RE:RE:RE:RE:RE:High Trail - Will Not De-Rail HEXO Corp (IMHO) Hexo and Sundial are no longer in litigation,
They may no longer be in litigation on this point after the latest judicial review. I lost track of who was dealing with this on the Hexo side (in terms of litigation counsel), and have not asked my counsel for any report on status.
the debt was never in question or disputed (approx $50 million).
Dispute related to the right of Zenabis to prepay in the situation, and in particular the request for a determination by petition, rather than trial. My technical language may be off slightly. Core items under dispute were the prepayment penalty and the royalty amount as well.
What was in dispute was the amount fo the royalty payments (if any) that were due as outlined in the terms of the agreement - regarding a royalty % paid on Zena revenues above $20 million - which might never actually happen - over the course of the term of the loan.
The issue with the royalty language is that it includes payments for amounts under $20m so long as there is revenue over $20m. The drafting was poor in terms of intent, in part because the clause was heavily disputed at the time.
The Judge has reserved judgement on that - but the $100 million restricted cash held in escrow and refelcted on Hexo's Balance Sheet - covers that $50 million debt, plus whatever the royaly (if any) is due.
Primary issue is that the Secured Noteholder will receive all of the restricted cash to the extent Hexo defaults on the Adjusted EBITDA covenant, and as a result Sundial will be able to seize the assets as the sole secured creditor on the Zenabis collateral pool.
So - while it's 'salt in the wound' that Hexo investors had to pay off Zenabis's debt to Sundial (almost $75 million in total, including the $50m) - it;s really a non-issue in the whole of Hexo's problems.
No. They are likely to lose the sole remaining Zenabis asset (Atholville) if they default on the Adjusted EBITDA covenant. That is actually a decent share of their revenue.
They have the cash (borrowed as part of the Senior Note) - and as I've posted before, they might as well just pay it off rather than the interest payments they've been making and be done with it.
They would have to agree to Sundial's demands now in order to pay it off before the default. It may be that this has already occurred. If so, then the risk I have identified is not one that can manifest.
Hexo can't offer - and Sundial cant take any assets in lieu of the cash - all Hexo assets are tied up as collateral FOR the Senior Note -
Incorrect. Sundial are the sole secured creditor on the Zenabis collateral pool.
and Sundial doesnt need empty prodcution square footage any more than Hexo does, Sundial is diversifying in another direction.
Sundial would take Atholville in exchange for their note amount. I guarantee it. That is why they wanted to buy Zenabis in the first place. They also tried to buy Hexo and were rebuffed by SSL. Sebastien and Zachary R. George do not get along. Not that anyone gets along with Sebastien.