Big Rock Brewery Makes Significant Moves with Debt Settlement and Private Placement
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Debt Relief via Agreement with VN Capital
CALGARY, AB, Jan. 7, 2025 /CNW/ – Big Rock Brewery Inc. BR (“Big Rock” or the “Corporation“) has announced a binding debt settlement agreement (the “Debt Settlement Agreement“) with VN Capital Fund I, LP (“VN Capital“). This agreement allows Big Rock to settle all debts owed to VN Capital under its second lien term facility (the “Second Lien Facility“). VN Capital is the largest shareholder of Big Rock, holding 2,017,100 common shares, which is about 28.8% of the total shares outstanding, thus qualifying as an “insider” as per TSX regulations.
Details of the Private Placement Opportunity
In tandem with the Debt Settlement, Big Rock plans to initiate a private placement (the “Private Placement“) of Common Shares priced at $1.00 each. This private placement aims for gross proceeds ranging from at least $6,300,000 (the “Minimum Private Placement“) to a maximum of $8,000,000 (the “Maximum Private Placement“).Currently, binding agreements for about 4.5 million Common Shares have been made, totaling approximately $4.5 million in anticipated proceeds.
The Debt Settlement will lead to the issuance of 9,000,000 Common Shares, accounting for roughly 128.6% of the pre-closing shares, while the Minimum Private Placement will result in 6,300,000 Common Shares, representing about 90.0%. In total, combining both initiatives means an estimated 15,300,000 Common Shares will be issued, equivalent to approximately 218.6% of the outstanding shares pre-closing. This strategy will enhance Big Rock’s balance sheet and aims to position the Corporation for sustainable growth moving forward.
Opportunities for Accredited Investors
The private placement is open to accredited investors as defined by National Instrument 45-106. Interested parties outside of Canada can also reach out. Big Rock will review subscriptions on a case-by-case basis, with the right to reject or adjust any subscription amounts. If a subscription is altered or rejected, the funds will be returned promptly to the subscriber without interest.
Use of Proceeds Under the Debt Settlement Agreement
Under the Debt Settlement Agreement, Big Rock and VN Capital will resolve the Corporation’s obligations, which are projected at $11,332,691 by January 20, 2025. The plan involves converting $9,000,000 of debts into Common Shares, priced at the Private Placement value, and repaying the remaining balance from the proceeds. After the completion of these transactions, only the indebtedness under ATB Financial (“ATB”) will remain as long-term debt, subject to the application of proceeds from both the Maximum and Minimum Private Placements.
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Key Financial Scenarios for Big Rock
The Second Lien Facility is due March 31, 2025. Currently, Big Rock lacks available undrawn capacity under this facility and does not have sufficient funds to repay it. The Corporation has previously negotiated several maturity extensions with VN Capital, yet there has been no indication from VN Capital regarding further extensions beyond March 31, 2025. Should the Private Placement and Debt Settlement—or any alternative financing—fail to finalize by that date, and without additional arrangements with VN Capital, the latter could enforce its rights under the facility. This scenario indicates that Big Rock may struggle to meet its obligations. Implications of the Private Placement and Debt SettlementCompletion of the Minimum Private Placement is a prerequisite for the Debt Settlement. Big Rock has stated that it would not have proceeded with the Debt Settlement Agreement without committing to the Private Placement. The funds from this Private Placement are specifically intended to support the Debt Settlement as outlined. The Subscription Price is set at $1.00, based on the five-day volume weighted average trading price of the Common Shares on the Toronto Stock Exchange (“TSX“) as of January 6, 2025. Big Rock Brewery Plans Significant Capital Moves with Private Placement and Debt SettlementOn January 14, 2025, Big Rock Brewery, a company that has faced financial challenges, is advancing with a strategic Debt Settlement Agreement alongside a Private Placement. These initiatives are geared to strengthen the company’s financial footing, involving a discount of approximately 9.0% from the date prior to execution. Role of Acumen Capital FinanceAcumen Capital Finance Partners Limited (“Acumen“) will serve as the placement agent for the Private Placement, receiving a finder’s fee of 7.0% for solicited orders. The Minimum Private Placement aims to issue around 90.0% of the current total issued and outstanding Common Shares. Of this, insiders would receive 8.7%, including directors getting 8.4% and other insiders receiving 0.3%. Alternatively, the Maximum Private Placement could lead to a total issuance of about 114.3% of the current shares, with 6.9% allocated to insiders. In both scenarios, VN Capital is set to receive 9,000,000 Common Shares, significantly increasing its ownership stake. After the transactions, VN Capital could control about 49.4% or 45.9% of shares, depending on whether the Minimum or Maximum Placement is utilized. There is little expected change in control, as VN Capital is already the largest shareholder. Insider Holdings and ChangesJames Howard Homas Riddell currently holds 336,203 Common Shares, representing about 4.8% pre-closing. Following the planned acquisition of 3,750,000 shares during the Private Placement, his stake could rise to 18.3% post-closing under the Minimum placement, or 17% under the Maximum placement. Regulatory Approval and Future StepsCompletion