NexInnovations Inc. is quietly working on restructuring after being granted court-supervised protection last month from its creditors.asks for an extention.
The Mississauga, Ont.-based company, which last year had $525 million in revenue, is more than $72 million in debt.
According to an affidavit filed in court by CEO Hubert Kelly, the firm has been searching for a buyer since January and received two acquisition offers. But given the state of its finances neither offer was able to advance.
His application for creditor protection was triggered when Wachovia Capital Finance Corp. (Canada) declared that the VAR was in default under its lending agreements as a result of failing to meet a minimum financial requirment in January.
However, Wachovia has taken no steps to enforce its security and, along with IBM, is working with the solution provider in its restructuring. The affidavit says the bank has agreed to help NexInnovations with its needs of up to $7 million in financing to meet customer commitments.
Among the leading creditors are Wachovia ($17 million from a secured loan), IBM ($13 million in a secured inventory and equipment agreement) and Tech Data Canada ($10 million in a secured goods and services agreement).
According to the affidavit, the company expects a loss of $9.4 million for the fiscal year that ended May 31 on total sales and services revenues of $524 million. That follows a loss of $11 million in fiscal 2005.
From January onwards, Kelly said the company explored and exhausted many options, including seeking a buyer. A total of 51 parties were contacted as potential purchasers. Of those, two made preliminary non-binding letter of intent offers but neither deal could be consummated.
In the document Kelly said for the last four years his company’s revenues have declined by approximately 24 per cent, or $168 million. In those years it didn’t earn any net income.
In his affidavit Kelly said that if NexInnovations is allowed to implement the restructuring plan that a significant portion of its staff of 1,126 – which in the past seven months has been reduced by five per cent to save money – will remain employed.
The company has also been shedding unprofitable customers to get its balance sheet in order, Kelly said.
Rick Reid, president of Tech Data Canada, the third largest secured creditor, confirmed to CDN that NexInnovations owes more than $10 million to the Mississauga, Ont.-based distributor.
Reid added that Tech Data is also committed to working with the troubled firm during the restructuring.
NexInnovations is still able to source products from Tech Data under a new strict payment procedure, Reid said.
He did not elaborate on how this new payment procedure would work.
Credit line
“We want to be part of the cure and not the reason of its continuing trouble. We want to be part of the solution for them,” he said.
At one time the distributor had extended Nex a $23 million credit line. But by March that had been decreased to $15 million and by the time of the bankruptcy protection application to $10 million.
Reid said it is too early to tell if the NexInnovations situation will hurt Tech Data Canada in any way.
“NexInnovations has always been a good customer and we have enjoyed a long and mutually rewarding relationship,” he said.
“We will be working with them on a number of options and we clearly hope they will come out of this as a strong viable national reseller.”
According to the Kelly affidavit, NexInnovations’ five largest unsecured creditors are Cisco Systems Canada Inc. ($4.6 million), Microsoft Licensing Inc. ($2.4 million), Avnet International Canada Ltd. ($1.4 million), HP Canada ($1.3 million) and TekStar International Inc. ($1 million).
Reid fully expects the solution provider to emerge from this situation. “No one in this industry wants to see NexInnovations falter,” he said.