ServiceMaster announces new CFO, plans for maturing debt, has 'strong' liquidity position

By Paul Deckelman

New York, Aug. 25 - The ServiceMaster Co. announced that it has permanently filled the chief financial officer's slot vacated earlier this year, and one of the new CFO's first tasks upon assuming office in the Aug. 29 week will be getting involved in the Memphis-based company's efforts to deal with its upcoming bond and credit facility maturities, although nothing is in danger of coming due in the near term.

ServiceMaster's interim CFO also told analysts and investors on a Thursday conference call that the company's liquidity position at end of the second quarter on June 30 "remains strong," with full revolver availability.

During the call, ServiceMasters chief executive officer Harry J. "Hank" Mullany III announced that Roger A. Cregg will formally assume the CFO position effective this coming Monday.

Cregg, who will also serve as senior vice president for finance, comes to ServiceMaster - a national company providing services such as lawn care, termite and pest control, cleaning and disaster restoration, house and facilities cleaning and furniture repair to residential and commercial customers - from PulteGroup, Inc., the publicly owned parent company of major homebuilder Pulte Homes, Inc., where he was executive vice president and CFO.

Cregg replaces Steven J. Martin, who resigned from the CFO and senior vice president posts effective April 29. Martin was replaced on an interim basis as CFO, pending the permanent filling of the position, by David W. Martin, ServiceMaster's senior vice president, comptroller and chief accounting officer.

During the question-and-answer period which followed the formal presentation of second-quarter results by Mullany and David Martin, the CEO said that what the company plans to do about its credit facility and its 10¾% notes due 2015 "continues to be a good question."

According to its latest 10-Q report filed last week with the Securities and Exchange Commission, as of the end of the second quarter, the company had long-term debt of $3.88 billion. This mostly consisted of $2.54 billion of senior secured term loan debt maturing in 2014 and $1.061 billion of the 10¾% notes, which formerly had a toggle feature, in effect through July 15, which allowed the company to pay interest in kind through the issuance of additional notes at a rate of 11½%.

Eyes on debt maturities

Mullany said that "the markets are certainly constructive" and added that "we are in constant communication now, and will continue through the balance this fall, to be in communication with our banking partners as well as our owners ... about a potential finance transaction."

The company was acquired in 2007 by a syndicate of investment funds affiliated with Clayton, Dubilier & Rice, LLC, Citigroup Private Equity LP, BAS Capital Funding Corp. and JPMorgan Chase Funding Inc.

Mullany noted that once Cregg officially assumes the CFO position, Cregg certainly "will become involved in that process as well."

However, the CEO added that "as we sit here today, no final decisions [on refinancing the debt] have been made."

Besides the term loan debt and the 2015 bonds, the capital structure as of the end of the quarter also included $66.51 million of 7.1% notes due 2018, $151.89 million of 7.45% notes due 2027, $61.04 million of 7¼% notes due 2038 and $55.84 million of unspecified other debt. The current portion of its debt came to $58.26 million.

No borrowings on revolver

The company had no borrowings drawn under its senior secured revolving credit facility scheduled to mature in 2014.

Martin told the conference call that ServiceMaster's liquidity profile "remains strong," with $442 million of revolver availability, $40 million of available capacity under its accounts receivable securitization facility and $472 million total of cash, short- and long-term securities, of which $274 million is associated with regulatory and other requirements.

An amendment to the company's revolver on Feb. 2 extended the facility for one year to July 2014 in exchange for letting lenders in the syndicate who agreed to the extension reduce their loan commitments.

The facility, which at the time had a maximum borrowing capacity of $500 million, including $75 million of allowed letters of credit, was reduced to a maximum capacity of $442.5 million through the original expiration date in July 2013.

The facility further reduces to $229.6 million in the final, extended year, while the company will continue to have access to letters of credit up to $75 million for the life of the facility.

During the second quarter, ServiceMaster's operating revenues rose to $967.44 million from $939.6 million in the year-earlier quarter. Net income more than quadrupled to $56.72 million from $12.44 million a year earlier, chiefly due to considerably smaller losses from discontinued operations, net of income taxes, in the latest period.

Long-term debt was reduced by about $7 million in the latest period from a year ago, and interest expense of $68.38 million was down from $73.16 million in the year-ago quarter.

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