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July 17, 1991


By CBR Staff Writer

It had been clear for some time that Memorex Telex International NV was headed for the corporate graveyard if it did not move to reduce its crippling debt burden: the company has now bitten the bullet, but the price is a high one: it’s only tradable asset is equity, and it is going to have to hand over a startling 95% of the company to its junk bondholders, and go through Chapter 11 bankruptcy proceedings to complete the restructuring. Nor will the company exactly be home free once it is in place – it will still have $740m of debt and an annual interest bill of $100m – down from $200m. The company plans to exchange $425m of junk bonds – 14.5% senior subordinated notes due 1998 and 15% subordinated notes due 1999 – for equity representing 60% of the company, and pay a further 35% stake to holders of various senior junk issues, who will also get new bonds with a lower yield. The company says it already has agreement to the plan from holders of 60% of the subordinated issues and over 55% its bank and senior junk bond lenders. It is aiming for at least 75% approval from each before it makes a pre-packaged bankruptcy filing in September, under which a company goes to the court with a reorganisation plan pre-agreed. Trade creditors are not affected by the restructuring. The bankruptcy filing is made to prevent dissident creditors from suing the company: the terms will be imposed upon them. The company’s biggest shareholder, Eli Jacobs, will see his 35% stake cut to just 1.8%. Management, Drexel Burnham Lambert and AT&T Co, currently with 6.5%, will see similar drastic down-scaling of their holdings. Memorex had an operating profit of $88.2m for the year to March, but interest and restructuring costs turned that into a net loss of $270m, on turnover of $1,870m; it has laid off 800 more staff.

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