Shares of Genius Brands International (GNUS -7.02%) popped on Tuesday after the children's entertainment company said it reached an agreement with holders of its convertible notes that would eliminate its remaining debt.
As of 1:20 p.m. EDT today, the stock was up more than 10% after rising as much as 18.7% earlier in the day.
Genius Brands' senior secured convertible-debt holders will pre-pay $4 million in investor note obligations three months early and convert all of their $13.75 million of debt to shares of stock. Genius Brands also agreed to register for resale the stock issued upon the note conversions.
Genius Brands said the agreement will leave its balance sheet free of debt and cash-rich. "This is a win-win for all parties," CEO Andy Heyward said in a press release. "The company today is debt-free and holding $55 million in cash."
Questions remain as to whether Genius Brands' new digital network Kartoon Channel! will ultimately be profitable enough to justify its stock's lofty valuation. But while this recent deal with debtholders will dilute shareholders, it does help to strengthen Genius Brands' financial position. "With these latest financing transactions, we have significantly enhanced our balance sheet and have built a solid foundation for growth," Heyward said.
Genius Brands also promised to share information with investors related to its new growth initiatives. "We look forward to providing updates on a number of key operational milestones in the days ahead," Heyward said.