Aurora knew it was unlikely to have $230 million of cash laying around come March 2020 when the convertible debt was due and made the smart move to incentivize bondholders to take stock in the company instead of cash.
Aurora may have avoided a potential bankruptcy in March but this deal with bondholders came at a price for anyone who currently owns the stock.
Aurora significantly lowered the conversion price of the bonds, meaning 69 million new shares were issued instead of 18 million, a ~300% increase.
New shares now make existing shares 7% less valuable as each share of stock is now entitled to less of the earnings of the company.
Aurora also had to pay the remaining 3 months of interest anyways costing the company an additional $3 million.
Dilution and fees are better than bankruptcy as far as management is concerned but for investors this debt deal is a bitter pill to swallow.
Details of the Optional Conversion
With a $230 million debt from convertible debentures coming due in just over three months, Aurora Cannabis Inc. (NYSE: ACB; TSX: ACB) today announced pricing on an amended conversion plan to avoid paying that full amount.
Set to mature on March 9, 2020, the original plan included an option to convert debentures into shares at a price of $13.05. Under the new terms of the amended plan those debentures will be converted into common shares at the modified price of $3.28.
That amended repayment schedule will result in the issuance of 69 million common shares, and any holders taking the amended route will also receive accrued and unpaid interest plus interest through next March when the bonds were going to be due.
Enacted back in March of 2018, the debenture fundraising was utilized for acquisitions and construction of the Aurora Nordic facility.
Debenture holders were not required to accept the amended plan, but this morning Aurora stated that 99% of the current debenture holders have now elected to utilize the early amended conversion plan, representing $227 million of the outstanding amount owed.
While the conversion will significantly lower Aurora’s debt and avoid an inability to repay in March, converting debentures into shares will see dilution resulting in a potential lower earnings per share for the quarter.
Aurora’s amended conversion plan arrives after several quarters of heavy spending on rapid expansion that came to a halt this month after fiscal Q1 2020 numbers were released.
Along with the quarterly report, the company announced plans to significantly scale back and even entirely halt certain ongoing construction projects. That change notably arrives just over a month after the company previously issued a statement about the pace of construction continuing at those facilities.
Aurora is down 30% since it released earnings and the news of this convertible debt deal compared to only a 5% decrease for the greater cannabis index.