BLFS: Debt Conversion Significantly Shores Up Balance Sheet, Improves Risk Profile
By Brian Marckx, CFA And while we have noted, since initiating coverage of BLFS in July 2012, that the latest maturity extension had reduced liquidity risk, the large (and growing via accruing interest and amendment concessions) outstanding debt balance has kept the risk profile of the company elevated. Conversion of the debt to equity will significantly shore up the balance sheet and materially improve the company’s risk profile.
In an 8-K filed yesterday (12/16/2013) BioLife Solutions (BLFS) disclosed agreements with the two debt holders of the company’s promissory notes to convert the notes to equity. Under the agreements, the entire (approximately) $14 million of outstanding company debt and interest will be converted to common stock in connection with the next equity issuance. The notes are secured by all of the company’s assets and accrue annual interest at 7% (payable at maturity). As a reminder the maturity date of the notes had been extended several times, the most recent of which was announced in June 2012 – extending the maturity date to 2016.
And while conversion will significantly increase the share count, the number of new shares issued through conversion will likely be only a small fraction (perhaps 10% - 15%, depending on the price/share of the next equity issuance) of what it would have been if the debt was converted just 18 months ago due to a substantial increase in the stock price over that time.
As we noted in our initiation report back in July 2012, extension of the debt maturity also provided management more time to act opportunistically, to continue to deliver improving financial and operational results and to convert the debt at a higher stock price, thereby reducing any dilution to existing shareholders. That is exactly what has happened. BLFS stock price is up from $0.08 in early July 2012 to over $0.60 today (and recently traded as high as $1.40), which is reaction to the robust revenue growth, significantly improved operating income and cash flow, and operational progress over the last several quarters.
We expect the improved risk profile upon debt conversion to also be reflected in the valuation of the company.
The debt conversion agreement along with a reverse stock split (between one-for-four and one-for sixteen), which was also announced yesterday, is expected to be executed in order to meet the requirements for an uplisting of the shares to NASDAQ.
We cover BLFS with an Outperform rating and a $1.20 price target. See below for access to our most recent report on the company.
A copy of the full research report can be downloaded here >> BioLife Solutions Report
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