RE:High Trail - Will Not De-Rail HEXO Corp (IMHO)  | quinlash - (2/21/2022 3:40:18 PM)
High Trail - Will Not De-Rail HEXO Corp (IMHO) It is not to their benefit to impede the progress that the new CEO from Molson-Coors is making with HEXO Corp. IMHO, if I were High Trail, I would be working with HEXO Corp to ensure they have the time needed in order for The Path Forward Plan presented by HEXO Corp to prove itself. The Path Forward Presentation put Forth to Investor by HEXO Corp https://www.hexocorp.com/investors/ |
But you are not High Trail. Because you do not have USD330m in capital to lend to a single name that you raised from investors on the basis of being an effective convertible arbitrage fund manager.
Do you know what will happen when Hexo cannot achieve positive Adjusted EBITDA for the period ending 31 January 2022, after High Trail has already received the proceeds from another 40m or so of shares issued for the March payment?
1. High Trail will call a default. High Trail does not need Hexo to agree. There is an independent approach to determination of a default under the Secured Note. Read the Secured Note online.
2. High Trail will apply the penalty rate to the Secured Note. This then increases all payments by an additional 15%. For example, a principal amount of USD20m, which is USD22.5m including the interest component, becomes USD25.875m. So then the next payment required is CAD33.1m.
3. High Trail then gets to take
all of the restricted cash out of the trust account without Hexo having the right to dispute. That is USD95m. That all goes to High Trail to pay the note balance
after the 15% penalty is applied.
4. Sundial then gets to take all of the Zenabis assets as the defaulted lender to Zenabis because there is no more cash to pay them. Gone.
5. Then, any payment in shares is then at a 25% discount to market. So after announcing the default, Hexo has to either use their ATM to simply sell shares at the market price
after the default announcement or take a massive haircut. They will use the ATM to make the next payments
That is what happens. Because High Trail is actually a very sharp lender. And the Secured Note is public. That is why ATB said there is a decent chance of CCAA. I disagree with them. Hexo will not use CCAA. Hexo will just give up the Zenabis assets and issue more stock to pay all of the additional penalty amount owed to High Trail. What will the share count be by that time? Not sure. Much higehr than it is now.
So will Hexo go under? No. But Hexo will have significantly more shares (potentially double the current count) and far less in assets. At that point, Hexo will probably be a viable business, but not one that is ever worth the amount you paid for your shares. I have shares at a very high cost-base too. The cost base on some of my shares is even higher than yours, because they are from Zenabis. The difference is that I read the documents and speak to people in the market on all sides of this issue (investment banks, hedge funds, and competitors).