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I'm having trouble grasping the concept of bought-deals. Could someone give me a quick explanation and help analyze the following situation?

"Goodfood Market Corp. ("Goodfood" or the "Company") (TSX: FOOD) is pleased to announce that it has entered into a $30.0 million bought-deal financing (the "Convertible Debenture Financing") of convertible unsecured subordinated debentures (the "Debentures") with a syndicate of underwriters (the "Underwriters") co-led by National Bank Financial Inc. and Desjardins Capital Markets. The Debentures will have a coupon of 5.75% per annum, and a conversion price of $4.70 per Goodfood common share" (link: https://stockhouse.com/news/press-releases/2020/02/06/goodfood-announces-30-million-convertible-debenture-financing-to-invest-in-the)

Is the situation good news or bad news? I thought bought-deals were usually at a discount of current stock price. As I am writing this, the stock is valued at 3.15$/share hence why I am confused. Thanks in advance!

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A bought-deal just means that the underwriter purchased the bonds (note that it purchased convertible bonds, not stock) and will sell them on the open market rather than the company selling them directly and the underwriter just just acting as an agent

Is the situation good news or bad news?

It's not that black and white. On one hand, the bonds were sold at a discount doe the company got less money for its debt. On the other, it guarantees that all of the bonds were sold, so there's no risk that the company can;t sell all of its bonds for the price it wants.

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  • Could you expand on this? If "Conversion price of $4.70 per Goodfood common share" is stated and current price is lower than 4.70$ (right now it's at 3.15) Why do we say it's a discount? – MadPawn Feb 6 at 22:16
  • You're dealing with a convertible bond, not stock. A convertible bond is somewhat like a call option. If you bought $4,700 of the bond, you could convert it to 100 shares. But why would you do that when you could buy almost 1,500 shares at the current price for that amount? It's at a discount because the underwriters are buying the bond for less than what investors on the open market would pay. It has nothing directly to do with the stock price. – D Stanley Feb 7 at 13:17

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