Concordia International Corp. (TSE:CXR) did announce new initiatives but it may not arrest its stock-price decline in the near term
SmallCapPower | October 23, 2017: Concordia International Corp. (TSX:CXR) (NASDAQ:CXRX) announced Friday that it has commenced a court proceeding under the Canada Business Corporations Act (CBCA) to realign its capital structure. This step follows the Company’s previous announcement on Oct 16th that it decided to use a 30-day grace period to defer $26 million of interest payment due October 16, 2017 on its $735 million unsecured notes. The current announcement includes other interest payments that will not be paid as scheduled and are expected to be addressed as part of recapitalization – ~$34 million of principal and accrued interest due on October 20, 2017 under the Company’s unsecured, two-year equity bridge facility; and ~$2.5 million under Concordia’s unsecured, extended bridge facility due on October 23, 2017. To deal with any possible proceedings from lenders against defaults, Concordia International has obtained a preliminary interim order from the Ontario Superior Court of Justice. Meanwhile, Concordia International will continue to lead its day-to-day operations meeting the requirements of suppliers, customers, and employers with its sufficient liquidity of $340 million in cash as of September 2017.
As part of the Proposed Recapitalization Transaction, Concordia International seeks to lower its huge debt of $3.7 billion by reducing its secured and unsecured debt obligations by more than ~$2.0 billion, which will also significantly reduce its annual interest expense. Concordia International is in discussions with the lenders and their advisors to finalize the terms of the proposed transaction, and this would result in significant dilution of the outstanding common shares of the Company.
Concordia’s strategy of expansion through acquisitions of companies and portfolios of products has resulted primarily in the accumulation of a huge $3.7 billion debt, comprising $1.9 billion in senior notes and $1.7 billion in term loans. Concordia International paid $187 million as an interest expense for 1H17 and needs to pay another $133 million in 2H17, ~$260 million in 2018 and $700 million over 2019-2024. Including principal payments, total debt obligations are expected to be a whopping $2.7 billion over 2019-2024. The Company’s high debt levels coupled with poor operating results on intensifying competition has taken a toll on its share price over the past three years. From its peak of $110 in Jan 2015, the share price fell to single digits (~$3.0) by December 2016.
Shares of Concordia International sold off nearly 40% on the TSX to $0.72 on Friday as equity holders viewed the Company’s move to restructure debt as dilutive and benefitting primarily the lenders to recover their dues. These restructuring moves are basically the result of a Company’s inability to repay the interest from their operational cash flows. Concordia’s shares are expected to fall more in the coming days as equity holders further offload their positions. Although Concordia International announced new initiatives in 1Q17 to stabilize the Company, setting five priorities for 2017 (raising level of operational execution, strengthening financial management, expanding portfolio, emphasizing ongoing stakeholder outreach, and developing a comprehensive long-term growth strategy), the results will take time and may not arrest its stock-price decline in the near term.
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