Montreal-based toy maker Mega Brands Inc. has struck a deal to receive an injection of needed financing from Toronto-based insurer Fairfax Financial Holdings Ltd.
The deal, which is expected to close later this month, involves a $75-million private placement of unsecured convertible debentures that mature Aug. 31, 2013.
Fairfax will invest $64-million, and Victor J. Bertrand Sr., the company's founder and chairman, will invest $7-million.
Fairfax's investment in the manufacturer resembles a deal the insurer did in March to refinance struggling newsprint giant AbitibiBowater Inc., which had been facing an imminent deadline on some of its debt. Fairfax agreed to buy $350-million of five-year convertible debentures in that deal, and was able to appoint two directors to AbitibiBowater's board.
The Mega Brands deal will leave Fairfax holding 35.4 per cent of that company, if it fully converts its debentures, and the insurer will also be entitled to nominate one person to the toy maker's board.
If Mr. Bertrand converts all of his debentures, he will bring his holdings in the firm up to about 11 per cent.
He and Fairfax have entered into a standstill deal under which Mr. Bertrand has agreed not to transfer any common shares of the company until Fairfax owns less than 12 per cent.