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Elcoteq signs term sheet on equity investment, debt restructuring

Finland's Elcoteq, Europe's biggest contract electronic-parts supplier, has signed a conditional, non-binding term sheet with Platinum Equity, a Los Angeles, California-based private equity firm with the aim of restructuring Elcoteq's debt and stabilizing the company's balance sheet by providing additional equity and debt funding.

The deal would significantly strengthen Elcoteq’s financial position, the company said. Elcoteq's only large scale European production base is in Pécs, south Hungary.

As an equity investment, Platinum would subscribe new shares and warrants to be issued by Elcoteq. Elcoteq and Platinum are also negotiating further debt financing amounting to up to €80 million (HUF 21.2 billion)

On Thursday, Elcoteq informed its revolving credit facility lenders that due to its tight liquidity situation it will not be able to repay on its Thursday maturity the remaining €48.5 million (HUF 12.9 billion) outstanding under the facility.

However, the company is confident that the planned transaction with Platinum Equity will provide an acceptable solution to all involved stakeholders, Elcoteq said. Platinum Equity has also requested the revolving credit facility lenders not to accelerate the facility to secure enough time to complete the planned transactions.

Elcoteq previously announced that it expected to complete the five-year export financing revolving credit facility to be granted by Hungary's Eximbank to the company's Hungarian subsidiary by Thursday.

However, the parties have not been able to complete the export financing within the expected time frame. This would have been an essential part of the overall re-financing of Elcoteq group, which aims, among other thing, to repay the current revolving credit facility. The negotiations with Eximbank will now continue under the framework of the planned transactions with Platinum Equity, Elcoteq said.

Elcoteq had a net loss of €19.7 million (HUF 5.2 billion) in Q1 after a net profit of €40 million a year ago on net sales of €191.4 million, 13.2% less than in Q1 2010.

Last year the company booked a net profit of €15.8 million (HUF 4.2 billion) after a net loss of €109 million in 2009. Its net sales dropped to €1.1 billion from €1.5 billion in 2009.