Trilon turns Royal Oak's tap back on
By KEITH DAMSELL
The Financial Post
Trilon Financial Corp. will inject more survival money into insolvent Royal Oak Mines Ltd. following an Ontario Court ruling yesterday.
"We've agreed to turn the tap back on," said George Myhal, Trilon president and chief executive. Pending further court approval, Trilon, the gold company's largest creditor, will advance up to $34.7 million while the company restructures operations, Mr. Myhal said. Royal Oak, Trilon, and additional creditors will be back in court Thursday to debate further financing and the company's plea for additional time to prepare a restructuring plan.
The future of Royal Oak was thrown into doubt last week following Trilon's decision to halt financing following news Royal had made $1.2 million in unauthorized payments, including insurance premiums for executives and leasing fees to Trilon. The controversial payments were later cancelled.
Cost overruns at Royal Oak's Kemess South mining project in British Columbia and the slumping price of gold forced the Washington state company to file for protection from its creditors last month. The troubled company has about $600 million in liabilities, including a $185.5 million debt to Toronto-based Trilon.
Trilon agreed to provide survival funds on the condition its loan be placed above all other creditors for repayment. Several creditors objected to the terms of the deal, including lien holders on the Kemess property and Bank of Nova Scotia.
In a 15-page ruling released yesterday, Ontario Chief Justice James Farley confirmed the first $8.4-million tranche of Trilon's financing will receive top priority, but will not supercede the rights of original lien holders. But Royal Oak did not escape unscathed. Justice Farley was critical of the company's decision to turn to the courts for protection at the eleventh hour.
"Applicants should not rely on indulgences being automatically given when the applicant has in effect placed a gun to its own head and threatened to pull the trigger," the judge noted. In addition, Justice Farley found management's decision to make the unauthorized payments from its survival funds a "puzzling and troublesome" act that "could have very serious negative consequences."
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