Cervus Financial Group Inc. has filed for protection under the Companies’ Creditors Arrangement Act on Friday. The Superior Court of Justice (Ontario) granted an Initial order, which, among other things, stays all proceedings against Cervus and its wholly owned subsidiary Cervus Financial Corp., and appoints KPMG Inc. as Monitor.
The court authorized Cervus to, and it has entered into, an agreement with a wholly-owned subsidiary of Macquarie Bank Ltd. whereby Macquarie Bank will acquire the business of Cervus. The Court also authorized first priority debtor-in-possession financing for a $4 million operating facility and $5 million letter of credit facility to be provided by Macquarie Bank.
In addition to the Initial order, the Ontario Court granted a Sale Approval Process Order fixing June 15 as the date for the hearing of the motion to approve the agreement and providing for notice to the shareholders and unsecured creditors of Cervus of such motion by, among other things, issuing this press release and placing newspaper advertisements.
The agreement provides for the transfer of certain assets from the company to its wholly-owned subsidiary, Cervus Financial Corp., and then the sale of all of the shares of Cervus Financial Corp. to Macquarie Bank for aggregate cash consideration of $12.5 million, subject to certain purchase price adjustments including a reduction for all amounts owing under the DIP Financing on the closing date.
The company’s board of directors has determined that the agreement is in the best interests of the shareholders of the company. After payment of known unsecured creditor claims against the company (creditor claims against Cervus Financial Corp. continuing uncompromised), the estimated distribution to shareholders is between $0.00 and $0.10 per share. However, this amount may vary significantly due to the use of the proposed operating facility, delays in completing the transaction, resolution of creditors’ claims and the fees and costs of completing the proposed sale to Macquarie Bank and the completion of the CCAA process.
Any creditor or shareholder who wishes to be heard on the motion for the approval of the Agreement, including the vesting of all issued and outstanding shares of Cervus Financial Corp. in Macquarie Bank, should file an appearance in the CCAA proceedings with the Ontario Court before June 15, 2006. A copy of the Initial Order, Sale Approval Process Order, supporting affidavits and the monitor’s report are available on www.kpmg.ca/cervus.
To coincide with this announcement, the Toronto Stock Exchange suspended the trading of Cervus Financial Group common shares on Friday for failure to meet the continued listing requirements of the TSX.
Cervus suffered a compression of its margins as well as experienced a cash burn rate that is unsustainable without additional capital. During the period of last autumn through the winter, the entire residential mortgage industry has been adversely affected by a historically adverse “spread compression,” which is. a reduction in the profit margin on the acquisition and sale of the company’s mortgage pools. This resulted in unanticipated demands on the Company’s unrestricted cash during the past six months. Although market spreads have recently improved, the company’s financial condition has hindered its ability to take advantage of the improvement.