MONTREAL - Mega Brands Inc. (TSX:MB) plans to significantly reduce its debt load by having some of its investors either buy more stock or exchange their company-issued debt for shares on a cashless basis.
The Montreal-based toy and arts supply company says the principal amount of its outstanding debentures will be reduced by $62.4 million to $52.2 million under the plan announced Tuesday. The outstanding debt was $141.7 million when the debentures were issued three years ago.
The debentures pay 10 per cent in interest annually and Mega Brands expects the recapitalization will reduce its pre-tax cash interest expenses by about $6.2 million annually, or about 22 cents per share on a diluted basis.
The company says three significant shareholders — Fairfax Financial Holdings Ltd. (TSX:FFH), Victor Bertrand Sr. and Trimark Investments — have agreed to buy a total of $53.3 million in shares by exercising purchase warrants issued in 2010.
In addition, four investment firms have agreed to exchange all of their warrants for shares of Mega Brands in a cashless option.
Other warrantholders will also get the opportunity to take part in the debt-for-stock swap but retain the option to use the warrants to buy additional shares at the exercise price of $9.94 per share.
The warrants and debentures were issued in early 2010 as part of a major recapitalization of the company following several difficult years. Since then, its fortunes have improved.
Mega Brands shares closed Monday at $13.80 on the Toronto Stock Exchange.