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SGI files for bankruptcy

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CIOL Bureau
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MOUNTAIN VIEW: Silicon Graphics announced that it has reached an agreement

with all of its senior secured bank lenders and holders of a significant amount

of its senior secured debt on terms of a reorganization plan that will reduce

its debt by approximately $250 million, simplifying its capital structure.

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As part of this agreement with many of its major stakeholders, and as the

next step in its previously announced plan to reorganize its businesses, the

company and its US subsidiaries have filed voluntary petitions under chapter 11

of the U.S. Bankruptcy Code.

SGI's non-US subsidiaries, including European, Canadian, Mexican, South

American and Asia Pacific subsidiaries were not included in the filing; will

continue their business operations without supervision from the US courts; and

will not be subject to the requirements of chapter 11.

The company expects to file its Plan of Reorganization reflecting the

agreement shortly, and to emerge from Chapter 11 within six months.

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"We want to assure our customers, our employees and our communities that

SGI is operating-business as usual," Dennis P. McKenna, the recently

appointed chairman and CEO of SGI, stated. "Our customers can continue to

rely on SGI for its mission-critical products, services, and support."

"We expect to proceed quickly and will emerge from these proceedings

with a significantly improved balance sheet and, as a result, greater operating

flexibility. I am confident in SGI's future. The new direction I have set is

comprehensive, the product portfolio we will unveil is expansive and our

dedication to customer satisfaction is unwavering," McKenna added.

Certain holders of the company's existing senior secured notes are providing

SGI with a $70 million financing facility. The senior secured notes represent a

majority of the company's total outstanding debt.

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Subject to court approval, the proceeds from the financing together with cash

generated from daily operations and cash on hand, will be used to pay-down a

portion of SGI's pre-petition debt and to fund operating expenses including

post-petition supplier payments, employee wages and benefits, and other

operating expenses.

The agreement contemplates that the company's existing senior secured

bondholders will be converting their existing debt into the new equity of SGI

and, through a rights offering, will have the opportunity to purchase $50

million of additional new equity. The $50 million rights offering is being

backstopped by certain of these bondholders to ensure that the company raises

the full $50 million of new equity capital.

It is contemplated that the $50 million of new capital will be used to reduce

debt and further enhance the company's liquidity.

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Upon confirmation of the plan, the new common stock of the company will be

issued to the holders of SGI's senior secured bonds in the manner described

above. All of SGI's existing common stock and the unsecured subordinated

debentures will be cancelled upon confirmation of the plan by the court and

receive no recovery.

Accordingly, the company believes that SGI's currently outstanding common

stock and unsecured subordinated debentures have no value.

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