Faced with the need to renegotiate a $70m bank loan repayment that it cannot meet and the threat that it will fail to meet the minimum equity levels as of March 31 required under its senior bond covenants, Memorex Telex International NV is hoping to persuade its higher-paid employees around the world to invest $5m in the company by buying new 15% eight-year bonds convertible into Memorex common. The idea originally came from employees, but chief executive Giorgio Ronchi is now strongly urging employees to buy at least $5,000 of the bonds – they can borrow the cash from the pension fund, credit union or against future bonuses and commissions. The $5m would be spent buying in some of the $900m of junk bonds outstanding, which, the Wall Street Journal reports, now trade at 42 cents on the dollar for the 14.5% bonds, and just 25 cents for the zero coupon bonds. By buying some in at these prices, Memorex could book an extraordinary gain and raise its net worth, making it easier to satisfy loan covenants.
