Western Digital to Get Relief on Long-Term Debt : Finance: The Irvine computer firm had been in technical default with 17 lenders. Meanwhile, two disappointed stockholders have filed suit.

In separate announcements, Western Digital Corp. said Tuesday that it has negotiated a new loan agreement with a group of banks and that two shareholders have filed a lawsuit alleging that the company misled investors about its prospects.

The computer parts manufacturer said it has agreed in principle to new terms on $206 million in long-term and current debt. The Irvine-based company said it would take a $16-million writeoff against earnings in the fourth quarter ended June 30 related to debt restructuring costs.

“Reaching this agreement in principle with our banks is a significant step forward for Western Digital,” chief executive Roger W. Johnson said in a statement.

For the nine months ended March 31, Western Digital lost $107.6 million on revenue of $733 million, contrasted with year-earlier earnings of $14.6 million on revenue of $779 million.

Steve DeLuca, an analyst with the investment bank Cruttenden & Co. in Irvine, welcomed the new bank agreement.

“It’s a relief,” he said. “We didn’t think it would take them this long, but this is a positive step.”

The company announced in February that it was negotiating with 17 lenders to refinance $160 million in debt, which was in technical default of its financial covenants after the company reported a large second-quarter loss.

At the time, Standard & Poor’s, a debt rating service, placed the company’s subordinated debt on its Creditwatch list for possible downgrading, and Moody’s Investors Service, another rating service, downgraded its debt rating. But the company said it expected to negotiate a lending agreement quickly.

Robert J. Blair, a company spokesman, said the credit agreement was a complex matter involving 17 banks. In hindsight, the company’s original expectation that it could settle the matter sooner was unrealistic, he said.

The two-year agreement with 14 banks led by Bank of America would consolidate $164 million in borrowings. In addition, the company would be able to borrow up to $42.5 million from Citibank, based on its accounts receivable.

In return, the banks would receive five-year warrants to buy up to 1.7 million shares of new Western Digital stock, or roughly 5% of the company, said John Markovich, vice president and treasurer.

Western Digital stock rose 14.8% to close Tuesday at $3.875, up 50 cents a share in American Stock Exchange trading.

The deal is expected to be final in 60 days. The company and lenders have yet to agree on such matters as when the company would be considered to be in technical default on the new agreement, Blair said.

According to Blair, the terms in the new loan agreement under which Western Digital would be considered in default would likely reflect the deterioration of the computer industry, the restructuring charge and other developments.

The shareholder lawsuit, filed in U.S. District Court in Santa Ana, alleges that the company and its chief executive, Johnson, violated securities law by misleading investors about its prospects between April 20, 1990, and Feb. 8, 1991.

The suit alleges that Johnson supplied misleading information or withheld from shareholders damaging information that could have influenced the company’s stock price.

During the latter half of 1990, the suit alleges, Johnson created an impression that Western Digital was continuing on a path toward “sustained” profitability, when the company was actually encountering financial problems that were deeper than a mere “seasonal” slowdown.

The suit further alleges that the company was slow to tell shareholders that it had closed the company’s manufacturing plant in Puerto Rico in October, that demand for its computer disk products had slowed and that inventory of unsold products was piling up.

Filed by shareholders Howard Lasker and John Smith, the suit seeks class-action status on behalf of company shareholders.

Western Digital said in a statement that the suit was “without merit” and that it would defend itself “vigorously.”

Kevin J. Yourman, a Los Angeles lawyer representing the shareholders, declined to comment on the case.

Western Digital is expected to announce financial results for the fourth quarter later this week.