Mega Brands' C$75 million issue to improve finances

TORONTO (Reuters) - Canadian toy maker Mega Brands Inc (MB.TO: Quote) said on Monday it will issue C$75 million ($70 million) of convertible debentures to various investors, including insurance holding company Fairfax Financial Holdings Ltd (FFH.TO: Quote).

In a statement, Montreal-based Mega Brands said a majority of its directors believed the corporation was "in serious financial difficulty" due to inadequate liquidity and that the offering would "considerably improve" its financial situation.

Fairfax has agreed to buy C$64 million of the senior unsecured convertible debentures, which will pay interest of 8 percent and mature on August 31, 2013. They are convertible to Mega Brands common shares at any time before maturity at a conversion price of C$3.19 a share.

Fairfax, which said it acquired the debentures for investment purposes, will be entitled to nominate one director to the Mega Brands board.

Mega Brands stock was down 2.7 percent in afternoon trading at C$2.91 on the Toronto Stock Exchange. It has lost more than 84 percent of its value over the past year.

Assuming full conversion, Fairfax would hold 20.06 million shares, or 35.4 percent of Mega Brands' outstanding shares.

Other investors include Mega Brands founder and chairman, Victor Bertrand.

Mega Brands said the financing would help it implement its business plan. The company has been hurt in recent quarters by recalls of its magnet-based toys, and plans to launch a new version of the toys with embedded magnets and parts that it says cannot be swallowed.

Mega Brands is due to report second-quarter results later this week.