MARKHAM – Telecom supply and services company Cygnal Technologies announced today announced it is “initiating a court-supervised restructuring in order to restore its financial health,” reads its release, and will seek bankruptcy protection.
Cygnal sought an order under the Companies’ Creditors Arrangement Act (CCAA) in a hearing before the Ontario Superior Court of Justice Wednesday morning. If granted, the order will cover the company and its subsidiaries Cygnal Technologies Ltd. and Accord Communications. In a release issues this afternoon, the company announced the court did, in fact, grant the order.
The order will not cover cable, wireless and telecom industry supplier White Radio GP Inc. or White Radio LP, neither of which is participating in this process.
"We are taking this action to address our problems, protect our stakeholders, develop a restructuring plan, and return to being a financially viable business,” said Cygnal’s CEO, Jos Wintermans.
“A thorough financial review has concluded that we face a serious viability issue. Our problems include a high level of indebtedness which bears interest at a high annual rate, a high cost structure, a deteriorating cash position and a lack of access to the funding required to maintain our operations,” he added.
While the company has begun to implement several cost control measures, it “does not and will not have the liquidity that it requires without the legal protection and other benefits provided by a Court-supervised restructuring process,” Wintermans continued.
“We believe that today’s action is the responsible course to take and that we must act quickly in order to preserve the cash we require for our operations and to maintain the viability of those operations. The order being sought, if granted, will provide the process and the legal protection in which we can operate without interruption and serve our customers throughout this period.
“We believe that a successful restructuring will achieve greater benefit for our stakeholders than any other available alternative. However, it is not possible at this time to predict the final details of the restructuring plan that will be presented to our stakeholders for their approval or to speculate upon any other actions that might be taken in connection with this process," explained the CEO.
In order to provide Cygnal with access to the funds needed to conduct its business during this period, the company’s existing lender, Laurus Master Fund, Ltd., will, upon the order being granted, make available to Cygnal a further $7.415 million in the form of "debtor-in-possession" financing.
In addition, Laurus will maintain Cygnal’s current operating credit facilities, although it will not be entitled to additional advances under those facilities. The additional financing is expected to provide Cygnal with adequate liquidity to fund its on-going operations while the Company pursues its restructuring plan, says the company’s press release.
The order being sought would stay obligations of the company to creditors (other than Laurus), including suppliers, for the customary initial period of 30 days. The stay period may be extended upon subsequent applications to the court. The company will pay suppliers for goods and services provided after the date of the order being sought. claims prior to such order will be addressed in the restructuring plan, adds the release.
Laurus, however, will be unaffected by the order and will be entitled to demand payment of advances under the debtor-in-possession facility and all other secured indebtedness of Cygnal owing to Laurus upon notice to Cygnal following the occurrence of certain stated events of default.
As reported earlier, Laurus has given notice to the company that “certain events of default have occurred under the existing loan agreements between the company and Laurus and has accelerated the payment of all of the company’s obligations under these loan agreements and the related security,” reads the release.
However, “pursuant to a forbearance agreement between Laurus, the company and certain of the company’s subsidiaries, Laurus has agreed that, for so long as no further events of default have occurred (other than any defaults arising as a result of the company and its subsidiaries having sought court protection), Laurus will not take any further steps to enforce its rights under its existing loan agreements with Cygnal or in connection with any existing security or guarantees granted by Cygnal or its subsidiaries in favour of Laurus,” it continues.
The Company intends to continue its efforts to solicit proposals from third parties for an alternative transaction, including a sale of the company or all or substantially all of its assets or business. There can be no assurance that those efforts will be successful.
PricewaterhouseCoopers Inc. will serve as the court-appointed monitor under the CCAA process and will assist the company in formulating its restructuring plan, if the order is granted.
