September 22, 2021
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It feels like a lifetime ago that I had the opportunity to sit down, digest the markets, and regurgitate my findings in the Weekly (or commonly referred to as the greatest Canadian market update). Well today is one of those days.
Global markets made its way through an elevated period of volatility this past week as headlines consisted of one of the largest potential corporate restructurings, FOMC meetings, and of course the ever-so-exciting (cost efficient) Canadian election.
Without getting into too much detail (as I’m not sharing anything new here) China’s largest real estate company, Evergrande, is teetering on the brink of bankruptcy. Yesterday morning the company’s 8 ¾ notes traded down to 25c, currently sitting at just over 30c. To add a little bit of context, Evergrande solely accounts for 16% of high yield issuances in China…that is one company accounting for 16% of all high yield issuances in one of the largest global economies - keep in mind that debt markets are considerably larger than equities. Whether warranted or not, a headline of that magnitude sent, and continues to send, volatility across global markets from the Hang Seng Index all the way to the coveted Canadian Securities Exchange. For further context, several U.S. investment grade issuers pulled their marketing efforts early this week off the back of the news.
Canadians hit the polls Monday to cast their votes in a snap election called in the midst of a pandemic. The election cost tax payers approx. $610M and had no impact on my life. I would have preferred to see the Eglinton subway line finished, but that’s why I’m not in office.
Dialling in to Canadian markets, equity desks have been extremely quiet as risk capital sits on the sidelines, and retail waits for the next big momentum shift. For a Canadian markets blog, this isn’t good news - but times like these remind me of why I keep my day job, and write on this side. Murmurs on the street tell me many psilocybin issuers are prepping internally, and with their bankers, to tap the markets for fresh capital. Keep in mind that many, if not all shroom companies have significant cash burn profiles - meaning the clock is ticking on liquidity. As the old adage goes, “when the money is there, take it”.
Trulieve Cannabis is out testing investor demand for a fresh bond to refinance existing debt. Bloomberg is reporting initial price talk at 8% for a $350M 5-year secured note. If you may recall several paragraphs above, this is not exactly the most opportune time to test the debt markets. But, with that being said, 8% for secured paper on a company that is doing $500M+ of pro forma cash flow is risk adjusted returns on a silver platter. If this prints, it will be the lowest cost of capital for a cannabis issuer to-date. Stay tuned.
Flow Water is undergoing a non-deal roadshow led by its bankers at Stifel/GMP. The company has taken quite the hit, trading under $3/sh. Down from its issue price of $8.25 at mid-summer. As a capital markets aficionado, if the company would like my two cents’ worth, down here…below $3…is not the best place to issue equity. But what do I know? I passed on the private rounds several times.
Lastly, adding to the health and wellness/plant-based foods space, Nepra Foods closed its books and began trading on the CSE under the ticker NPRA. The company priced at 47c and is closed the day out at 68c. Not bad for a small cap new issue - and slightly better than its Canadian peer, Flow.
ECM World
Top 3 Notable Transactions
Chorus Aviation
$85M Bought of Senior Unsecured Debentures
RBC w/ CIBC, Scotia
Docebo
$112M Secondary Bought of Commons
CG w/ CIBC, NBF, Scotia
Argo Blockchain
$112M Bought of ADRs
Jefferies w/ Barclays, Stifel, DA Davidson
Cheers,
G.G.