Borrowing usually disastrous for money losing coThe Chief Moron at HEXO destroyed the company in pursuit of buying revenues. The biggest mistake was borrowing money to purchase a money-losing company. Now the clock for Hexo is ticking and time will tell how and if they will be able to pay back that debt. Large debt for money-losing companying can be a fast killer.
Surprised today that VLNS borrowed $40m @ 10 % from a numbered company. Looks like upfront quarterly interest payments of million dollars a quarter and $4m a year. When the company puts a positive twist on bad news and provides limited information about the loan terms and conditions they are hiding information from the shareholders. The lender would have a charge on the entire assets/lien on all the assets of the company. This is a beginning of a slippery slope for a money-losing company. Nasdaq listing would have cost big money for listing and would cost somewhere from $250k to $500k every year for maintaining a listing. Some companies are paying a lot more. What the company is doing is increasing it cost and the chances of breaking even kicked further down the road.
Borrowing money for a money-losing company is a very bad move. They are trapping themselves and becoming vulnerable to the lender. Big red flag. I am very surprised at this move. According to last quarter Aug 31 they had cash of $31m. I thought they had about 6 months around March April 2022 before they would need more money. With limited disclosure, one can assume that they are burning too much cash and were forced to get an expansive loan.
This company needs to restructure now and get rid of dead weight before it is too late and things get out of hand. Companies like Canopy and Tilray can buy money-losing companies and survive because they have the financial muscle and cash to burn cash. Not companies like Hexo and VLNS which carry debt. Big debt can be the beginning of the end of money-losing companies. $40m is not a big amount but is not a small amount when all your new units are bleeding cash and the company has huge overhead costs and very low margins.