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Lenders to Acquire Stornoway

Sep 10, 2019 4:39 AM   By Rapaport News
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RAPAPORT... Stornoway Diamond Corporation’s major lenders have agreed to take over the company amid mounting debts that prompted the miner to file for protection from creditors.

The owner of the Renard mine in Quebec is seeking to restructure under the Companies’ Creditors Arrangement Act (CCAA), a program similar to Chapter 11 in the US. It allows businesses in financial distress to rearrange their affairs and avoid bankruptcy.

The company’s secured creditors, which include Diaquem and Osisko Gold Royalties, will acquire the miner’s assets and debts, including Renard, and will offer a CAD 20 million ($15.2 million) credit facility to maintain operations at the deposit. Stornoway will continue to manage the mine, and expects to meet its financial obligations to employees, suppliers and customers for the time being, it said Monday.

The miner’s net loss deepened to CAD 346.3 million ($259.9 million) in the second quarter, compared with a loss of CAD 35.9 million ($26.9 million) during the same period last year. It made an unsuccessful attempt to find a suitable buyer for the business earlier this year, and therefore defaulted on a CAD 11.7 million ($8.8 million) bridge loan.

“The continued downward pressure on the market price for rough diamonds, as well as a variety of other factors and circumstances, have contributed to the corporation’s inability to generate positive free cash flow in 2019,” Stornoway explained. The company filed the petition to the Superior Court of Quebec on Monday, with the court granting the CCAA order later that day.

Stornoway has consistently failed to repay debts because of the lack of liquidity, the company added. It has halted trading in its shares on the Toronto Stock Exchange, and foresees it will be delisted soon, with the equity likely to hold no recoverable value, it noted. Deloitte Restructuring will oversee the CCAA.

Image: Rough diamonds. (Stornoway Diamond Corporation)
Tags: CCAA, Companies’ Creditors Arrangement Act, deloitte, Diaquem, Osisko Gold Royalties, quebec, Rapaport News, renard, restructuring, stornoway, Superior Court of Quebec
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