MEGA Brands Seeks U.S. Bankruptcy Court Protection

According to Reuters, MEGA Brands has filed a Chapter 15 proceeding in a U.S. bankruptcy court in Delaware, clearing the way for a key recapitalization vote next month. The Montreal-based company said on Friday that it had started proceedings in Canada on February 12 to implement a restructuring that would cut its debt by about $290 million and annual interest expenses by about $30 million.

In its U.S. petition late on Thursday, MEGA Brands listed both assets and debt in the range of $100 million to $500 million. Non-U.S. companies use Chapter 15 to block creditors that want to file lawsuits or tie up assets in the United States. The restructuring deal, announced in January, includes raising C$100 million ($95.1 million) through a stock sale and $121 million in a private placement.

MEGA is still recovering from the recall of its Magnetix toys, which began in 2006 and was expanded in 2007. One child died and 27 were seriously injured after swallowing small, powerful magnets that came loose from the toys, which were acquired as part of MEGA’s takeover of U.S.-based Rose Art. In March 2008, MEGA Brands announced two separate recalls after reports of magnets coming loose from several toys manufactured in China. The company downsized operations at the former Rose Art plant in China and outsourced production. Last year, lenders agreed to waive some conditions on MEGA’s credit facilities maturing in 2012. They also relaxed some covenants pertaining to minimum levels of earnings before interest, taxes, depreciation, and amortization.

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