Silicon Graphics files for Chapter 11

— 1:43 PM on May 8, 2006

Silicon Graphics has filed for Chapter 11 bankruptcy in a bid to shrink its debt and stay in business. SGI CEO Dennis McKenna says the filing is a "necessary and responsible step that will strengthen the company and foster a sustained turnaround at SGI." According to a report by the Wall Street Journal, the Chapter 11 reorganization will follow thusly:

Under the broad outlines of the debt-for-equity plan, holders of Silicon Graphics' 6.5% and 11.75% secured notes due 2009 will swap their claims for a 25% stake in the reorganized company. The bondholders, who are owed about $191 million, will also receive the right to buy the remaining 75% of new shares in the reorganized Silicon Graphics.

The bondholders will also provide Silicon Graphics with $70 million in debtor-in-possession, or DIP, financing and will backstop a $50 million rights offering. A group of subordinated bondholders, owed $56.8 million, will receive nothing under the proposed plan. says this reorganization will cut SGI's debt by "about $250 million," or roughly 38% of its listed $664.3 debt, and that it will allow the company to re-emerge "within six months." Two months ago, SGI fired 12% of its staff, named new executives, and announced plans to go after the corporate enterprise market. These steps were expected to cut expenses by $150 million before the end of this year, but the company's continued losses prompted the Chapter 11 move. SGI's stock, which was delisted from the New York Stock Exchange last November, sunk from around 30 cents a share on Sunday to around five cents a share today.
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