ErosSTX Shares Dive 18%, Entering De-Listing Risk Zone Below $1 After Revealing Debt Restructuring Efforts, Annual Report Delay

Shares in Eros STX Global Corp. dropped more than 18% on the New York Stock Exchange today, closing at a bit less than 87 cents, after the company gave updates that unsettled investors.

In SEC filings and a press release, the company said it was in the process of restructuring some of its debt and also warned of a delay in delivering its annual report for the fiscal year, which ended March 31. The company said it would not be able to hit the SEC’s annual report deadline “because the company’s Audit Committee is currently conducting a formal internal review of certain accounting practices and internal controls related to its Eros subsidiaries. Significant revenue from these subsidiaries may not have been appropriately recognized during the fiscal year.”

On the debt front, the company said it is exploring options regarding various obligations, including a £50 million UK retail bond that matures on October 15. STX has $150.1 million outstanding on a credit facility backed by longtime financing partner JPMorgan as well as $22.7 million in mezzanine debt. The credit facility expires October 7 and the mezzanine matures July 7, 2022.

The stock, which started trading last year after STX merged with Eros International, is now in a risky range. The NYSE can de-list a stock — a major blow to any public company — if shares trade below $1 for 30 straight trading days, or other benchmarks are not met.

Eros is a Mumbai-based film outfit with a large library of Bollywood titles and a significant streaming footprint. Reconciling the two companies’ cultures, operations and accounting methods has been a complex process, ErosSTX conceded. The company said “one or more material weaknesses in internal controls” is likely to be reported as part of the audit.

The filing noted ErosSTX has entered exclusive talks with a third party interested in participating in proceeds from the company’s 46 library films. That library includes breakouts like the Bad Moms franchise and Greenland, a recent PVOD success that also netted a lucrative streaming deal with HBO Max.

A person familiar with the negotiations told Deadline that the third party is not looking to acquire full rights to distribute, franchise or otherwise monetize the library fare. “These are downstream parts of the titles’ revenue, and the inbound interest resulted from an overall surge of interest in IP from the financial community.”

From Amazon buying MGM to a Blackstone-backed group of private buyers acquiring control of Reese Witherspoon’s Hello Sunshine, the pace of dealmaking has been hectic.

Nevertheless, the filing noted, “the company cannot provide any assurances that it will be successful in obtaining any extensions or paying off the debt.”

STX has produced a number of profitable mid-budget films but also faced frequent rounds of skepticism since it started scaling its independent film and TV operation nearly a decade ago. Covid-19, while it has upended the theatrical business and therefore many financial assumptions underpinning the company, has also unlocked significant opportunities in streaming. The number of new buyers piling into streaming also added to the upside for sellers.

The company made Queenpins, for example, and then sold it to Paramount for a price an insider said was twice its $10 million cost. It also sold Will Smith movie Fast & Loose to Netflix after a bidding war and has taken big titles to recent markets, scoring a high-seven-figure presale in Cannes for Vin Diesel action-comedy Muscle, which is directed by F. Gary Gray.

Andreas Wiseman contributed to this report.

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