Debt-Ridden ATV Systems Files for Chapter 11

Saddled with debts it couldn’t refinance, ATV Systems Inc., a Santa Ana computer maker, has filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

The filing, made public Monday, lists assets of $8.6 million and liabilities of $26 million, according to Frank Gleason, executive vice president and one of the company’s three founders.

ATV is the second Orange County computer maker to file for bankruptcy this month. Earlier, Eagle Computer Inc. added its name to the growing list of victims of the continuing shakeout in the computer industry.

Although ATV had enjoyed two years of continuous profits, Gleason said the bankruptcy filing was made to satisfy potential investors who had demanded that the company clear its debts before they would pour any money into its operations.

In addition, Gleason said the filing would protect the company from potential lawsuits from customers, investors and creditors involved with ATV before the bankruptcy action.

Under a Chapter 11 reorganization, a company is given bankruptcy court protection from creditors and others while it resolves its problems and devises a new strategy--which often involves repaying creditors substantially less than they are owed.

ATV’s major secured lenders are California Federal Savings & Loan, which is owed $3.6 million, and its debenture holders, who are owed a total of $5.9 million. Unsecured creditors, including a substantial number of ATV’s suppliers, are owed a total of about $12 million. Gleason said California Federal has already agreed to forgive an unspecified portion of its note.

The bankruptcy action, filed Friday in U.S. Bankruptcy Court in Santa Ana, caps a short but tortured existence for ATV.

Founded in 1981, the company quickly became a corporate home for more than a dozen money-losing computer companies that ATV executives believed could be rescued and fashioned into a thriving electronics operation. However, in late 1983, the company became strapped for cash when its public offering raised just $2.2 million, a far cry from the $33 million that company officials expected.

By late 1984, the company had shed most of its subsidiaries, trimmed its work force by 75% and started to focus on just one business: making counter-top and accounting computers for restaurants.

Although ATV started making money, it was left with debts of more than $40 million. The company was able to repay some of the debt but was not able to achieve its goal of refinancing the remainder. A group of potential investors in 1985 agreed to lend ATV $20 million but required that the company persuade some creditors to cut their bills by 25%.

At the time, ATV executives said they believed that the creditors would accept the terms because the alternative was a bankruptcy filing. But creditors balked at the terms, and the refinancing plan fell through.

Under bankruptcy protection, however, all creditors can be forced to accept less than full payment if a majority of them accepts the plan.

Gleason admitted that some creditors “will get pennies on the dollar (and) not a big settlement.” However, he said the company may offer them some stock as well in an attempt to keep them as suppliers because they then would have a stake in ATV’s continued operation and profitability.