News Story
Allen-Vanguard files for court approval of recapitalization agreement
By Krystle Chow, Ottawa Business Journal Staff
Thu, Dec 10, 2009 4:00 PM EST
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David Luxton (Darren Brown, OBJ.)
Allen-Vanguard Corp. has made a filing under the Companies' Creditors Arrangement Act that could forestall an $80-million class-action lawsuit launched against the defence products firm in October.
The Ottawa-based company, which earlier this year concluded a going-private and recapitalization deal with U.S.-based Versa Capital, said it has begun a court-supervised process under the CCAA for creditor and court approval of the privatization transaction.
For now, the firm said, it will be allowed to conduct business as usual and will have continued access to the funding necessary to maintain its day-to-day operations during the proceedings.
As part of the process, which is meant to be the final step of Allen-Vanguard's recapitalization, the court has appointed Deloitte & Touch Inc. as company monitor during the CCAA proceedings.
Allen-Vanguard noted the filing was made with the full support of its senior lenders and plan sponsor Contego AV Investments LLC, which is a Versa affiliate.
"Under the plan as presented today, Allen-Vanguard will emerge as a recapitalized company with the ability to continue in a manner that best preserves value for our economic stakeholders," said CEO David Luxton in a statement.
"The transaction preserves the Allen-Vanguard business and ensures its continuance as a successful competitor in the marketplace and the countries where Allen-Vanguard provides its vital products and services. We are looking forward to completing this final phase of our restructuring and to getting back to business."
The company's release offers more details on a transaction that had previously led shareholders to complain of being kept in the dark, due to the perceived lack of information provided earlier on in the process.
As part of the deal, Versa will provide US$70 million of additional capital, which will be used to fund a comprehensive restructuring of Allen-Vanguard's approximately $232 million in debt owed to its secured lenders.
The creditors have also agreed to waive approximately US$14 million in senior debt and fees owed to them, as well as to cut the company's indebtedness by another US$54.3 million, an amount that will be assumed by Versa on a second lien basis.
Versa has also agreed to fund a further US$5-million reduction of the total outstanding amount of senior debt.
As well, the arrangement gives Allen-Vanguard access to a US$30-million revolver and a new US$10-million leter of credit facility from its senior lenders, along with additional interim financing of up to US$16 million.
Still, the release reiterated its earlier assertion that its dire financial state means shareholders will likely get nothing from the transaction, with all securities to be cancelled or transferred to Versa.
Deloitte's first report to court said the estimated liquidation value of the company would be "substantially below the book value of the tangible assets," based on information provided by Allen-Vanguard itself. Even if it managed to realize 100 per cent of its tangible assets, the report showed, the secured lenders would still suffer a shortfall in excess of $100 million.
The report also noted that no other party had launched a counter-offer following the announcement of the Versa deal in September.
According to the filing, Allen-Vanguard's year-to-date revenues totalled $176.25 million, down by 43 per cent from the full fiscal year earnings a year earlier. However, it also showed that losses were significantly lower at $152.8 million, from the previous year's consolidated loss of $436.33 million.
Allen-Vanguard's filing will likely delay a class-action lawsuit that alleges the company provided misleading information with regards to its 2007 acquisition of Med-Eng Systems Inc.
Shareholders launched an active campaign against Allen-Vanguard following the news of the privatization deal, with Siskinds, the law firm connected with the class-action lawsuit, noting to the OBJ that it had received "a steady stream of calls from irate shareholders" even before litigation began.
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