U.S. Courts Approve SGI's Bankruptcy Reorganization Plan

Published: September 19, 2006

by Timothy Prickett Morgan

Server maker Silicon Graphics said today that the U.S. courts that are handling its bankruptcy proceedings have approved the company's plan of organization. By accepting the plan, the courts have given SGI the green light to pay off creditors and stabilize itself so it can eventually emerge from bankruptcy.

SGI filed for bankruptcy protection back in May after years of rocky financials. The company's stock has not been trading on the New York Stock Exchange, where it went public many years ago, since November 2005. In May, SGI filed for bankruptcy protection from creditors--which is called chapter 11 protection--in U.S. Bankruptcy Court for the Southern District of New York. On Tuesday, Judge Burton Lifland ruled that SGI had met all of the necessary requirements to implement the plan of reorganization that had been filed with the court.

"This is a great day for SGI," said Dennis McKenna, the SGI chairman and chief executive officer, in a statement. McKenna took over those posts from Bob Bishop when the bankruptcy was announced in May. "We have accomplished so much in just five months, reaching our confirmation on the fast track that we expected," he continued. "As we emerge, the recapitalization of the company will be complete. We have eliminated the legacy debt, improved our liquidity and stabilized the business. We have also taken out significant costs--$150 million on an annualized basis."

In May, McKenna said that the company had made immediate cuts that removed $100 million in annual costs from the SGI books, and that he was working to squeeze another $50 million in costs from the company.

SGI also announced today it had acquired an $85 million term loan from Morgan Stanley Senior Funding and a $30 million line of credit from General Electric Capital; these funds will be used to pay off its debtor-in-possession financing, pay off other creditors according to the plan, and provide working capital for SGI's operations going forward.

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