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Image Defers $4M Bond Payment

31 Jul, 2009 By: Erik Gruenwedel

Image Entertainment Inc. July 30 entered into a second amendment and exchange agreement with the holder of its 7.975% senior convertible note to defer a $4 principal payment due July 30 to Oct. 30.

The amendment provides that the $4 million payment to Wachovia Capital Finance Corp. can be further delayed until Nov. 30 provided Chatsworth, Calif.-based Image enters into an acquisition agreement with a bona fide third-party purchaser that results in a change of control of the company.

Failure to amend the note could have resulted in Wachovia demanding redemption of the original $13 million note at a price equal to 120% of the sum, including interest at the default rate of 12% and penalties.

A key benefit to raising funds through convertible bonds is a reduced cash interest payment. However, in exchange for reduced interest payments, the value of shareholders' equity in the company is reduced due to the stock dilution expected when bondholders convert their bonds into new shares.

The new note eliminates the previous provisions while increasing the principal amount to $15 million with an increased interest rate to 8.875%. It also allows Image and its financial advisor Houlihan Lokey Howard & Zukin Capital to continue to evaluate alternatives, including potential financing or sale of the company.

Image has endured two failed third-party merger attempts over the past three years.

“The extension is an important step in our ongoing process,” said Image president Jeffrey Framer, in a statement. “While it is not possible to predict the future … Wachovia’s consent to the amendment will serve to clear a path for us to evaluate any and all strategic alternatives.

Image reported a fourth quarter fiscal year 2009 (ended March 31) net loss of $3.3 million on revenue of $26.6 million.

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