Local firms help StreamLogic get out of hot water with bondholders.

Riding herd over a complicated de-leveraging at Chatsworth-based StreamLogic Inc. last week were Tom Stromberg, a lawyer with downtown's Heller, Ehrman White & McAuliffe, and Skip Victor of Westside finance shop Chanin & Co.

StreamLogic is the former Micropolis Corp., which was not a tiny city as the name implies, but a Nasdaq-traded stock.

As Micropolis, the company manufactured computer hard disc drives, computer mass data storage devices, and video servers (video servers give "movies on demand" to hotel room guests and others).

But in April 1996, Singapore-based Singapore Technologies Inc. bought the hard disc drive division, and the Micropolis name, for $54 million.

The remaining businesses, re-named StreamLogic, were still encumbered with $75 million of convertible bonds, and the company was in danger of slipping below Nasdaq's minimum net capital requirements for listing on the National Market System. The company was losing money, and the stock was falling.

Being de-listed from Nasdaq would have hurt stockholders because such an action would have seriously reduced the shares' liquidity, said Stromberg.

The company wanted to convert the debt into equity, both to retain its Nasdaq listing (the conversion would increase net capital of the company) and, of course, to de-leverage.

Boston-based Loomis Sayles & Co. Inc. represented the bondholders.

They turned to Stromberg for legal advice, and to Victor at Chanin for financial acumen on the restructuring.

Victor hatched this deal: In exchange for handing over their IOUs, the convertible bondholders will get $8.4 million in cash, $8.0 million in notes, and a package of stock and warrants comprising about 47 percent of common.

"We did this deal without going into bankruptcy, and it will give StreamLogic a second chance," said Victor. "This was a company that could no longer handle the debt."

For the quarter ended Sept. 27, StreamLogic posted a net loss of $9.2 million on revenues of $12.9 million, compared with a net loss of $17.5 million on revenues of $58.8 million in the year-earlier period. Obviously, the cash wasn't there to pay down debt.

Many growth companies issue convertible debt in their secondary capital-raising stages, noted Victor. But when growth doesn't materialize, it can become difficult to service the debt.

The original expectation, in many growth companies, is that sales, profits and stock prices will surge, enticing convertible bondholders to convert into equity. In that happy scenario, interest payments vanish, as does the debt.

But when a growth company doesn't grow, the plan falls apart, noted Victor. The convertible bondholders don't convert, and the interest payments can become onerous, especially if the growth company has problems posting black ink on operations.

"Then you have to go in and do a restructuring," Victor said. "Or go to bankruptcy court."

By the way, lawyer Stromberg figures his next batch of restructuring assignments will come from initial public offerings that have gone south.

"There are a lot of companies going public now too soon," he said. "When the market goes down, their stock is going to go down, and they are going to find themselves cut off from public sources of capital."

Unable to raise funds, but facing bills, such companies will need private money to survive, predicts Stromberg. "Then I'll have to structure the deals to help these companies raise funds privately."