Mercury Finance Announces Restructuring Agreement
15 May 1998
Mercury Finance Announces Restructuring Agreement; Reports First Quarter Results
CHICAGO, May 15 -- Mercury Finance Company today
announced that it has entered into an agreement with substantially all of its
senior lenders and with its subordinated debt holder providing for the
financial restructuring and recapitalization of the company. The agreement
contemplates that the restructuring will be implemented under a prestructured
plan of reorganization to be filed in the federal bankruptcy court within the
next 60 days.
"By significantly reducing the debt of the company, the contemplated
restructuring will provide Mercury Finance with a sound financial platform
from which to operate its business and return to profitability," said William
A. Brandt, Jr., president and chief executive officer of Mercury. "The
restructuring is also intended to relieve the company of the burdens of the
securities lawsuits facing it. The present debt structure and the ongoing
securities litigation have placed severe burdens on the company's ability to
operate successfully. Shareholders also will have an opportunity to
participate under the restructuring by being granted warrants to acquire a
limited equity interest in the reorganized Mercury. The warrants will
initially be out of the money."
The following paragraphs contain a summary of certain terms of the
company's agreement with its lenders. The complete agreement is being filed
today on Form 8-K with the Securities and Exchange Commission.
Summary of Terms
The company intends within the next 60 days to file for relief under
chapter 11 of the bankruptcy code for the purpose of confirming and
implementing today's agreement. At the same time, the company will file a
plan of reorganization with the bankruptcy court.
The company conducts its business operations through wholly owned
subsidiaries. None of the company's operating subsidiaries will be included
in the chapter 11 case to be filed by the parent holding company. As a
result, all trade debt and dealer contracts will remain unimpaired and will
continue to be paid in the ordinary course without interruption. The company
and its subsidiaries will continue to be vigorous and active participants in
the sub-prime lending marketplace. The agreement contemplates that the
company's operations at all levels will remain unaffected by the
implementation of this restructuring agreement.
If the plan is approved by the court, the company's creditors and interest
holders will receive the following:
-- The company's senior lenders will receive new senior secured notes
equal to 75 percent of the face value of their then current claims.
The senior lenders will also receive all the initial equity in the
reorganized company.
-- The holders of the subordinated notes will receive $22.5 million in
new junior unsecured subordinated notes.
-- The shareholders and the securities class action claimants, as a
combined group, will receive three series of warrants, each series
exercisable for five percent of the common stock of the restructured
company, with expiration dates of three, four and five years,
respectively, from approval of the plan. The exercise prices will be
set at increasing levels. The first series will contain an exercise
price reflective of a market price for the common stock which results
in the senior lenders having received total value from both common
stock and senior secured notes equal to 100 percent of their claims
on the effective date of the plan. The second and the third series
will contain exercise prices reflective of a market price for the
common stock which translates into a 10 percent and 20 percent
premium, respectively, of the total amount of such claims.
Consequently, it is anticipated that the exercise prices of the
warrants will be significantly in excess of the initial market price
of the common stock of the restructured company.
-- All shareholders as of May 14, 1998 shall have the right to purchase
their pro rata amount of the senior lenders' debt at a price, in
cash, equal to 98.5 percent of the senior lenders' claims, subject to
specific provisions detailed in the restructuring agreement.
All parties will retain their rights to pursue direct claims against third
parties other than the company and certain of its officers and directors.
The company will continue in its search for a permanent CEO.
The new board of directors will be nominated by the steering committee of
the senior lenders.
Timing
The company presently intends to file its chapter 11 petition and
prestructured plan of reorganization within 60 days and to seek approval of
its disclosure statement and confirmation of its plan shortly thereafter.
In connection with the restructuring agreement, the company and its
lenders agreed to extend the existing forbearance agreement to July 15, 1998.
Under the extended forbearance agreement, the company will continue to keep
interest payments current and will make periodic payments to reduce the
principal of the outstanding debt as cash flow permits. In addition, the
company will pay a forbearance fee of approximately $16 million to those
senior lenders who have executed the amended forbearance agreement. In
return, the lenders have agreed not to take action against the company while
the forbearance agreement is in effect, subject to the terms thereof.
The above description constitutes only a summary of certain provisions
contained in the agreement with the company's lenders and is not complete.
Readers are urged to review the full text of the agreement, which is being
filed with the Securities and Exchange Commission under Form 8-K.
First Quarter Financial Results
Mercury today reported a net loss of $1.5 million or $0.01 per share for
the first quarter of 1998, ended March 31.
