Struggling Mighty Craft lands debt deal with lender

Mighty Craft has entered into a new agreement with its senior debt provider PURE Asset Management Pty Ltd. 

The new agreement will involve selling 7.5% of its shares in Better Beer to PURE in exchange for terminating all obligations related to the Royalty Deed which is currently in place for Mighty Craft’s wholesale revenue within Australia.

In an announcement to the ASX yesterday 16 May, Mighty Craft said "it has entered into an agreement with its senior debt provider, PURE Asset Management Pty Ltd (PURE), to buy out the royalty with PURE for a portion of Mighty Craft’s shareholding in Better Beer."

On completion of the transaction, the Royalty Deed - which states that both companies can demand that the royalty payable to PURE be paid out following the buyout mechanism - "will be terminated and all obligations of the parties under the Royalty Deed will be fully released." The existing buyout mechanism is based on the following formula: "2.0% of the trailing 12 months Gross Product Sales multiplied by 5.5."

The announcement follows on from recent indications the Mighty Craft was looking to significantly increase its then 33% stake in Better Beer, eyeing off a potential merger in a last-ditch effort to restructure. 

Debt-riddled Mighty Craft, which has breached various loan covenants held with PURE, will now be left with only a ¼ stake in Better Beer. This follows on from the recent sales of other key assets, including offloading Mismatch Brewing and the 78 Degrees Distillery for $7.2 million. 

According to Katie McNamara, Managing Director, Mighty Craft was left with few other options.

"The royalty swap represents further meaningful debt reduction, which is a key focus of the MCL Board," she said.

"This, combined with the $2.3 million debt reduction announced in Q3 FY24 and the proposed flow of funds from the settlement of the 78 Degrees and Mismatch sale, will represent over $10 million of debt reduction across H2 FY24,” said McNamara.

The ASX Announcement highlights that PURE and Mighty Craft are still actively working towards a merger deal with Better Beer as suggested at the end of last month. 

“PURE and all stakeholders are working constructively to achieve the potential merger between Mighty Craft and Better Beer, which was announced on 30 April 2024 in the Quarterly Report, and this transaction ensures all three parties’ interests are aligned towards achieving this outcome,” read yesterday's ASX Announcement. 

The sale of 7.5% of Mighty Craft’s Better Beer shares to PURE will take place on or before 12 June this year.