Magellan Aerospace Corporation Announces Additional Financing



    TORONTO, Feb. 4 /CNW/ - Magellan Aerospace Corporation ("Magellan")
announced today that the independent members of its Board of Directors have
approved additional financing initiatives for Magellan consisting of a new
secured subordinated loan in the amount of $15 million (the "New Subordinated
Loan"), the extension of the maturity of the pre-existing loan from Edco
Capital Corporation of $50 million (the "Prior Subordinated Loan") to July 1,
2010, the issuance of up to $40 million principal amount of convertible
secured subordinated debentures ("Convertible Secured Subordinated
Debentures") and the continuation of one of Magellan's existing securitization
programs (the "Securitization") of up to $35 million of Canadian based
accounts receivables, declining to $20 million by April 30, 2009 and to nil by
December 31, 2009.
    The New Subordinated Loan would be from Edco Capital Corporation, a
corporation wholly-owned by N. Murray Edwards, and would bear interest at 12%
per annum, be due on July 1, 2010, and be collateralized and subordinated to
Magellan's existing bank credit facility. The New Subordinated Loan would not
be convertible, redeemable or exchangeable for common shares of Magellan. Edco
Capital Corporation has also agreed to extend the Prior Subordinated Loan,
which is due on July 1, 2009, to July 1, 2010 in consideration of a one time
fee of 1% of the principal amount of such loan and an increase in the interest
rate from 10% per annum to 12% per annum on such loan. Each of the provision
of the New Subordinated Loan, the extension of the prior Subordinated Loan,
and the closing of the Convertible Secured Subordinated Debenture offering,
described below, are conditional on the extension of Magellan's existing bank
credit facility for at least one year to May, 2010 on terms satisfactory to
the Board of Directors of Magellan on or before April 30, 2009, and there
being no material adverse change in the business, operations or capital of
Magellan prior to closing.
    As part of the financing initiatives, Mr. Edwards, directly or
indirectly, has also agreed to purchase at least $25 million principal amount
of the Convertible Secured Subordinated Debentures which would bear interest
at 10%, payable semi-annually, be convertible at a price of $1.00 per Magellan
common share and have a three year maturity. Mr. Edwards has indicated the
purchase of the Convertible Secured Subordinated Debentures would be for
investment purposes and Mr. Edwards may, directly or indirectly, acquire
additional securities of Magellan depending on market conditions. An
additional offering of up to $15 million principal amount of Convertible
Secured Subordinated Debentures would be made by way of private placement to
accredited investors with preference to existing common shareholders,
preferred shareholders and debentureholders of Magellan by subscription on or
before February 18, 2009. Mr. Edwards may, but is not obligated to, purchase
additional Convertible Secured Subordinated Debentures. Magellan would require
payment on the subscription for such Convertible Secured Subordinated
Debentures, or deposit of letters of credit assuring payment, by February 18,
2009. The closing of the Convertible Secured Subordinated Debentures is
conditional upon and will be coincidental with the date of the extension of
Magellan's existing bank credit facility for at least one year and also on the
condition that there is no material adverse change in business, operations or
capital of Magellan prior to closing.
    The use of proceeds of the sale of the Convertible Secured Subordinated
Debentures and New Subordinated Loan is to reduce the bank credit facility by
$5 million (U.S.) and $5 million (Cdn.) and for general corporate purposes and
to improve Magellan's financial position.
    Mr. Edwards is the holder directly or indirectly of 5,056,979 common
shares (approximately 28% of the issued and outstanding common shares of
Magellan), 1,005,000 preferred shares, which represents approximately 50% of
the issued and outstanding preferred shares (principal amount of $10,050,000
convertible at $15.00 per share) and $17,500,000 principal amount of
convertible debentures (representing approximately 83.5% of these convertible
debentures) convertible at $10.00 per share. If the $25 million principal
amount of new Convertible Secured Subordinated Debentures were converted, Mr.
Edwards would acquire an additional 25,000,000 common shares, bringing his
holdings to 69.6% of the issued and outstanding common shares of Magellan,
assuming the other $15 million principal amount of Convertible Secured
Subordinated Debentures were not converted. If Mr. Edwards subscribes for $40
million principal amount of Convertible Secured Subordinated Debentures and
all such Convertible Secured Subordinated Debentures were converted, Mr.
Edwards would acquire 40 million additional common shares, bringing his
holding to approximately 77% of the issued and outstanding common shares of
Magellan. If all of the proposed issue of up to $40 million of Convertible
Secured Subordinated Debentures were issued and converted, the number of new
Common Shares to be issued would represent dilution of Magellan's currently
issued and outstanding common shares by approximately 220%.
    Magellan has also entered into a letter agreement with Balinhard Capital
Corporation, a corporation wholly-owned by Larry G. Moeller, a director of
Magellan, authorizing the sale by way of securitization of up to $35 million
of Canadian based accounts receivables by Magellan to Balinhard at an
effective annualized interest rate of 7.5%. Balinhard has from time to time
provided individual securitization financing transactions in replacement of
one of Magellan's securitization programs which was discontinued in February
of 2007. The amount outstanding under the Balinhard agreements as at December
31, 2008 was approximately $39 million and is currently outstanding at
approximately $21 million. Each sale is subject to the agreement of Balinhard
and the aggregate amount available under the agreement will reduce to $20
million by April 30, 2009 and to nil by December 31, 2009. Mr. Moeller is the
holder, directly or indirectly, of approximately 246,768 (1.4%) of the common
shares of Magellan, 102,305 preferred shares (principal amount of $1,023,500
convertible at $15.00 per share) and $650,000 of convertible debentures
convertible at $10.00 per share.
    Each of the borrowing under the New Subordinated Loan, the issue of
Convertible Secured Subordinated Debentures, the extension of the Prior
Subordinated Loan by Magellan and the Securitization constitutes a related
party transaction under Multilateral Instrument 61-101 because such
transactions are with, or securities are being issued to, directly or
indirectly, N. Murray Edwards, the Chairman and a director of Magellan, in the
case of transaction other than the Securitization, and Larry G. Moeller, a
director of Magellan in the case of the Securitization. Unless an exemption is
applicable, the related party rules require a formal valuation and minority
approval in respect of a related party transaction.
    The TSX also requires shareholder approval, unless an exemption is
applicable, as a condition of acceptance of the related party transactions
since the transactions would materially affect control of Magellan, would
provide consideration to insiders in aggregate of 10% or greater of the market
capitalization of Magellan, and the common shares issuable on exercise of the
Convertible Secured Subordinated Debentures would represent greater than 25%
of the outstanding common shares of Magellan.
    Both Multilateral Instrument 61-101 and the rules of the TSX contain an
exemption from the requirement to obtain shareholder approval if a committee
of independent board members of Magellan, free from any interest in the
transactions and unrelated to the parties involved in the transactions, has
recommended the transactions, and the independent members of the board of
directors have resolved that Magellan is in serious financial difficulty, the
transactions are designed to improve Magellan's financial condition, and the
transactions are reasonable for Magellan in the circumstances.
    In December 2008, the Magellan board of directors established a committee
consisting of three independent directors. This committee has been formed to
consider the financial condition of Magellan and to consider proposals to
restructure the capital structure of Magellan through the issuance of debt or
equity, or through the sale of assets or other alternative transaction should
such transactions be required. The independent committee concluded, and the
independent members of the board of directors agreed, that Magellan is in
serious financial difficulty, the proposed transactions are designed to
improve Magellan's financial condition, and the transactions are reasonable
for Magellan in the circumstances.
    The independent committee and the independent members of the board of
directors concluded that Magellan is in serious financial difficulty because,
even though management believes that Magellan will generate sufficient cash
through operations in order to meet its obligations as they come due, if
Magellan is unable to renew or re-finance its operating bank facility and
extend the Prior Subordinated Loan, its ability to continue to finance its
operations will be uncertain. Magellan's operating credit facility of
approximately $207 million (Cdn.) is currently drawn in an amount of
approximately $198 million (Cdn.) and is due May 23, 2009 and the Prior
Subordinated Loan is due on July 1, 2009.
    Magellan has not yet engaged in any discussions with its lenders
regarding the renewal of these facilities but in light of the current credit
conditions there is no certainty that Magellan will be able to renew these
facilities. The Chairman of Magellan has guaranteed Magellan's operating
credit facility. The guarantee is secured by marketable securities deposited
with its lender by the Chairman. Magellan has been informed that due to the
unprecedented steep decline in value of such marketable securities, this
guarantee arrangement may not provide the required level of assurance to the
banks in order to extend the credit facility on acceptable terms without the
new financings. Also, Magellan has, to date, been unsuccessful in securing a
replacement for the third party securitization facility which it lost in
February, 2007; nor for the separate transactions relating to the
securitization of its accounts receivable from time to time with Balinhard
where the aggregate availability for such transactions is declining to $20
million by April 30, 2009 and to nil by December 31, 2009. The amount
currently outstanding is approximately $21 million.
    As a result of these factors and considering the current financial
environment, the Board of Directors of Magellan has determined to approve
these financing initiatives and has authorized management of Magellan to enter
into discussions with its bankers immediately after February 18, 2009.
    The above transactions are subject to regulatory approval, including the
Toronto Stock Exchange.

