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Connect First Credit Union Inks $30MM Debt Financing for Decibel Cannabis

December 30, 2020, 07:00 AM
Filed Under: Cannabis

Decibel Cannabis Company has entered into a commitment letter with Connect First Credit Union Ltd. ("First Calgary") in respect of $30 million of debt capital (the "Committed Amount"). The Committed Amount is comprised of $28.5 million of term debt (the "Term Debt") and a $1.5 million authorized overdraft against government receivables (the "Authorized Overdraft") (collectively, the "Credit Facilities"). The funds will be used to repay Decibel's existing debt ($26.8 million) and provide additional funds for working capital.

Financing Highlights

Total Capital & Extended Maturity: The Credit Facilities includes $28.5 million of Term Debt and a $1.5 million Authorized Overdraft to repay Decibel's existing debt of $26.8 million. The Credit Facilities mature 5 years from the closing date and amortize over a 10 year term (prior debt was on average a 5 year amortization term).

Improved Liquidity: The financing results in $3.2 million of immediate gross proceeds and an additional ~$1 million of principal repayment savings on December 31, 2020. The proceeds will support Decibel's continued sales growth and working capital requirements.

Alignment to Operational Schedule: The Credit Facilities are aligned to Decibel's operational schedule. The Company will benefit from an interest only period on $16 million of the Term Debt, ending in the third quarter of 2021. Principal savings over this period will provide Decibel flexibility and additional resources to support its growth strategy.

Lower Interest Rate: The committed interest rate under the Credit Facilities is a 5 year fixed rate of 4.75% for the Term Debt and Prime + 1.00% for the Authorized Overdraft. This reflects a blended interest rate reduction of approximately 1.70%, representing approximately $360 thousand of annual interest savings for Decibel over the full year 2021.

Simplification of Financial Covenants: The Credit Facilities have two annually tested financial covenants, a Debt Service Coverage Ratio of not less than 1.40:1.00, and a Debt to Equity Ratio of not greater than 0.75:1, to commence following Decibel's 2021 year end (December 31, 2021). The Debt to Equity ratio in subsequent years will step down to 0.50:1 beginning in 2022. The Credit Facilities also have a monthly current ratio covenant of not less than 1.25:1 beginning January 2021. Decibel's 12 month forecast projects compliance with all financial covenants.
Debt Financing and Repayment of ATB

The Company expects to repay its credit facilities with ATB Financial ("ATB") on or before January 5, 2021 as part of its closing and funding mechanics with First Calgary. The Company would like to acknowledge and thank ATB for its early-stage commitment and belief in the Company and its support in transitioning its banking relationship to First Calgary.

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