I have been keeping the TSX traded debentures list actively updated for my own investment purposes and hopefully you find it useful as well. A few mistakes here and there slip into the spreadsheet, and when doing a sweep, there were enough changes to note:
1. Premium Brands first two debentures issues were initially listed as non-convertible, but I noticed that PBH.DB.E was trading at a negative yield to maturity and I was wondering what was going on, and indeed their debentures are all convertible. What had happened was when reading the financial statements it is not entirely clear they were convertible, nor their annual information form, but I had to dredge up the press releases in the 2016 offerings to get the proper conversion prices. Fixed!
2. I completely missed Polaris Infrastructure’s debenture offering (TSX: PIF.DB), which was done in April of 2019 and up-sized in May 2019 to its present $25 million size.
Sweeping the list, many marijuana-related entities’ debt are trading at discounts, but I am not finding any compelling value with anything I see. Perhaps any of my readers see things differently?
Do you think there won’t be enough asset coverage or liquidity when the Cannabis debt comes due?
They are definitely trading very distressed.
Although they are priced similarly, my view is that there is a risk differential between FIRE.DB (higher risk) and ALEF.DB (lower). Regarding the latter, my view is that their extreme low cost profile makes them a last-man-standing candidate while Supreme is a poster-child for the industry’s mistakes to-date.
I expect that ALEF.DB holders will be made whole (perhaps not on schedule!) and will clip a nice coupon in the interim. I just don’t see ALEF commons going to zero. There is also the lottery ticket of take-out or soaring through conversion on dramatic industry changes or investor stupidity 2.0.
https://divestor.com/?p=8994
Until the underlying economics change I don’t think there will be any winners unless they get out of the production space.
Bankruptcy and zero recovery for all of them?
They will all trade down unless if they diversify from strictly production. Maybe not to CCAA/zero, but equity down for sure. The smartest thing that players like WEED did was raise cash when things were hot which can buy them time to diversify.
Is there a mechanism you see for ALEF to delay paying off its converts or are you thinking a negotiated extension? How about for their other set of converts coming due next year?
With respect to FIRE.DB, do you think it’s a zero? Is the bank debt a zero too?
Safety – ALEF would need to put a proposal to debenture holders in the event that the they cannot access the capital markets to retire ALEF.DB. There is no chance of repayment from cash flows. My take is that their strategy to avoid the LP to LP sales route and push product direct to their medical channels will help them avoid CCAA. They should not operationalize the new Niagra greenhouse at this time IMO.
Supreme is at risk of entering CCAA. I am not willing or able to place odds on that. This space remains insane in lots of ways. There may or may not be residual for FIRE.DB holders.
My take is that there is indeed a real industry here that will stabilize around $8B in sales in Canada (or pick another number). There will be solvent entities that share this market. None will be very profitable unless an oligopoly emerges.
I am not a MJ industry expert. Far from it. I have stayed away until now. I promised myself in 2016 that I would not enter until the public companies issued debentures and those started trading a depressed levels. Voila.
You might be right. It will be interesting if larger players ascribe any value to the brands depending on what kind of sales they generate by the time the smaller players run out of cash.
Thanks for the update Sacha….and a good discussion Safety/Stusclues
I don’t follow these names and not sure what the terms are in these securities. Just want to look at this class of security more from an ‘academic’ standpoint. For debentures where the issuer can redeem them by issue shares at like 95% of VWAP of the last x day, assuming stock price of issuer is relatively close to the VWAP, shouldn’t the security trade close to par? Wonder how it is historically.
@Will – most but not all have the 95% VWAP provision (at the option of the company upon redemption). Have to read the fine print on the offering from SEDAR.
If the company itself is ‘stable’ and the debenture is generally speaking a smaller fraction of the market cap of the company (say 10% or so) then the conversion is usually ‘clean’. In most distressed situations though, the results are usually catastrophic because the convertible goes toxic (the large holder typically shorts the common stock to oblivion knowing they will receive the shares on conversion). MOGO may be an example here, but the best one I could think of was WesternOne (sadly I can’t point out the charts, they dissolved) but they did a massively dilutive conversion.
The other interesting consideration is that if an issuer has multiple series of debentures, the later-dated debentures benefit much more from an equity conversion of the near-dated debenture.
MOGO offer to extend the maturity is a joke, they are asking for an extension along with a floor price of $1.5 for a consent fee of 1% and making coupon payment more frequently.
If debtholders are stupid enough to approve this proposal, they get what they deserve.
They probably are and will. We have a serious lack of backbone on these matters in Canada. Gran Colombia’s silver-linked note holders were a startling exception, fighting down to the wire to successfully get much better treatment.
Twin Butte Energy was another one (I wasn’t involved) where they were told to take 14 cents on the dollar but they voted it down, and in liquidation they got 84 cents. Took them two years to get it, however.
I do think there are some fights from the holders – IBI group a few years ago was one. End up doing very well on that one.
Sometimes, you get a ‘bailout’ by some major shareholders – Colabor was another one a couple of years ago – went from 60 to 80+ in days.
Not sure how MOGO will end up for me as I picked it up in the 60’s recently. I emailed them I’m voting against it due to minimum price floor clause and size of my position and got an reply within 20 minutes wishing to call & speak with me – which I ignored.
The one that I felt truly get shafted was Pacific Western Credit C Series notes (holding company to what is now known as Versabank) – the prefer holders & commons got way more than they should.
I took a bath on Western One.
Sacha…you ever think of a 52 week low/high column for this awesome chart of yours….would it even update
without manual help?
While I can do it, for technical reasons I’m not – I’m trying to limit the number of web calls to the external source of data (TSX) and it would slow down the loading of the most important variable (the price). For the same reason the amount outstanding is manually entered.
understood.
Thanks for doing this spreadsheet. It’s really valuable – especially as debentures are so neglected in the financial information world.