The first quarter 1998 loss compares to a loss of $33.2 million or
$0.19 per share in the 1997 first quarter, which included a charge of
$29.5 million or $0.17 per share from the loss on the sale of the Lyndon
Insurance subsidiaries.
Results from operations improved to a profit of $812,000 in the first
quarter of 1998 from a loss of $676,000 in 1997. Operating results in 1997
included operating profits from the Lyndon Insurance Group, which was sold on
June 3, 1997.
According to company sources, the reason for the improvement in results
for the first quarter of 1998 is the result of a significantly lower provision
for finance credit losses, which more than offset the decline in finance
charge income. The 1998 provision for finance credit losses benefited from a
decrease in the size of the portfolio as well as an improvement in its
relative delinquency.
Management believes that the change in the relative delinquency of the
portfolio is an indication of improvement in its credit quality. Under the
company's methodology of providing for finance credit losses, a change in the
expected future performance of the portfolio is recognized on a current basis.
Accordingly, the significant first quarter reduction in the finance credit
loss provision is expected to be a nonrecurring event. Future quarterly
credit loss provisions are expected to be significantly higher.
Finance charge income declined due to a decrease in the size of the
portfolio. This decline is expected to continue through at least the second
quarter of 1998 due to a lower level of new volume.
The company continues to make periodic principal payments to its senior
lenders under the terms of the amended forbearance agreement currently in
effect. During the first quarter of 1998, the company paid principal of
approximately $100 million, reducing debt from $851.7 million at
December 31, 1997, to $752.7 million at March 31, 1998.
"SAFE HARBOR" Statement Under the Securities Litigation Reform Act of
1995: This news release contains certain forward-looking statements pertaining
to the outcome of the company's agreement with certain lenders, the expected
terms of securities of the restructured company, expected operating results,
loss provisions, and other matters. These statements are subject to
uncertainties and other factors. Should one or more of these uncertainties or
other factors materialize, or should underlying assumptions prove incorrect,
actual events or results may vary materially from those anticipated. Such
uncertainties and other factors include the outcome of negotiations with the
company's lenders with respect to the plan of reorganization and other
documents related thereto, approval by the Bankruptcy Court, objections of
third parties, as well as the company's ability to acquire finance receivables
on terms it deems acceptable, changes in the quality of finance receivables,
trends in the automobile and finance industries, and general economic
conditions. The company undertakes no obligation to update any such factor or
to publicly announce the results of any revisions to any forward-looking
statements contained herein to reflect future events or developments.
MERCURY FINANCE COMPANY
Condensed Consolidated Statement of Income
(in thousands)
For Three Months ended March 31,
1998 1997
(unaudited) (unaudited)
Finance charges, fees and
other interest 51,141 66,780
Interest expense (18,597) (20,716)
Net interest income 32,544 46,064
Provision for finance credit losses (12,959) (30,462)
Net interest income after provision for
finance credit losses 19,585 15,602
Other operating income 3,926 26,723
Other operating expenses (22,699) (43,001)
Operating income (loss) 812 (676)
Non-operating income 1,965 --
Loss on sale of Lyndon -- (29,528)
Non-operating expenses (4,255) (5,129)
Income (loss) before income taxes (1,478) (35,333)
Applicable income taxes (benefit) 0 (2,165)
Net income (loss) (1,478) (33,168)
Net income (loss) per share ($0.01) ($0.19)
Average shares outstanding 172,498 172,465
Condensed Consolidated Balance Sheets
(in thousands)
3/31/98 3/31/97 12/31/97
(unaudited) (unaudited)
Assets
Cash and investments 65,296 247,211 53,896
Finance receivable 860,585 1,126,119 971,377
Less: allowance for
credit losses (88,191) (111,584) (102,204)
Less: nonrefundable
dealer reserves (43,667) (80,677) (52,731)
Finance receivables, net 728,727 933,858 816,442
Other assets 78,386 314,566 109,066
Total Assets 872,409 1,495,635 979,404
Liabilities and Shareholders' Equity
Senior debt, commercial paper
and notes 366,980 503,619 416,731
Senior debt, term notes 363,265 488,625 412,514
Subordinated debt 22,500 22,500 22,500
Total debt 752,745 1,014,744 851,745
Accounts payable and other
liabilities 38,442 357,783 44,959
Total Liabilities 791,187 1,372,527 896,704
Shareholders' Equity 81,222 123,108 82,700
Total Liabilities
and Shareholders' Equity 872,409 1,495,635 979,404
SOURCE Mercury Finance Company