Memorex Telex NV’s much vaunted prepackaged bankruptcy proceedings, which saw the company into and out of Chapter 11 protection in very short order, failed to do enough to lift the burden of debt from the cash-strapped company, and it now says it is negotiating a massive debt-for-equity swap with senior banks and noteholders. It wants to replace $827m of its debt with common stock in a transaction that will leave the individuals that led the buyout from Unisys Corp with very small stakes in the company, which these days does most of its business in the mid-range IBM Corp plug-compatible peripherals. Memorex says it will not make its June 1 payment on its term debt, but management is confident that lenders will continue to support the company until the restructuring is concluded – it says that Morgan Guaranty, the administrative agent for the bank syndicate and the single largest holder within the first tranche of the term debt, has expressed support for the restructuring plan, and that Northwestern Mutual, the largest holder within the second tranche of the term debt, will also support the plan, and that its largest noteholder, Apollo Advisors, has also indicated its support. Under the plan, Memorex would retain all operational debt, including a $67.5m working capital facility, accounts receivable, financing and local borrowings by subsidiaries. The company’s trade creditors would continue to receive payments in full and would not be affected by the financial restructuring. Results for the fiscal year to March 31 have not yet been finalised, but the company will be taking a one-time restructuring charge of about $165m to cover the cost of significant reductions in the workforce, closure of businesses and product lines, and related asset valuations, all of which means a substantial net loss on some $1,325m sales.
