• Debt accounted for 35% of trailing 4-week capital raises. We expect this ratio to be volatile because of the limited capital raise activity. Debt should average over 50% of capital raised, especially since many companies are trading at or close to their 52-week lows. We expect more companies to need to add equity kickers to their debt deals in the current capital-constrained environment.

The Week’s Largest Debt Raise:

• • On February 3, 2034, Entourage Health Corp (ENTG: TSX-V)(ETRGF: OTCQX) close on the second tranche of its amended and upsized credit agreement with an affiliate of the LiUNA Pension Fund of Central and Eastern Canada, providing an additional US$11.2M (C$15M).
    • The facility has a 15.25% rate with a PIK option and matures on December 31, 2024.
    • A second lien secures the credit facility on the company’s assets behind Bank of Montreal, the company’s first-priority lender, whose facility matures on June 30, 2024.
    • LiUNA has now amended and increased the loan to Entourage on five separate occasions:
      • 12/21  $15.6M
      • 4/22 $11.7M
      • 6/22 $6.9M
      • 10/22 $11.0M
      • 2/23 $11.2M
  • Proforma for the latest credit extension, LiUNA has lent Entourage approximately $83.6M, which sits behind roughly $20M first-priority debt. We can only make sense of this because LiUNA owns about 20% of Entourage. They are doubtlessly aware of the consequences to that equity if they discontinue providing liquidity. Still, at some point, one has to question whether this is good money after bad.
  • Entourage has had a remarkable 16 consecutive quarters of negative gross profit. Proforma debt to market cap is approximately 15.8x, which indicates severe distress. Cash flow from operations is running about negative $6-9M per quarter despite not paying interest on the LiUNA facility in cash. Financials do not get much uglier than this.
  • The Viridian Credit Tracker model ranks Entourage as #18 out of the 20 Canadian Cultivation & Retail companies in our database, with market caps between $5M and $50M. The company’s ranking would drop another notch were it not for the liquidity provided by LiUNA.

• The Viridian Value Tracker shows that Entourage’s peer group trades at approximately 1.6x annualized revenue. Applying this metric to the company’s September quarter gives an estimated enterprise value of $49.3M. Adding in estimated cash of $12M and subtracting $20M of first-priority debt gives a recovery value of approximately $41.4M or roughly 50% of the par value. We believe this valuation is generous and would be sellers at those prices. We would love to attend the LiUNA credit committee meeting when the next round of credit extensions is discussed. We think that will be in around four months.