Vireo and Chicago Atlantic Debt Conversion Works
The TDR Three Key Takeaways on Vireo and Chicago Atlantic Debt Conversion
- Vireo extended its credit agreement, stabilizing its financial base and preparing for future opportunities.
- Chicago Atlantic converted all outstanding convertible notes with a 3.3X profit on Vireo’s current share price.
- The transaction reduces Vireo’s financial leverage and improves liquidity and will bring it more inline with the MSO benchmarks.
Today’s announced conversion and extension between Vireo Growth Inc., formerly Good Growth (CSE: VREO; OTCQX: VREOF), and Chicago Atlantic showed clear benefits for both parties. Vireo extended its credit agreement with Chicago Atlantic by 30 months, moving the maturity date to January 29, 2027. This extension includes changes to terms of default, financial measures, and covenants. Vireo will issue 12.5 million Subordinate Voting Shares to the lenders, aiming to stabilize its financial base and prepare for future opportunities, such as the anticipated adult-use cannabis sales in Minnesota.
Chicago Atlantic decided to convert all outstanding convertible notes from Vireo’s April 2023 loan financing. With an outstanding balance of $10.5 million, this conversion will result in the issuance of about 73 million Subordinate Voting Shares. The early conversion is expected to save Vireo $2.3 million in interest expenses, reducing its financial burden and potentially benefiting shareholders.
For Vireo, this transaction will improve liquidity and reduce financial leverage. Compared to other US multi-state operators, Vireo had a current ratio of 0.8 and total liabilities to assets of 111.8%. Before this announcement, Vireo had higher financial leverage than its peers, indicating greater risk. Updated ratios will be available after earnings are released on August 6, 2024.
Chicago Atlantic also did very well in this transaction. They are receiving $5.7 million in shares at the current value for the debt extension and converting $10.5 million in convertible debt into $33.5 million in stock, representing a 3.3X profit on the conversion in addition to the 12% they were earning on the debt. This profit resulted from the strong rebound in Vireo stock over the past year. In total, based on my calculations from the press release, it appears that Chicago Atlantic now owns $39M USD of Vireo stock based on a conversion of $10.5M of debt and the extension of Vireo’s debt.
Managing Partner of Chicago Atlantic, Peter Sack commented, “With the substantial improvements in Vireo’s underlying operational and financial performance over the past eighteen months, as well as the upcoming implementation of adult-use sales in Minnesota, we are excited to support the Company’s ongoing initiatives to strengthen its business.”
The transaction benefits both Vireo and Chicago Atlantic, reducing Vireo’s financial leverage and enhancing shareholder value. It also reminds investors how well convertible debt investments can work out for debt holders.