of the Private Placement hinges on several conditions, including obtaining TSX approval by January 14, 2025. Moreover, the Corporation must secure consent from ATB, its senior lender, prior to extending the term of its credit agreement, which aims at ensuring Big Rock’s financial stability. Due to the implications of the Private Placement and Debt Settlement exceeding the 10% threshold for insider issuances, Big Rock requires disinterested shareholder approval, which VN Capital cannot participate in because it is not considered disinterested. Given the current financial circumstances, Big Rock opted not to hold a shareholder meeting fearing the potential fallout from announcing “financial hardship.” Instead, the company has requested exemptions based on its serious financial difficulty to streamline the process. Background to the Private Placement Big Rock Reviews Strategic Options Amid Financial ChallengesFrom March 2023 to January 2024, Big Rock carried out a strategic review aimed at boosting shareholder value (the “Strategic Review“). This process, led by a special committee of the Corporation’s Board of Directors (the “Board“), involved partnering with Acumen as an advisor. The committee evaluated the company’s operations and examined various strategies, which included possible cost cuts, restructuring efforts, refinancing, selling assets, or merging with other entities. Unfortunately, during this review, the corporation could not secure funding with better terms than those proposed by VN Capital, leading to an announcement on January 17, 2024, regarding an additional $4.2 million in borrowings from VN Capital under the Second Lien Facility (the “Second Lien Amendments“). The funds were intended for short-term liquidity and to foster growth with new technology. The maturity date for the total $8.5 million Second Lien Facility was set for December 31, 2024. After the Second Lien Amendments, Big Rock looked for additional financing options to pay off the amounts due under the Second Lien Facility. During this time, VN Capital and certain insiders expressed a non-binding willingness to partake in a private placement of Common Shares to help repay the debt. In response to these interests, Big Rock consulted its Board, financial advisors, and legal counsel to gauge third-party interest for such a private placement. Throughout the latter quarters of 2024, Big Rock actively searched for financing partners, evaluating various strategies to gather the necessary equity capital to meet its financial commitments. It engaged with private equity firms and investment banks during this period. On November 20, 2024, Big Rock announced the expansion of the Second Lien Facility by $500,000 and pushed the maturity date to March 31, 2025. The Corporation received these additional funds on December 20, 2024. From September until early December 2024, Big Rock sought help from various financial advisors and held meetings with potential participants in a proposed private placement to refinance the Second Lien Facility. Ultimately, it could not garner enough interest to meet its obligations under this facility fully. On December 2, 2024, Big Rock signed a non-binding term sheet with VN Capital, outlining the preliminary terms for a proposed Debt Settlement Agreement, pending the final documentation. Management’s Role in Negotiations Big Rock’s senior management and the Chair of the Board engaged with VN Capital to negotiate the Debt Settlement terms, including the necessary Private Placement and Subscription Price. Throughout this process, VN Capital representatives were not involved in the Board’s discussions regarding the Debt Settlement and Private Placement. The independent directors—Mr. Stephen J. Giblin, Ms. Linda A. Thomas, and Mr. George Croft—formed an Independent Committee to oversee the financial condition of the Corporation and provide impartial insights during negotiations. As mentioned earlier, VN Capital stands as the largest shareholder of Big Rock, controlling 2,017,100 Common Shares, which equates to about 28.8% of the total issued and outstanding Common Shares on a non-diluted basis. Therefore, it is recognized as an “insider” and “related party” of the Corporation under the TSX Company Manual and MI 61-101. P. Donnell Noone, a director of Big Rock, is a co-founder and managing partner of VN Capital Management, LLC, which manages VN Capital. How Private Placement and Debt Settlement Address Big Rock’s Financial Issues The Private Placement, in combination with the Debt Settlement, is set to provide Big Rock with immediate financial stability. It will help tackle the significant working capital deficiencies, settle all obligations under the Second Lien Facility, and supply operating capital to ensure the Corporation can continue functioning. This initiative will also lead to a substantial improvement in Big Rock’s balance sheet. It aims to remove approximately $11.3 million of secured debt under the Second Lien Facility and eliminate about $1.4 million in annual interest expenses linked to this facility. Following the payment of the Settlement Amount, the additional proceeds from the Private Placement, estimated at around $6.3 million, will be allocated towards repaying $700,000 under the senior credit agreement with ATB, funding capital projects, and covering working capital needs. This reduction of debt, elimination of future interest payments, and ability to invest in development programs are all expected to enhance cash flow and support the Corporation moving forward. Big Rock Brewery Pushes for Private Placement Amid Financial ChallengesUrgency in Securing Financing Big Rock Brewery Inc. is working diligently on a plan to stabilize its financial condition by pursuing a Private Placement and Debt