Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Viridian Capital Chart of the Week: Revisiting our Restructuring Indicators
- The Viridian Chart of the Week revisits an analysis that we last published on 10/20/22. At that time, we reasoned that high leverage, in terms of total liabilities to market cap and low liquidity as measured by the Viridian Liquidity Score, in conjunction with tight capital markets, could lead to heightened risk of restructuring.
- We have used the same criteria we used in our original study: Viridian Liquidity Score under 1.2x and Total Liabilities to Market Cap of over 2x.
- Our original screening revealed ten companies: Acreage, Cansortium, Body & Mind, Tilt, StateHouse, MedMen, Iconic Brands, Unrivaled, CSL Holdings, and Red White & Bloom. Five of these companies (STHHZ, MMEN, UNRV, RWB, and ICNB have either restructured their balance sheets or liquidated.. Finally, two names from our earlier work, Body & Mind and Tilt Holdings, appear again on our new screening.
- Despite hitting our screen, we believe the two companies on the far left, MariMed and Jushi, are unlikely restructuring candidates. MariMed is ranked #13/25 in our weekly credit ranking, and Jushi ranks 15/25. Both have 1x liquidity or better, and both have over 1.2x asset coverage (derived from our option-based methodology). Of the two, Jushi carries a bit more risk in our opinion due to the $139M of 2026 debt maturities noted in its June 10Q, and the fact that the second priority notes are offered at yields above 20% according to Ventum Capital. Still, we believe the company will be able to roll its debt.
- Liquidity, asset coverage, and the Viridian credit score are all worse for the Cannabist Company. CBST has been maintaining liquidity by selling non-core operations, but the numbers still show that things are tight. Asset coverage is only about .8x as the company is still significantly overleveraged. Its recent debt restructuring pushed out maturities but did nothing to reduce debt.
- The rest of the list has more pressing liquidity concerns and less than .6x asset coverage. Both BAMM and Tilt have undergone multiple asset dispositions, which are reflected in their numbers. But despite these moves, the numbers appear relatively dire. We note also that BAMM has not filed its July 2024 10K or any subsequent 10Qs. We are working with out-of-date financials, and that opacity further increases our perception of risk.
- Companies with low liquidity and high market leverage have proven historically to be high restructuring risks. Investors need to be aware that S3 is not a universal kick save that will bail these companies out. Investors who have these names in their portfolios should take a very close look.
