SR Telecom recapitalization plan to include debenture exchange, loan, rights offering

By Caroline Salls

Pittsburgh, April 18 - SR Telecom Inc. announced a proposed recapitalization plan, which includes the exchange of its outstanding 8.15% debentures due April 22, 2005 for 47.27 million of common shares and C$69.3 million of new convertible secured debentures plus a new up to C$50 million credit facility and a C$40 million rights offering, according to a company news release.

The company said it has entered into an agreement in principle with a group representing holders of a majority of its 8.15% debentures.

According to the release, SR Telecom will exchange the outstanding C$71 million principal amount of its 8.15% debentures and C$2.9 million in accrued interest into 47.27 million common shares and C$63.9 million of new 10% convertible redeemable secured debentures due 2010.

Each C$1,000 in principal amount of new convertible debentures will be convertible into 4,727 common shares, representing a conversion price at closing of C$0.21 per common share.

The restricted group of debenture holders has also agreed to provide a five-year C$50 million secured credit facility to the corporation of which C$20 million will be available as soon as loan documentation and registrations are in place, with the balance to be available over the next three quarters.

Based on the current agreement in principle, the financial terms include a 2% up-front facility fee based on the full C$50 million facility amount and interest paid partly in cash at three-month Canadian dollar Libor plus 385 basis points with a floor of 6.5% and partly paid in kind at a rate of three-month Canadian dollar Libor plus 485 basis points with a floor of 7.5%.

In addition the facility includes a payout fee of 5% based on the C$50 million facility amount or 2% of distributable value at maturity.

The debenture exchange and the credit facility are subject to numerous conditions, including definitive documentation satisfactory to the credit facility lenders, the approval of the holders of at least 66 2/3 % of the outstanding debentures and regulatory approval.

Holders of about 75% of the debentures have indicated their support for the exchange.

Additionally, the recapitalization requires that the lenders to the corporation's Chilean subsidiary CTR restructure CTR's outstanding debt and amortization schedule and provide an extended waiver of at least three years.

The corporation is free to accept an alternative transaction, according to the release, however, if the corporation accepts an alternative transaction after the later of two weeks from Monday or the date the credit facility becomes binding, the acceptance would result in the payment of C$1 million to the lenders.

The maximum number of common shares that may be issued is 302,001,106.

In addition, the corporation said in the release that it intends to file a preliminary prospectus for a rights offering to its shareholders.

SR Telecom will offer to shareholders the right to subscribe to up to C$40 million of new common shares at a price to be determined, but no less than C$0.254 per share.

The first C$25 million raised under the offering will be used for working capital and general corporate purposes. Any remaining balance will be applied 50% to working capital and general corporate purposes and 50% to a pro rata redemption of the new convertible debentures at 95% of their face value.

SR Telecom also announced the appointment of William Aziz, managing partner of Blue Tree Advisors, as chief restructuring officer.

Montreal-based SR Telecom designs, manufactures and deploys broadband fixed wireless access solutions.

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