iAnthus Capital Unveils Restructuring Arrangement, Erases Existing Shareholder Value
Holders of common iAnthus Capital Holdings stock could be left on the outside looking in under a proposed restructuring arrangement announced Monday.
In a news release, the multistate cannabis firm — which trades on the Canadian Securities Exchange under the symbol IAN — said it struck a deal under the British Columbia Business Corporations Act with all secured debt holders and most unsecured debt holders that will give the two groups control over a combined 97.25% of common shares following a recapitalization transaction.
However, if the transaction is consummated through Canada’s Companies' Creditors Arrangement Act, which allows financially troubled companies to avoid bankruptcy through a restructuring process, current shareholders will be left with absolutely nothing.
Under the terms of the proposed restructuring agreement, iAnthus Capital’s total outstanding debt will be reduced from about $169 million to $101 million.
Here’s how it will work:
- Secured debt will be cut from $97.5 million to $85 million, with the annual interest rate also being reduced from 13% to 5%;
- $60 million in unsecured debt will be eliminated and exchanged for equity;
- Secured lenders will receive $5 million in preferred equity while unsecured debt holders will receive $15 million in preferred equity, which has a maturity date of five years and no cash pay dividends;
- All existing options and warrants will be canceled upon the completion of the recapitalization
The company also said employees, customers and suppliers would not be impacted by the transaction. Additionally, iAnthus has negotiated to receive a $14 million bridge loan with “substantially the same terms as the restructured senior debt.”
The proposed restructuring agreement comes three months after iAnthus formed a special committed to renegotiate its financing arrangements. At the time, the company retained advisory firm Canaccord Genuity Corp. to help it identify “strategic alternatives to address its capital structure.”
"After an extensive review process, consultation with our financial and legal advisors and careful consideration of our available options, the special committee has recommended, and the board has unanimously approved, the proposed recapitalization transaction," special committee chair and board director Robert Whelan said via a press release. "We believe that the recapitalization transaction allows iAnthus to move forward with a stronger capital structure."
Recall that when Cannacord was brought on board to help restructure the organization in April, iAnthus promised to remain “actively engaged” in conversations with debt holders and said it would look to “maximize value for all stakeholders.”
But according to Greg Miller, the former executive director of the National Institute for Cannabis Investors, shareholders are getting a raw deal.
“To the shareholders, the company has run out of money regardless of its long-term value and whatever value it does have will be distributed to the lenders and other interested parties, with shareholders generally getting scraps, if they even get that,” he wrote on his blog.
Miller, who has “comanaged public mutual funds and private accounts for many years,” according to his bio, said any future value that could be unlocked within the existing iAnthus portfolio “doesn’t matter.”
“What matters is the deal is happening now, and the only party without a seat at the table is you,” he wrote. “Shareholders are being offered that 2.75% only because it is easier and cheaper to reorganize under Canadian bankruptcy laws when the shareholders agree.”
The financially troubled iAnthus has endured a tumultuous start to 2020.
Last month, longtime private equity investor Goth Green Partners (GGP) — which holds most of iAnthus Capital’s secured debt and has led $106 million worth of investments into the company — sent a letter demanding the New York-based cannabis company pay “the entire principal amount, together with interest, fees, costs and other allowable charges that have accrued.”
To help convey how serious it was about collecting payment, GGP also said it intended to force the sale of certain collateralized assets if the debts weren't repaid or if a separate deal wasn’t negotiated. At the time, iAnthus owed about $4.4 million in interest payments and was in default.
Nevertheless, iAnthus maintained that Cannacord has received “several expressions of interest” from parties willing to repay the debt “in full and in cash.”
We know now that those possible deals — which included a rumored management buyout offer (MBO) — either never got done or weren’t as serious as Cannacord initially let on.
Details of the MBO were outlined in a lawsuit brought against iAnthus, GGP, as well as several current and former executives and investors.
The lawsuit, filed in May in the U.S. Southern District of New York by Hi-Med LLC, alleged that GGP and iAnthus “conspired” to misrepresent their financial relationship.
iAnthus was also involved in a legal tussle with Oasis Investments, which was issued $25 million of unsecured debt and had alleged that iAnthus breached certain financial covenants. According to Monday's release, the two companies have agreed not to pursue a costly legal battle.
Additionally, the cannabis firm is facing several class action lawsuits which allege that its stock fell more than 62% after the company said it would default on interest payments to GGP.
Beyond the company’s myriad legal and financial troubles, the Canadian Securities Exchange last month issued a cease trade order for iAnthus securities after the company failed to file its 2019 financial results. Trading of the iAnthus stock remains halted.
In May, entrepreneur and marketer Mark Dowley resigned from the iAnthus board. Dowley was one of five independent board members tasked with investigating former iAnthus CEO Hadley Ford, who exited the company in April following a probe into alleged conflicts of interest.
During that investigation, a special committee determined that Ford violated company policy by failing to disclose the acceptance of two personal loans from iAnthus investors totaling $160,000.
Additional information about iAnthus Capital’s restructuring effort can be found in the company’s press release.