Pharmaceutical company Harrow Health (HROW) has announced a new baby bond offering.
They are offering $100,000,000 in senior notes maturing in 2027.
The company has a 8.625% baby bond outstanding already which can be seen here.
The preliminary prospectus can be read here.
Here’s the final prospectus for HROWM:
https://www.sec.gov/Archives/edgar/data/1360214/000149315222035888/form424b5.htm
Note that “only” $35M were offered, not the $100M initially suggested.
has this priced? I’ve heard talk of >10%, but haven’t seen a final announcement yet. Which is a rather insanely high coupon…
Issuer: Harrow Health, Inc.
Securities: 11.875% Senior Notes Due 2027 (the “Notes”)
Listing: Nasdaq “HROWM”
https://www.sec.gov/Archives/edgar/data/1360214/000149315222035651/formfwp.htm
Ouch, that’s a HUGE interest rate to pay. I saw that our friends at Egan Jones rated the bonds junk (I really didn’t know that Egan rated ANYTHING junk!). “Notes both received a rating of “BB” from Egan‑Jones Ratings Company, an independent, unaffiliated rating agency.” Must have not paid Egan enough cash if you know what I mean 🫤
The problem is that real risk and perceived risk are two different things. And that’s where people get into trouble, because they perceive risk to be high when prices are low, and they perceive risk to be low when prices are high.
I am Azure
That’s insanely high, even for high yield junk.
Most of the preferred shares and baby bonds that I’ve looked at have provisions that are an insult to humanity. I don’t want to spend more than about 30 seconds looking at this one.
The lack of access to judicial review bothers me the most. But it’s a pretty common provision- from what I’ve seen. Although, theoretically available. Finding 25% of the debt holders, who also happen to be willing to pay to indemnify the trustee would be a major undertaking and very expensive. IMHO.
—————————-
“No protection in the event of a change of control
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, the debt securities will not contain any provisions that may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction, whether or not such transaction results in a change in control.
Covenants
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, the debt securities will not contain any financial or restrictive covenants.
…
A holder of debt securities of any series will not have any right to institute any proceeding under the indentures, or for the appointment of a receiver or a trustee, or for any other remedy under the indentures, unless:
(1). the holder has previously given to the trustee written notice of a continuing event of default with respect to the debt securities of that series;
(2) the holders of at least 25 percent in aggregate principal amount of the outstanding debt securities of that series have made a written request and have offered reasonable indemnity to the trustee to institute the proceeding; and
(3) the trustee has failed to institute the proceeding and has not received direction inconsistent with the original request from the holders of a majority in aggregate principal amount of the outstanding debt securities of that series within 60 days after the original request.
Holders may, however, sue to enforce the payment of principal, premium or interest on any debt security on or after the due date or to enforce the right, if any, to convert any debt security (if the debt security is convertible) without following the procedures listed in (1) through (3) above.
We will furnish the trustee an annual statement from our officers as to whether or not we are in default in the performance of the conditions and covenants under the indenture and, if so, specifying all known defaults.”
Mark, this was what some income specialists were referring to when rates went to zero. In the chase for yield, companies took advantage of situation and loosened covenants. Plus much debt stack was put at subordinated level even of “fair” companies. Subordinated debt is worthless if a company reorganizes. That is why unless I am just doing a HY chase play, I only own subordinated debt from utilities to lesson the risk the best I can.
Company quality matters. Some company could issue senior unsecured which is higher cap and still be riskier. Because if it gets in trouble, senior secured and the DIP is slapped on top of stack afterwards and then its suddenly
worthless too if its a crap company.
If ones base case is recession, especially to that sector, (who knows) that needs to be given thought.
Hi Grid,
Thanks for the response. As I’ve gotten older, buying quality has become much more important. I may have to look at some of your utes.👍