The global recession has resulted in a Dutch investment firm taking over a Delta aerospace parts maker.
Avcorp Industries Inc. (TSX:AVP) has entered into an investment agreement with Panta Holdings BV that will provide Avcorp with $7.5 million in financing.
Under the agreement, Panta will provide $5 million in exchange for 50 million Avcorp shares valued at $0.10 each and an additional $2.5 million from a three-year 8% convertible debenture.
The deal more than triples the number of outstanding Avcorp shares to 107.3 million.
Upon completion of the offering, Panta will own 61% of Avcorp's shares. If Panta were to exercise its share conversion under the convertible debenture, the firms' stake would increase to 71%.
Avcorp said it needed to proceed with the offering because of the rapid decline in demand for manufactured commercial, business and military aircraft parts from Avcorp's main customers, which include Boeing, the Cessna Aircraft Company and Bombardier Aerospace.
The rapid decline in orders forced the company to look for an immediate cash infusion to continue operating. As part of the deal, Panta will advance $1.6 million to address Avcorp's liquidity issues.
The Delta company reported a net first-quarter loss of $2 million compared with net earnings of $183,000 in the same quarter last year. Revenue fell to $22.1 million from $31.1 million.
Avcorp consumed $681,000 in cash in the quarter compared with saving up $1.5 million in 2008's first quarter. Its working capital deficit rose to $5.7 million from $2 million as a result of classifying its $4.1 million convertible debenture held by Export Development Canada (EDC) as a current portion of long-term debt.
In its first-quarter release, Avcorp announced that by March 31, the company no longer complied with covenants associated with a number of loans from creditors that include a chartered Canadian bank and EDC.
Completion of the deal is still subject to financial due diligence and approvals from third parties and the TSX.
Avcorp's share price range during the past week: between $0.17 and $0.20; 52-week high: $1.25; 52-week low: $0.16.