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.
