Altegrity files for Chapter 11 to implement agreed restructuring plan

New York, Feb. 9 – Altegrity, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Sunday in order to implement a previously announced restructuring plan.

The agreement is supported by holders of more than 75% of the company’s first-lien secured debt and by holders of 95% of its second- and third-lien secured debt, according to a news release.

Altegrity said that it intends to create a “sustainable capital structure” by restructuring through Chapter 11.

Financing

The company has $90 million of debtor-in-possession financing that is being provided by holders of some of the second- and third-lien notes, including Third Avenue Management, Litespeed Management LLC and Mudrick Capital Management LP. Cantor Fitzgerald Securities is administrative and collateral agent.

Altegrity said capital from the DIP facility will help to fund its operations and support its businesses throughout the financial restructuring process.

The company said in court documents that the amounts borrowed under the DIP facility will be repaid with a new second-lien debt instrument with an interest rate of 13½% paid-in-kind interest, convertible to 11½% cash-pay interest once the debtors’ total leverage ratio reaches 5 times.

The DIP loan will mature on the earliest of 180 days from the bankruptcy filing date, 45 days after the interim order if the final order has not been entered, the plan effective date, the dismissal or conversion of the Chapter 11 cases, the sale of all or substantially all of Altegrity’s assets and the appointment of a trustee or receiver.

The company will request interim access to $22.5 million of the DIP financing at a hearing scheduled for Feb. 10. Up to $45 million will be available upon entry of the final order, with the rest to be available on the plan effective date.

Restructuring terms

As previously announced, under the terms of the proposed restructuring, the second- and third-lien noteholders will convert their debt into equity, becoming the new majority owners of the company.

The first-lien debt will be amended to allow for the restructuring but will remain in place.

Altegrity will use $110 million of the $150 million proceeds from the recently completed sales of its Factual Data business and the Global Security and Solutions division of USIS to pay down first-lien debt.

The overall restructuring and paydown will reduce the company’s borrowings by $700 million, or 40%.

Operations at the company’s HireRight and Kroll businesses will continue without interruption during the bankruptcy process, Altegrity said.

The company said it will try to emerge from bankruptcy within 150 days.

Creditor treatment

Treatment of creditors will include the following:

• All first-lien credit facility and first-lien notes claims will be reinstated after par offers to pay down on account of $110 million from sale proceeds;

• Holders of second-lien notes will receive their share of 98% of the new common stock of the reorganized Altegrity debtors;

• Holders of third-lien notes will receive their share of 2% of the new common stock;

• Holders of general unsecured claims against all debtors other than those filing a plan of liquidation will receive a share of any unencumbered assets, provided that the holders of second-lien notes and third-lien notes will waive any recovery on account of their unsecured deficiency claims if the class of general unsecured creditors votes in favor of the plan; and

• Holders of all other unsecured claims against the liquidating debtors will receive no distribution.

Debt details

Altegrity listed more than $1 billion of both assets and liabilities in its Chapter 11 petition. As of June 30, 2014, the company had $1.7 billion in assets and $2.1 billion in debt on a consolidated basis, according to court documents.

Wilmington Trust, NA as trustee for the company’s 12% senior notes is the largest unsecured creditor with a claim for $30.16 million. Wilmington Trust is also the second largest unsecured creditor with an $11.61 million claim as trustee for the company’s 11¾% senior subordinated notes. And Wilmington is the third largest unsecured creditor with a claim of $11.21 million in its role as trustee for Altegrity’s 10½% senior notes.

Other unsecured creditors with claims of more than $1 million are CFIG Ocean Co-Invest SPV, LLC with a claim for $4.18 million of unsecured debt, Teachers Insurance and Annuity Association of America with a claim for $3.82 million of unsecured debt, Blanca Watkins and Spencer Hoyt individually and on behalf of other similarly situated individuals and the general public with a litigation claim of $1.59 million and Microsoft Corp. with a claim of $1.41 million for a promissory note. Watkins and Hoyt are being represented by the law offices of Devin H. Fok of Alhambra, Calif.

Kroll Inc. holds all the company’s equity.

Debevoise & Plimpton LLP is the company’s legal adviser, AlixPartners LLP is restructuring adviser and Evercore LLC is financial adviser.

Paul, Weiss, Rifkind, Wharton & Garrison, LLP and Houlihan Lokey are advising the ad hoc group of unaffiliated holders of second- and third-lien debt. Kirkland & Ellis LLP and Moelis & Co. LLC are advising the ad hoc group of unaffiliated holders of first-lien debt.

Altegrity is a Falls Church, Va.-based provider of employment background screening and eligibility solutions and provider of risk and information management services and solutions. The Chapter 11 case number is 15-10226.

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