Michael Wekerle is set to liquidate his remaining $5-million debt stake in Difference Capital Financial Inc.
A year ago, the star of CBC's Dragons' Den had holdings worth $10.75-million in the firm he co-founded in 2012.
Mr. Wekerle is tendering to the firm's own buyback offer that will see him receive 88 cents on the dollar – or about a 12-per-cent haircut. When $50-million in convertible debentures in Difference was up for grabs in mid-2013, Mr. Wekerle scooped up over 20 per cent of the float. He bought on margin, which means that the debt was acquired with funds borrowed from his broker Richardson GMP Limited.
In 2014, when Difference Capital ran into serious trouble on a number of its investments, Mr. Wekerle told The Globe and Mail that he got a margin call from Richardson GMP – meaning his broker wanted him to post extra funds as collateral against the debt. When he refused to post margin, he says his broker started selling-out his position. By the spring of this year, his original investment had dwindled to $5-million.
In late August, Difference made an offer to its debt holders to buy back and cancel $12-million of its outstanding debt at 85 cents on the dollar, a premium to the market price. However, other debt holders appear to not be as keen as Mr. Wekerle to tender. On Monday, the firm announced it was increasing the offer to investors to 88 cents on the dollar.
Difference is eager to bring its debt load down. The company has $47.5-million in debentures outstanding with the entire principal coming due in mid-2018. Currently, the firm does not have enough cash on its balance sheet to pay down the loan.
While optically it doesn't look good for Mr. Wekerle to be liquidating his debt holdings in the firm he started, and aggressively promoted to investors, financially it's not a bad outcome for the dragon. Had he tried to sell $5-million of the debt in the open market, it's unlikely he would have received 88 cents on the dollar. The debt has traded well below that range over the past few months.
While Mr. Wekerle is set to exit as a debt holder, he remains firmly entrenched as the firm's biggest shareholder, owning around 23 per cent of the common stock and he is also still the company's chair. In June, Mr. Wekerle stepped down as CEO, handing the reins to his former CFO, Henry Kneis. The shares have lost over 80 per cent of their value since their debut in June 2012, mostly because of a series of poor investments on a handful of companies.