consortium of private investors that includes former management of Bridge Farm (collectively, the “Purchaser”) for total consideration of approximately $90 million (the “Bridge Farm Disposition”).
As consideration for the Bridge Farm Disposition, the Purchaser will (i) assume $45 million of debt under Sundial’s former $115 million Term Debt Facility, (ii) assume the contingent consideration liabilities related to the remaining earn-out and additional share obligations under the original Bridge Farm acquisition agreement, dated as of July 2, 2019, and (iii) cancel approximately 2,700,000 Sundial common shares currently held by certain individuals affiliated with the Purchaser. Sundial will not receive any cash consideration in connection with the transaction.
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