May 10, 2011 / 11:56 AM / in 7 years

UPDATE 3-Arctic Glacier may issue units to meet debt obligations

* Q1 loss/unit $0.91 vs loss/unit $0.41 yr ago

* Q1 sales down to $22.3 mln

* Q1 cost of sales up 7 pct at $38.8 mln

* Finance, other costs up 73 pct at $19.3 mln

* Units down 10 percent (Adds analyst comments, background)

By Gowri Jayakumar

BANGALORE, May 10 (Reuters) - Packaged ice maker Arctic Glacier Income Fund AG_u.TO may have to issue units to debenture holders to fulfill debt obligations, as the cash-strapped company continues to struggle with antitrust lawsuits which are hampering its review of financial and strategic options.

If Arctic Glacier does not find a suitable option to refinance C$90.6 million ($94.2 million) in convertible debentures before the maturity date of July 31, the fund will issue units to debenture holders, Chief Executive Keith McMahon said on a conference call.

“They would pay off the debt coming due with shares of common stock, which they don’t want to do, because it would dilute the ownership of the company and send the stock price probably lower,” BGB Securities analyst Sam Yake told Reuters.

Arctic Glacier, whose units trade at a tenth of what they did three years ago when the U.S. government launched a probe into its pricing, began reviewing strategic and financial alternatives in September.

Units of the fund were trading down about 10 percent at C$1.47 on Tuesday on the Toronto Stock Exchange.

The company, which still has several lawsuits pending against it, said it needs to resolve remaining antitrust issues and related litigation to conclude such a review.

“The strategic alternative is basically to find an investor who will loan the money to pay off the debentures...they are trying hard to find someone. I don’t know if they can or can‘t,” Yake said.

The North American packaged ice industry has been under fire since 2007, when the government zeroed in on Reddy Ice , Arctic, and privately owned Home City Ice, for an alleged conspiracy to eliminate smaller competition and keep retail prices higher than market levels.

Arctic, which has made steady progress in settling various class actions filed against them this year, said it was still not possible to predict the timeline or final outcome of the investigations or litigation, or any potential effect they may have on the fund.

“They have done a pretty good job trying to clean things up, with the lawsuits, but then again, when they settle them, it costs a lot of money. It puts more debt on their balance sheet, and makes their life more difficult,” the analyst said.

At the end of the quarter, Arctic had about 4.5 times EBITDA just in debt. Net debt as at March 31, excluding convertible debentures, was about $192.2 million.

“Well, they’ll survive. They are not going to go bankrupt, that is for sure. But how they survive, and the structure they survive is unknown,” Yake said. ($1 = 0.962 Canadian Dollars) (Additional reporting by Abhiram Nandakumar in Bangalore; Editing by Roshni Menon and Don Sebastian)

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