Integrated Electrical files pre-packaged Chapter 11; noteholders to recover 82% of new stock

By Caroline Salls

Pittsburgh, Feb. 14 - Integrated Electrical Services, Inc. made a pre-packaged Chapter 11 bankruptcy filing Tuesday in the U.S. Bankruptcy Court for the Northern District of Texas under an agreement with holders of about 61% of the company's $173 million of 9 3/8% senior subordinated notes due 2009 to support a consensual financial restructuring.

Based on the agreement, the company said it believes it will ultimately receive the support of the required noteholders to implement the restructuring.

Integrated Electrical said it expects to continue normal operations throughout the restructuring process.

"After working with several of our creditor groups over the last several months, we are pleased to move to the next stage of our restructuring," chairman, president and chief executive officer Byron Snyder said in the release.

DIP terms

Integrated Electrical is also seeking court approval for $80 million revolving debtor-in-possession financing from Bank of America.

The DIP will include a $72 million sub-limit for letters of credit.

Proceeds will be used to supplement the company's existing liquidity and allow Integrated Electrical to meet its obligations related to the operation of its businesses, fulfill its payroll obligations and pay vendors for goods and services.

There can be no more than $22 million of letters of credit outstanding at any time.

The DIP will have a term of the earliest of 12 months; 45 days after the Chapter 11 filing if a final order has not been entered by the court; the effective date of an approved plan of reorganization or termination of the DIP agreement.

Interest will be Libor plus 350 basis points.

Integrated Electrical will pay a $1 million closing fee.

The company has also reached an agreement with its primary surety bond provider, Federal Insurance Co., to obtain additional surety bonding during the Chapter 11 cases.

According to court documents, Integrated Electrical has $400.83 million in assets and $385.54 million in debt.

Its largest unsecured creditors include:

• U.S. Bank of Hartford, with a $172.9 million 9 3/8% notes indenture claim;

• Bank of New York, with a $50 million 6.5% convertible notes indenture claim;

• Graybar Electric Co. of Clayton, Mo., with a $3.9 million trade debt claim;

• Rexel, Inc. of Addison, Texas, with a $1.9 million trade debt claim;

• General Electric Supply Co. of Smyma, Ga., with a $1.9 million trade debt claim; and

• Crawford Electric Supply - Houston, with a $1.1 million trade debt claim.

Plan of reorganization details

Under the proposed plan of reorganization:

• Holders of the company's senior convertible notes will have the securities refinanced from the proceeds of a term exit facility;

• Holders of the company's senior subordinated notes will receive 82% of the new stock of the reorganized Integrated Electrical, subject to dilution from a new employee stock option plan;

• The company's existing stockholders will receive 15% of the new stock of the reorganized company;

• The company's management and employees will receive grants of about 3% of the new stock of the reorganized Integrated Electrical in the form of restricted stock grants that will vest over time;

• All undisputed priority, credit agreement, secured, unsecured, subordinated and subsidiary debtor interests claims will either be reinstated or paid in full;

• The company's other obligations under trade credit extended to the company by its vendors and suppliers will be unimpaired and will all be paid in full; and

• All pre-bankruptcy stock options, warrants and stock rights will be canceled.

In addition, a new employee stock option plan will be adopted on the effective date that will provide for the future issuance of options that may be issued to employees to purchase up to 10% of the new stock of the reorganized Integrated Electrical.

"By allowing Integrated Electrical to exchange 100% of the senior subordinated notes for new equity, our plan will reduce the company's debt balance by about $173 million and allow Integrated Electrical to emerge as a financially stronger, more efficient company," Snyder said in the release.

Integrated Electrical also asked the court to consider several first-day motions, including permission to continue paying its employees' salaries and benefits and its vendors; to maintain its cash management systems; and to obtain DIP financing with Bank of America.

Snyder will continue as the company's chairman, president and chief executive officer until a successor is selected or as otherwise determined by the board of directors. The company's board of directors will begin a search for a successor shortly.

Donald P. Hodel resigned from the board of directors on Monday, and the board decided to remain at six members with a vacancy for his position.

In addition, Sanford R. Edlein of Glass & Associates will continue as the chief restructuring officer through the end of the bankruptcy, and the company's other senior officers have agreed to remain in place.

Gordian Group LLC is the company's financial adviser.

Unsecured creditors committee

The U.S. Trustee also appointed the official committee of unsecured creditors for the company's Chapter 11 case.

The committee includes Joe Lash of Tontine Capital Partners, LP, Greenwich, Conn.; Rob Butts of Southpoint Capital Advisors, LP, New York; and Nate Van Duzer of Fidelity Management & Research Co., Boston.

Integrated Electrical Services is a Houston-based provider of electrical services to the commercial, industrial and residential markets. Its Chapter 11 case number is 06-30602.

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