iAnthus Recapitalization Plan Could Leave Shareholders With Nothing

Multi-state cannabis industry company iAnthus Capital Holdings, Inc. announced on Monday a recapitalization transaction that will leave current shareholders with 2.75 percent of the company or zero percent.

In one scenario of the transaction, the company will enter “arrangement proceedings” under British Columbia, Canada’s Business Corporations Act. The other option is for recapitalization under the Companies Creditor Arrangement Act (CCAA), which would see the company file for creditor protection.

The company said the transaction “is expected to significantly reduce [its] outstanding indebtedness and annual interest costs, improve its capital structure and liquidity, and result in an enhanced financial foundation.”

“Assuming completion of the Recapitalization Transaction, the Company’s pro forma outstanding indebtedness will be reduced from $168.7 million (excluding fees and accrued and unpaid interest thereon) as at June 30, 2020 to $101.4 million (excluding $20 million of Preferred Equity).” – iAnthus in a July 13 press release

If the recapitalization transaction occurs through the Business Corporation Act, the firm’s secured lenders and unsecured debt holders will be issued an equal amount of common shares of iAnthus and each will own 48.625 percent of the company. This would leave current shareholders owning a total of 2.75 percent of iAnthus upon completion of the transaction.

If performed under CCAA, the secured lenders and unsecured debenture holders will each receive 50 percent of the common shares of the company and shareholders would get nothing.

Additionally, outstanding secured debentures will be cut from $97.5 million to $85 million and the interest rate will be reduced by 5 percent per annum. The original maturity date will be extended over four years, interest will no longer be “cash pay,” and the conversion feature will be removed. Another $60 million in unsecured debentures will be traded for equity.

Preferred equity of $5 million will be issued to the secured lenders, while $15 million will be issued to unsecured debenture holders, with the equity having a five-year maturity and no cash pay dividends.

Some of the company’s secured lenders have also agreed to lend iAnthus another $14 million on the same terms of the restructured debt, funded within three days of the support agreement.

All holders of secured debt owed to the company and 91 percent of iAnthus unsecured debenture holders have agreed to vote in favor of the plan of arrangement that is to be filed by the company. That plan is subject to stakeholder approval.

iAnthus operates in Arizona, California, Colorado, Florida, Maryland, Massachusetts, Nevada, New Mexico, New York, and Vermont.