SGI Files for Bankruptcy

By DE Editors

Silicon Graphics(SGI; Mountain View, CA) announced yesterday it had filed forbankruptcy protection in an effort to cut $250 million of debt whilegiving big-note holders a majority stake in the business. SGI’snon-U.S. subsidiaries were not included in the filing.

According to a press release on the proceeding, the plan is to simplifySGI’s capital structure and emerge from Chapter 11 within six months.Part of the plan, which has yet to be approved by the bankruptcy court,has major holders of SGI’s Senior Secured notes loaning the company $70million to be combined with cash on hand to help pay down existingdebt. Current shares of common stock will be cancelled and equityholders of shares will get nothing. Senior Secured bondholders,however, will probably be issued new common stock and have “theopportunity to purchase $50 million of additional new equity…. It iscontemplated that the $50 million of new capital will be used to reducedebt and further enhance the company’s liquidity.”

Published reports say SGI listed $397 million in assets and $650 million of debt in court papers.

“We want to assure our customers, our employees, and our communitiesthat SGI is operating business as usual,” said recently appointedChairman and CEO Dennis P. McKenna in an SGI statement. “Our customerscan continue to rely on SGI for its mission-critical products,services, and support.”

The company says the reorganization should not disrupt day-to-dayoperations as the company works on regaining market share. In its pressrelease, SGI says that over the last 100 days under its new managementteam it has closed on some significant sales orders reflectingcontinued customer confidence; completed a program that has resulted in$100 million in savings with an additional $50 million in savingsunderway; identified “additional paths” to streamline operating andadministrative costs; improved the efficiency of its manufacturingoperations; and implemented a plan to reposition its product and marketfocus.

SGI, which has 1,800 employees, must now convince customers it willcontinue to offer the high-end computing systems and graphicscapabilities they have come to be associated with while generating cashflow. No layoffs were part of the bankruptcy filing.

“We regret the effect that this will have on SGI’s shareholders andother unsecured creditors.” McKenna concluded. “SGI plays a criticalrole in the world’s infrastructure. This needs to be preserved.”

For more information, visit sgi.com.

Sources: Information gleaned from the company’s website and collected from other sources.