Huldra Silver (HDA-V) obtains creditor protection
July 29, 2013 - News Release
After careful consideration of all available alternatives, the board of directors of Huldra Silver Inc. has determined that it is in the best interests of all of its stakeholders to seek creditor protection under the Companies' Creditors Arrangement Act (Canada) (CCAA) and has obtained such protection pursuant to an order from the Supreme Court of British Columbia. The order and related court documents are filed on SEDAR under the company's profile. While under CCAA protection, Huldra will continue attempting to restructure its financial affairs, and recommence operations at its mine and mill.Recently, Huldra has been hampered by equity market, commodity price and operational challenges, which led to the decision to proceed with CCAA protection. Details of the CCAA proceeding will soon be available on the website of the court-appointed monitor, Grant Thornton LLP. CCAA protection stays creditors and others from enforcing rights against Huldra, and affords Huldra the opportunity to continue attempting to restructure its financial affairs. The court has granted CCAA protection for an initial period of 30 days, expiring Aug. 26, 2013, to be extended thereafter as the court deems appropriate. Huldra will issue a further press release on or before Aug. 26, 2013, which will provide an update.
While under CCAA protection, Huldra will continue attempting to restructure its financial affairs, and recommence operations at its mine and mill under the supervision of the monitor. The monitor will also be responsible for reviewing Huldra's continuing operations, liaising with creditors and other stakeholders, and reporting to the court.
The court has authorized the monitor to arrange for Waterton Global Value LP, the primary secured creditor of the company, to loan up to $4.8-million to the company pursuant to a term sheet dated July 23, 2013.
The DIP (debtor-in-possession) loan is to be drawn by the company in two tranches as follows: $2.3-million upon the request of the company following execution of the term sheet, and $2.5-million upon receipt by Waterton of a comprehensive plan of operations from the company for the Treasure Mountain property that is satisfactory to Waterton and its advisers. Huldra has agreed to repay the DIP loan in full as follows: if the first tranche (but not the second tranche) is advanced, then on the date that is four months after the date the first tranche is advanced by Waterton to the company under the term sheet; and if both tranches are advanced, then in accordance with an amortized repayment schedule to be determined by Waterton, which reasonably corresponds to the plan.
The DIP loan is being advanced subject to the terms of an existing credit agreement between Waterton and the company dated June 16, 2011, subject to certain changes provided for in the term sheet. The original credit agreement is disclosed in the company's news release dated June 17, 2011. The company also agreed under the term sheet: to allow the monitor appointed in the CCAA proceeding in connection with the company to communicate with and disclose information to Waterton as required; that any court orders obtained in the CCAA proceeding shall be on terms satisfactory to Waterton, including an initial order in the CCAA proceeding, which shall confirm the validity, enforceability and first-priority ranking of the DIP loan and related security, subject only to an administrative charge in favour of the monitor and its counsel; to allow Waterton, notwithstanding the CCAA proceeding, to immediately enforce its security upon the occurrence of any event of default or event which, with the passage of time, would constitute an event of default; and to discuss with Waterton all contemplated motions in the CCAA proceeding before instituting the same. In addition, the company agreed to pay certain expenses of Waterton in connection with Waterton's review and due diligence of the company up to a maximum of approximately $100,000 on demand by Waterton, to pay Waterton for certain continuing expenses of Waterton's counsel in connection with the CCAA proceeding on a biweekly basis from the cash flows filed in the CCAA proceeding, and to pay the fees for any employees, consultants, representatives or agents of Waterton that work for, in connection with or on behalf of the company.
As consideration for the DIP loan, the company has agreed to grant Waterton a 2-per-cent net smelter return royalty on the Treasure Mountain property. The royalty will be terminated if: no amounts (other than the PNote (participatory note) amount) are drawn by the company under the DIP loan within 30 days of the execution of the term sheet; and the company repays Waterton in full for all amounts owing under the original credit agreement, the term sheet, the DIP loan and all documents related thereto within 30 days of the execution of the term sheet, so that all of the company's obligations to Waterton are fulfilled to Waterton's full satisfaction.
The obligations of Waterton to advance the DIP loan are subject to the fulfilment of conditions precedent to be determined by Waterton in its sole and absolute discretion. The DIP loan is subject to TSX Venture Exchange and court approval. The terms and conditions of the DIP loan are subject to the agreement of Huldra, Waterton and the monitor. The company intends to use the proceeds of the DIP loan to repay the principal and interest owed to Waterton pursuant to a promissory note issued to Waterton on July 8, 2013, and for working capital purposes.
It is expected that the monitor will work with the company to develop a plan of compromise or arrangement with one or more of the company's classes of creditors pursuant to the CCAA and the Business Corporations Act (British Columbia).
Although CCAA protection enables the company to continue attempting to restructure its financial affairs, and recommence operations at its mine and mill until its CCAA status changes, the implications for the company's shareholders are less clear. At the end of the restructuring process, the value of what is left for shareholders will depend upon the terms of the restructuring plan approved by the court.
Certain mining objectives announced by the company on May 27, 2013, are no longer achievable because the mill and mine are on care and maintenance, the company lacks the required financial resources, and the company is subject to CCAA protection.
Managing the financial difficulties of the company has absorbed considerable staff resources recently. At the current time, management and the board of directors are actively focusing on assisting the monitor in obtaining court approval of the restructuring plan, implementing the restructuring plan and completing a transaction which restructures the affairs of the company in such a way so as to maximize its value to all of its stakeholders. Every effort will be made to ensure that all stakeholders in the company are kept informed of developments affecting the company as they occur.
The company also announces that Ryan Sharp has resigned as a director of Huldra, effective immediately upon the granting of an initial order under the CCAA with respect to the company.
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