Settlement. These transactions aim to position the company for profitability and growth, benefitting shareholders, employees, and other stakeholders. Shareholder Approval Complications The company is under pressure due to its financial state and the impending March 31, 2025 maturity date for its Second Lien Facility. VN Capital, which has already extended this deadline multiple times, has expressed reluctance to provide any further extensions. Therefore, the completion of the Private Placement and Debt Settlement is urgent for Big Rock. Big Rock has argued to the TSX that organizing a shareholder meeting could pose significant risks. There isn’t enough time to explore alternative financing options before the maturity date, and the company doubts it could secure majority approval from disinterested shareholders before March 31, 2025. As a result, Big Rock is seeking permission to proceed with its financial plans without shareholder approval. Guidance from External Advisors Burnet, Duckworth & Palmer LLP serves as the principal legal counsel for Big Rock’s Board of Directors, closely advising the company on the structure of the Private Placement and Debt Settlement. The Independent Directors functioned as an Independent Committee to review these transactions, ensuring that none of them had interests in the Private Placement nor ties to VN Capital. Throughout this process, the Committee held formal and informal meetings to receive management updates and legal guidance. The Committee met on December 18, 2024, and determined that the company faced severe financial difficulties. They believed that the proposed Private Placement and Debt Settlement would significantly enhance the corporation’s financial standing. Ultimately, the Independent Committee reviewed the final terms of these transactions and approved them on January 7, 2025. In its analysis, the Independent Committee focused on several critical factors, including: (a) the amounts owed under the Second Lien Facility; (b) the approaching maturity and VN Capital’s refusal to extend it again after pushing the deadline from December 31, 2024 to March 31, 2025; (c) Big Rock’s ongoing efforts over recent years to secure additional financing; (d) the legal advice offered; and (e) the corporation’s current inability to find a replacement for the Second Lien Facility. The Committee also noted ATB’s willingness to provide consent, contingent upon the repayment of $700,000 of outstanding debt. Given these circumstances, they concluded that hiring a financial advisor for the transactions wasn’t in the company’s best interest. Despite exploring several financing options and potential acquisitions to improve its financial situation, Big Rock has not succeeded in finding viable alternatives. Ultimately, under intense pressure, the Independent Committee unanimously recommended that the Board approve the transactions, including the Private Placement and Debt Settlement. They also advised applying to the TSX for an exemption from shareholder approval requirements. The Board approved all recommendations from the Independent Committee, although the representative of VN Capital chose to abstain from the vote. Potential Implications of TSX Review There is no guarantee that the TSX will grant the requested exemption or approve the share issuances tied to the Private Placement and Debt Settlement. The reliance on this “financial hardship” exemption typically triggers a remedial delisting review by the TSX. No assurances can be made regarding the outcome of this review, nor the company’s ongoing eligibility for TSX listing. About Big Rock Brewery Inc. Founded in 1985 by Ed McNally, Big Rock Brewery initially sought to challenge prevailing beer trends of the time. Big Rock Brewery’s European-Inspired Beers Lead Craft RevolutionBig Rock Brewery has been a pioneer since introducing its original beers—Bitter, Porter, and Traditional Ale—during a period when lagers dominated the market. Fast forward to today, and the company proudly offers a vast selection of beers, seasonal specialties, six types of ciders (under the Rock Creek Cider® series), custom private labels, and licensed products, demonstrating its commitment to the evolving craft beer landscape. The brewery operates out of Calgary, Alberta and Toronto, Ontario, with shares traded on the TSX under the symbol “BR”. For further details, visit www.bigrockbeer.com. CAUTIONARY STATEMENTS: Forward-Looking Statements This press release includes forward-looking statements about the Debt Settlement and the Private Placement related to it, including anticipated benefits, timing, and financial expectations. It projects the expected obligations to VN Capital by January 20, 2025, as well as Big Rock’s ability to sustain operations and list on the TSX. These statements reflect the company’s beliefs and the current information available, based on several key assumptions, such as timely regulatory approvals and stable economic conditions. Management believes these assumptions are reasonable; however, they could prove incorrect. Forward-looking statements inherently carry risks and uncertainties that could result in actual results differing significantly from the expectations stated. Important factors influencing outcomes include market conditions and the availability of favorable financing, among others, as detailed in the Corporation’s latest Annual Information Form and other reports filed on SEDAR+. This list is not exhaustive. Therefore, investors and interested parties should consider these factors carefully when assessing the company’s forward-looking statements. The Corporation does not commit to update any forward-looking statements, unless required by law. SOURCE Big Rock Brewery Inc.
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