Pyxus International's ($PYYX) Precarious Position: 1L Debt Yielding 15%+
Analyzing the Risk-Reward Profile of a Global Tobacco Supplier
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This week, I’m looking into Pyxus International, a major player in the global tobacco supply chain with over $1 billion in debt and approaching maturities. The company has some thinly-traded first-lien debt currently yielding over 15%. While Pyxus has improved operations since emerging from bankruptcy, it continues to face industry headwinds, along with high leverage and limited FCF. In this post, I’ll review Pyxus’s business, financials, and evaluate whether any part of its capital structure is actionable. Let’s dive in.
Situation Overview:
Pyxus International, Inc. (“PYYX”) is a global agricultural company specializing in value-added agricultural products and tobacco. The company operates in over 35 countries, purchasing, processing, and selling leaf tobacco to major cigarette manufacturers such as Philip Morris. PYYX generates revenue primarily through the sale of processed tobacco, with pricing based on quality, yield, and other characteristics.
Bankruptcy and Restructuring
Pyxus had struggled with a heavily leveraged balance sheet for years, stemming from legacy debt taken on during industry consolidation in the early 2000s. The company attempted to address its balance sheet issues in 2019 through a proposed IPO of its Canadian cannabis business and other capital-raising efforts, but these initiatives proved unsuccessful.
The onset of the COVID-19 pandemic in early 2020 dealt the final blow to PYYX. Global lockdowns and trade disruptions severely impacted tobacco shipments/sales, triggering a liquidity crisis just as the company needed to repay its vital foreign credit lines. With refinancing options exhausted and facing a potential default, Pyxus was forced to file for bankruptcy in June 2020.
The company emerged in August 2020 after a relatively quick restructuring process. The reorganization eliminated over $400 million in debt through a debt-for-equity swap, providing Pyxus with a more sustainable capital structure.