NexInnovations, which has recently sought protection from its creditors, is more than $72 million in debt and the company has received two acquisition offers, according to Ontario court documents obtained Monday by ITBusiness.ca.
In an affidavit, NexInnovations president and CEO Hubert Kelly said the application under the Companies’ Creditors Arrangement Act (CCAA) was triggered when Wachovia Capital Finance Corporation (Canada) declared that NexInnovations was in default under its lending agreements as a result of a failure to meet the minimum EBITDA financial covenant in January of this year. NexInnovations, one of Canada’s largest resellers, went public with its financial difficulties late last week.
Wachovia, NexInnovations’ bank, has taken no steps to enforce its security and maintains it will work with the solution provider during this restructuring phase.
From January onwards Kelly said the company explored and exhausted many options. Two of those options were to seek an acquisition partner, according to the court documents. NexInnovations looked at mergers and acquisitions as early as February. A total of 51 parties were contacted as potential purchasers. Of those 51, two parties made preliminary non-binding letter of intent offers.
Given the state of NexInnovations’ financial situation both offers were unable to advance to the transactional stage, the documents say.
Kelly’s affidavit indicated that if NexInnovations is allowed to implement the restructuring plan that a significant portion of its existing 1,126 workforce will remain employed.
Rick Reid, president of Tech Data Canada, the third largest secured creditor, confirmed to ITBusiness.ca that NexInnovations owes more than $10 million to the Mississauga, Ont.-based distributor.
Reid added that Tech Data is also committed to working with NexInnovations during this restructuring process. NexInnovations is still able to source products from Tech Data under a new strict payment procedure, Reid said.
Reid did not elaborate on how this new payment procedure would work.
“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.
NexInnovations, at one time, had extended credit at Tech Data Canada of approximately $23 million. In March of this year, Tech Data decreased that credit line to $15 million and subsequently decreased further 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. 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. at $4.6 million, Microsoft Licensing Inc. at $2.4 million, Avnet International Canada Ltd. at $1.4 million, HP Canada at $1.3 million and TekStar International Inc. at $1 million.
Reid fully expects NexInnovations to emerge from this situation. “No one in this industry wants to see NexInnovations falter,” he said.