Helionetics Files for Protection Under Chapter 11

Helionetics Inc., the controversial Irvine defense contractor, Thursday filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code after failing to negotiate new repayment terms for an overdue $4.5-million debt.

In its filing, the company listed assets of $33 million and liabilities of $21.5 million, including a secured $11.5-million note to the Bank of America and unsecured trade debts of about $5 million. The filing was made in U.S. District Court in Santa Ana.

Despite the preponderance of assets, Helionetics lost more than $23 million during the past 18 months and was unable to meet the March 31 repayment deadline on a $4.5-million loan from Downey Savings & Loan Assn. of Costa Mesa.

Last week, the association threatened to foreclose on the note and to conduct a sale of Helionetics’ assets on the Orange County Courthouse steps Thursday morning. The foreclosure sale was averted by the filing.

The filing gives Helionetics a chance to restructure payments on overdue debts and to line up new, outside investors, President Michael Mann said.

Company officials said they expected to continue their search for a joint venture partner, a merger partner or a corporate buyer during the course of the bankruptcy proceedings.

The bankruptcy action does not affect the company’s five subsidiaries. They are HLX Laser Inc., Marinco Computers and Squire-Whitehouse of San Diego, HLX Electro Optical of Albuquerque and Vard Newport Inc. of Costa Mesa, which has been in a Chapter 11 bankruptcy action of its own since 1983.

The request for court protection, authorized two weeks ago by the Helionetics board at a special meeting, comes after nearly 18 months of financial wrangling and deal-making aimed at avoiding bankruptcy.