Mercury Finance Announces Restructuring Agreement; Reports
First Quarter Results
PR Newswire - May 15, 1998 08:27
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CHICAGO, May 15 /PRNewswire/ -- Mercury Finance Company (NYSE: MFN) today announced that it
has entered into an agreement with substantially all of its senior lenders and with its subordinated debt holder
providing for the financial restructuring and recapitalization of the company. The agreement contemplates
that the restructuring will be implemented under a prestructured plan of reorganization to be filed in the
federal bankruptcy court within the next 60 days.
"By significantly reducing the debt of the company, the contemplated restructuring will provide Mercury
Finance with a sound financial platform from which to operate its business and return to profitability," said
William A. Brandt, Jr., president and chief executive officer of Mercury. "The restructuring is also intended
to relieve the company of the burdens of the securities lawsuits facing it. The present debt structure and the
ongoing securities litigation have placed severe burdens on the company's ability to operate successfully.
Shareholders also will have an opportunity to participate under the restructuring by being granted warrants to
acquire a limited equity interest in the reorganized Mercury. The warrants will initially be out of the money."
The following paragraphs contain a summary of certain terms of the company's agreement with its lenders.
The complete agreement is being filed today on Form 8-K with the Securities and Exchange Commission.
Summary of Terms
The company intends within the next 60 days to file for relief under chapter 11 of the bankruptcy code for
the purpose of confirming and implementing today's agreement. At the same time, the company will file a
plan of reorganization with the bankruptcy court.
The company conducts its business operations through wholly owned subsidiaries. None of the company's
operating subsidiaries will be included in the chapter 11 case to be filed by the parent holding company. As a
result, all trade debt and dealer contracts will remain unimpaired and will continue to be paid in the ordinary
course without interruption. The company and its subsidiaries will continue to be vigorous and active
participants in the sub-prime lending marketplace. The agreement contemplates that the company's
operations at all levels will remain unaffected by the implementation of this restructuring agreement.
If the plan is approved by the court, the company's creditors and interest holders will receive the following:
-- The company's senior lenders will receive new senior secured notes
equal to 75 percent of the face value of their then current claims.
The senior lenders will also receive all the initial equity in the
reorganized company.
-- The holders of the subordinated notes will receive $22.5 million in
new junior unsecured subordinated notes.
-- The shareholders and the securities class action claimants, as a
combined group, will receive three series of warrants, each series
exercisable for five percent of the common stock of the restructured
company, with expiration dates of three, four and five years,
respectively, from approval of the plan. The exercise prices will be
set at increasing levels. The first series will contain an exercise
price reflective of a market price for the common stock which results
in the senior lenders having received total value from both common
stock and senior secured notes equal to 100 percent of their claims
on the effective date of the plan. The second and the third series
will contain exercise prices reflective of a market price for the
common stock which translates into a 10 percent and 20 percent
premium, respectively, of the total amount of such claims.
Consequently, it is anticipated that the exercise prices of the
warrants will be significantly in excess of the initial market price
of the common stock of the restructured company.
-- All shareholders as of May 14, 1998 shall have the right to purchase
their pro rata amount of the senior lenders' debt at a price, in
cash, equal to 98.5 percent of the senior lenders' claims, subject to
specific provisions detailed in the restructuring agreement.
All parties will retain their rights to pursue direct claims against third parties other than the company and
certain of its officers and directors.
The company will continue in its search for a permanent CEO.
The new board of directors will be nominated by the steering committee of the senior lenders.
Timing
The company presently intends to file its chapter 11 petition and prestructured plan of reorganization within
60 days and to seek approval of its disclosure statement and confirmation of its plan shortly thereafter.
In connection with the restructuring agreement, the company and its lenders agreed to extend the existing
forbearance agreement to July 15, 1998. Under the extended forbearance agreement, the company will
continue to keep interest payments current and will make periodic payments to reduce the principal of the
outstanding debt as cash flow permits. In addition, the company will pay a forbearance fee of approximately
$16 million to those senior lenders who have executed the amended forbearance agreement. In return, the
lenders have agreed not to take action against the company while the forbearance agreement is in effect,
subject to the terms thereof.
The above description constitutes only a summary of certain provisions contained in the agreement with the
company's lenders and is not complete. Readers are urged to review the full text of the agreement, which is
being filed with the Securities and Exchange Commission under Form 8-K.
First Quarter Financial Results
Mercury today reported a net loss of $1.5 million or $0.01 per share for the first quarter of 1998, ended
March 31.
The first quarter 1998 loss compares to a loss of $33.2 million or $0.19 per share in the 1997 first quarter,
which included a charge of $29.5 million or $0.17 per share from the loss on the sale of the Lyndon
Insurance subsidiaries.
Results from operations improved to a profit of $812,000 in the first quarter of 1998 from a loss of
$676,000 in 1997. Operating results in 1997 included operating profits from the Lyndon Insurance Group,
which was sold on June 3, 1997.
According to company sources, the reason for the improvement in results for the first quarter of 1998 is the
result of a significantly lower provision for finance credit losses, which more than offset the decline in
finance charge income. The 1998 provision for finance credit losses benefited from a decrease in the size of
the portfolio as well as an improvement in its relative delinquency.
Management believes that the change in the relative delinquency of the portfolio is an indication of
improvement in its credit quality. Under the company's methodology of providing for finance credit losses, a
change in the expected future performance of the portfolio is recognized on a current basis. Accordingly, the
significant first quarter reduction in the finance credit loss provision is expected to be a nonrecurring event.
Future quarterly credit loss provisions are expected to be significantly higher.
Finance charge income declined due to a decrease in the size of the portfolio. This decline is expected to
continue through at least the second quarter of 1998 due to a lower level of new volume.
The company continues to make periodic principal payments to its senior lenders under the terms of the
amended forbearance agreement currently in effect. During the first quarter of 1998, the company paid
principal of approximately $100 million, reducing debt from $851.7 million at December 31, 1997, to $752.7
million at March 31, 1998. |
