Monitronics makes partial pre-packaged Chapter 11 bankruptcy filing

By Caroline Salls

Pittsburgh, July 1 – Monitronics International, Inc. made a partially pre-packaged Chapter 11 bankruptcy filing Sunday in the U.S. Bankruptcy Court for the Southern District of Texas.

As previously reported, Ascent Capital Group, Inc. wholly owned subsidiary Monitronics entered into a restructuring support agreement with its largest creditors that will eliminate about $885 million of debt.

The company said in Monday’s release that the proposed plan of reorganization now has the support of holders of 91% of its secured term loans and holders of 81% in amount of its senior unsecured notes.

“Today’s Chapter 11 filing puts us one step closer to achieving our financial goals and, importantly, does so in a way that ensures our continued ability to operate our business as usual and honor our financial commitments,” president and chief executive officer Jeffrey Gardner said in the release.

Under the terms of the agreement, up to about $685 million of debt will be converted to equity, including up to about $585 million of the company’s 9 1/8% senior notes due 2020 and $100 million of the company’s term loans.

The company will also receive an additional $200 million in cash from its noteholders through an equity rights offering and, subject to some conditions, from Ascent in connection with its proposed merger with Monitronics, which cash will be used in part to repay remaining term loan debt.

Following completion of the restructuring, the company is expected to have about $990 million of total debt.

Financing terms

As part of the Chapter 11 process, Monitronics has secured a commitment for $245 million of debtor-in-possession financing that will be replaced by $295 million of exit financing at the completion of the reorganization.

Encina Private Credit SPV, LLC is the administrative agent for the DIP facility.

The facility will mature in one year, and interest will accrue at Libor plus 500 basis points with a 1.5% floor.

Support agreement

The support agreement contemplates that all trade claims, whether arising prior to or after the commencement of the voluntary Chapter 11 cases, will be paid in full in the ordinary course of business and that the company will continue operating its business without disruption to its customers, vendors, partners or employees.

Concurrently with the completion of the reorganization of Monitronics, Ascent will, subject to receipt of the requisite approval of its stockholders, merge into Monitronics, and all assets of Ascent, including an anticipated $23 million in cash, will become assets of Monitronics.

Ascent’s stockholders are expected to receive up to 5.82% of the total shares of Monitronics common stock expected to be issued and outstanding immediately following completion of the reorganization and merger, but subject to dilution by certain shares issued under a management incentive plan for the company, in exchange for all then issued and outstanding shares of Ascent common stock.

However, if Ascent is expected to hold cash equal to or in excess of $20 million but less than the $23 million target cash amount as of the date of completion of the reorganization of Monitronics, the stockholders of Ascent will receive a proportionately lower percentage of shares of Monitronics common stock, and certain participants in the equity rights offering have agreed to contribute the shortfall.

If Ascent is expected to hold less than $20 million in cash as of the date of completion of the reorganization, the merger will not be consummated and certain participants in the equity rights offering have agreed to contribute the full $23 million.

If the merger is not approved within 63 days following the petition date or the merger is not completed on the effective date of the plan for any reason, the merger will not occur, and Monitronics will be restructured without the participation of Ascent, and Ascent’s equity interests in Monitronics will be canceled without Ascent recovering any property or value on account of such equity interests.

Monitronics said it will emerge from Chapter 11 in about 75 days “with what it believes is the strongest balance sheet in its industry.”

Debt details

According to court documents, Monitronics has $1 billion to $10 billion in both assets and debt.

The company’s largest unsecured creditors are indenture trustee U.S. Bank, NA of New York, with a $675.04 million senior unsecured notes claim; Alarm Com Inc. of Tysons, Va., with a $3.59 million trade claim; Skyline Security Management, Inc. of Downey, Calif., with a $1.87 million dealer holdback claim; AllianceOne Receivables Management Inc. of Trevose, Pa., with a $1.41 million trade claim; Microsoft Corp., based in Redmond, Wash., with a $1.15 million trade claim; and Power House Technologies, LLC of Raleigh, N.C., with a $1.13 million dealer holdback claim.

A new Monitronics board of directors will be appointed at the completion of the reorganization.

Monitronics is represented by Latham & Watkins LLP, King & Spalding LLP, Hunton Andrews Kurth LLP, Moelis & Co. LLC and FTI Consulting Inc.

Monitronics is a Dallas-based home security alarm monitoring company. Ascent Capital is a holding company based in Englewood, Colo. The Chapter 11 case number is 19-33650.

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