Flower One inks loan agreement changes for $30 million term debt, $16.9 million equipment financing

By Rebecca Melvin

New York, Jan. 27 – Flower One Holdings Inc. and its subsidiaries have entered into a loan modification agreement with secured lender RB Loan Portfolio II LLC regarding an existing $30 million term loan and RB Loan Portfolio 1 LP regarding an existing $16.9 million equipment financing agreement, according to a company news release.

The modification agreement was part of Flower One’s debt restructuring, which included changes to its board of directors and management team, retirement of common shares and the initial closing of non-brokered convertible debt.

Under modification of the company’s term debt, RB Loan Portfolio II has agreed to forbear existing events of default and make changes to the term loan documents, including extending the maturity date to Dec. 21, 2021 from June 27, 2021, raising the interest rate to 14% from 12% paid monthly and 2% at maturity, and adding a $1 million exit fee upon payment of the loan in full.

The agreement also provides for an interest reserve payable when the company completes at least $10 million in convertible debt financing and additional convertible debt financing by March 5 in an amount to make total new equity and subsequent new equity equal to or greater than $15 million.

The company is required to pay certain previously defaulted obligations and complete at least the initial new equity and the subsequent new equity by March 5. Additional consideration for the term loan modification includes a 3% loan modification fee equal on the outstanding principal of the term loan from May 19, 2020 until the Jan. 25 term loan modification, as well as $1.2 million of Flower One common shares, one-half warrant for each share granted, warrants being exercisable for three years at C$0.31, and reimbursement of lender expenses.

The lease agreement changes pertain to a facility located in Las Vegas, and lessor RB Loan Portfolio 1 has agreed to forbear existing events of default and make master lease changes including an amended payment schedule allowing for reduced monthly lease payments for three months. The payments are $347,142.75 for January, $345,347.41 for February and $343,534.12 for March. Monthly payments after that are $555,676.87 per month. In addition, there is a $500,000 exit fee due at the end of the term of the master lease; release of a current third-party guarantor, and grant of a new parent company guarantee by the company.

Among the conditions required for the lease modification is the new equity condition, which is the same as for the term loan modification agreement. Additional consideration for the lease agreement includes a 6% initial lease modification fee calculated from May 19, 2020 and an additional one-time fee of $500,000 payable in monthly installments (which amount is reflected in the aforementioned adjusted monthly payment amounts), and reimbursement of lessor expenses.

In connection with the loan modification agreement, Flower One has issued $1.2 million worth of equity units. Each loan unit consists of one common share and one-half common share purchase warrant. Each loan warrant was issued under the same terms and conditions as the warrants, but with an exercise price of C$0.2065, representing the 20-day VWAP of the common shares trading on the Canadian Securities Exchange at the time of issuance.

Initial debt restructuring

The company has reduced its debt by $5,934,000 through the conversion of debt to equity from two of the company’s other lenders. An $11 million secured term loan has been reduced to $6 million with the remaining amount of $5 million converted into 30,748,668 common shares at C$0.2065 per share.

In addition, the interest on the remaining principal has been cut to 10% from 15% per annum, and the maturity date has been extended from to July 24, 2022 from Feb. 25, 2021. The company also retains the ability to prepay the outstanding debt with no prepayment penalty.

An $850,701 short-term loan (originally $1 million) and accrued interest totaling $83,485 owed to a private lender has been converted to equity at C$0.2065 per common share for a total of 5,744,998 common shares.

Transaction scuttled

Flower One’s previously announced agreement with Subversive Real Estate REIT LP regarding a C$39 million secured term loan to the company, which included an option to enter a sale-leaseback purchase agreement for the company’s North Las Vegas Greenhouse Facility, has not been completed.

One of Subversive’s conditions to the funding of the loan was that Subversive complete a qualifying transaction unrelated to the company. Subversive initially advised the company that it expected to close the qualifying transaction in early November 2020, but on Nov. 26, 2020, Subversive announced that it had determined not to proceed with its previously announced qualifying transaction.

Flower One has decided to not proceed with the Subversive transaction, and instead plans to begin to re-engage in discussions with potential third parties with respect to a sale and leaseback of the North Las Vegas Greenhouse facility.

Flower One Holdings is a Toronto-based cannabis company.

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