June 30, 2019
We wrote about Monitronics International Inc. in July 2018 in "😬Home Security Company Looks Vulnerable 😬,” noting that “home security is a tough business (short Ascent Capital Group).” And, by “tough” we meant uber-competitive and saturated. It doesn’t help when you’re levered like a boss. We recommend you read the link above to understand the challenges these businesses faced in a better way than that described in the bankruptcy papers.
That said, the debtors’ capital structure is an important element of this story; they carry:
$181.4mm ‘21 Revolving Credit Facility
$1.072b ‘22 Term Loan
$585mm ‘20 9.125% Senior Notes
Leverage + disruption = a recipe for disaster. This prepackaged bankruptcy filing is meant to address the former. Management will be on the clock to figure out the latter. A significantly deleveraged capital structure and a cash infusion will certainly help.
The debtors’ proposed prepackaged plan of reorganization will eliminate approximately $885mm of funded debt by way of equitizing the entirety of the senior notes, and reducing the revolving credit facility (by $50mm) and the amount of term loans (by $250mm). The term lenders will receive $150mm in cash (financed by a rights offering totaling $177mm) and equitize $100mm worth of their loans. The remainder of the term loan amount will be exchanged for take back paper issued by the reorganized debtors.
This is what the capital structure will look like pre and post-transaction:
The senior unsecured notes are fully exchanged for 18% of pre-diluted equity in the reorganized debtors.
The overall structure of the transaction is complex and depends upon some contingencies. This is the summary the debtors provided:
It might as well be gibberish at this point. Once we know whether Ascent toggle occurs we’ll have a better sense of who is contributing what. Moreover, once we the rights offering is consummated, the debtors’ new ownership will be more obvious.
Jurisdiction: S.D. of Texas (Judge Jones)
Capital Structure: See above.
Legal: Latham & Watkins LLP (David Hammerman, Annemarie Reilly, Jeremy Mispagel, Liza Burton, Brian Rosen, Christopher Harris, Zachary Proulx) & King & Spalding LLP (Roger Schwartz, Sarah Primrose) & (local) Hunton Andrews Kurth LLP (Timothy Davidson, Ashley Harper)
Board of Directors: Jeffery Gardner, William Niles, Marc Beilinson, Sherman Edmiston III
Financial Advisor: FTI Consulting Inc.
Investment Banker: Moelis & Company LLC
Claims Agent: Prime Clerk LLC (*click on the link above for free docket access)
Other Parties in Interest:
Ad Hoc Lender Group (Term B-2 Lenders)(Anchorage Capital Group LLC, Boston Management and Research, BlueMountain Capital Management LLC, Eaton Vance Management, FS Global Advisor LLC, Invesco Advisors Inc., KKR Credit Advisors US LLC, Monarch Alternative Capital LP)
Legal: Jones Day (Paul Green, Scott Greenberg, Michael Schneidereit, Peter Saba)
Financial Advisor: Evecore LLC
Ad Hoc Group of Noteholders
Legal: Stroock & Stroock & Lavan LLP (Kristohper Hansen, Sayan Bhattacharyya, Jason Pierce) & (local) Haynes and Boone LLP (Kelli Norfleet, Stephen Pezanosky)
Financial Advisor: Houlihan Lokey Capital Inc.
KKR Credit Advisors US LLC
Legal: Proskauer Rose LLP (Chris Theodoridis)
Administrative Agent under Pre-Petition Credit Agreement: Bank of America NA
Legal: Morgan Lewis & Bockius LLP (Amelia Joiner) & ( Local) Winstead PC (Sean Davis)
Pre-Petition Agent: Cortland Capital Markets Services LLC
Legal: Arnold & Porter Kaye Scholer LLP (Christopher Odell, Hannah Sibiski, D. Tyler Nurnberg, Sarah Gryll)
Ascent Capital Group
Legal: Baker Botts LLP