    Forward Looking Statements:

    This press release contains forward looking statements to provide
investors and potential investors with information about the financing
initiatives being undertaken by Magellan. Readers are cautioned that the
information may not be appropriate for other purposes.
    In regard to such forward looking statements contained in this press
release, we have made assumptions regarding, among other things, foreign
currency exchange rates that may prevail in 2009, production levels ultimately
required to meet customer delivery schedules, interest rates that may prevail
during 2009, the ability of management to achieve cash flows through working
capital reductions, and that the credit facilities of Magellan are maintained
and renewed on similar terms when they come due.
    Although Magellan believes that the estimates or expectations reflected
in the forward looking statements, and the assumptions on which they are made,
are reasonable, there can be no assurance that such estimates and expectations
will prove to be correct.
    Readers are cautioned not to place undue reliance on forward-looking
statements included in this document, as there can be no assurance that the
plans, intentions or expectations upon which the forward-looking statements
are based will occur. By their nature, forward-looking statements involve
numerous assumptions, known and unknown risks and uncertainties that
contribute to the possibility that the expectations and estimates of
management will not occur, which may cause Magellan's actual performance and
financial results in future periods to differ materially from any estimates or
projections of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties, as well as other
risks, are disclosed in Magellan's annual filings (including our Annual
Information Form) available at www.sedar.com. Readers are cautioned that this
list of risk factors should not be construed as exhaustive.
    The forward-looking statements contained in this document speak only as
of the date of this press release. Except as expressly required by applicable
securities laws, Magellan does not undertake any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The forward-looking statements
contained in this document are expressly qualified by this cautionary
statement.

    %SEDAR: 00002367E




For further information:

For further information: or to obtain a copy of the early warning report
of Mr. Edwards contact: James S. Butyniec, (905) 677-1889 ext. 233, President
and Chief Executive Officer; John B. Dekker, (905) 677-1889 ext. 224, Vice
President Finance & Corporate Secretary


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