Capital Markets

Default Notice Zooms In on Imax

A bondholder charges Imax with failing to comply with a reporting covenant.
Stephen TaubMay 11, 2007

Imax Corp. disclosed on Friday that it received a notice of default from what it identified only as “a single activist bondholder.”

The default notice concerned the contract governing the company’s issuance of $160 million of 9 5/8 percent senior notes due December 1, 2010. The bondholder charged Imax with failing to comply with the reporting covenant and the obligation to provide compliance certificates arising from the default.

In a regulatory filing, Mississauga, Ontario-based Imax also stated that on May 10 that it was served with a lawsuit filed by the “activist bondholder” in New York Supreme Court. According to Imax, the bondholder’s lawsuit asserts that Imax’s consent solicitation was invalid and ineffective and that the company remains in default under the indenture. Imax added that it “believes these claims are meritless.”

Imax noted that in March, the protesting bondholder had unsuccessfully tried to convince the trustee under the indenture to place the company in default, and unsuccessfully tried to organize opposition to the consent solicitation. The company stated that it believes that it is in compliance with the indenture.

Although Imax didn’t name the activist bondholder, the Toronto Globe and Mail reported in April that Toronto-based Catalyst Capital Group planned to vote against Imax’s request to delay filing its 2006 annual report and other financial statements.

“The opposing bondholders are most concerned that the impact of financial restatements that will be required is not yet disclosed, and will further deteriorate the credit quality of the senior notes,” Catalyst reportedly stated at the time. In addition, the consent fee offered by Imax, which amounts to 1 percent of the notes’ value, is also “insufficient,” Calalyst reportedly added.

In March, Imax had announced that it would delay filing its fiscal 2006 annual report and disclosed a restatement after identifying $2.6 million of accounting errors over six years. The following month, the company sought waivers of past defaults arising from failure to comply with its financial reporting covenant. On April 16, Imax announced that it had received consents from holders of about 60 percent of its principal amount of senior notes, and a supplemental contract between the issuer and the bondholders was executed.

Imax recently stated that it cannot predict when it will complete its accounting review or file its financials. The company also stated that it will seek permission from a Canadian court to hold its annual meeting after June 30.