Pro One closes loan amid debt market implosion
LAWRENCE, Kan.--While the debt market crisis was reaching a chaotic crescendo last Friday, Protection One was closing on a $110 million term loan, possibly indicating that Wall Street sees the alarm market as a good investment.
Coincidentally, Pro One's bankers in the deal were Bear, Stearns (whose government-assisted bail-out by JP Morgan happened that day) and Lehman Brothers. However, Pro One's deal is all set and its financing is secure, said Richard Ginsburg, CEO of Protection One.
The new term loan has a high interest rate (prime plus 11.5 percent), but the loan may be paid off after 12 months with no penalty at all. "We structured it that way intentionally hoping the capital market will get better [and we can refinance]," he said. And if it doesn't? "It's the smallest and most junior piece of our debt structure," Ginsburg explained. The company has about $500 million in debt.
Pro One didn't have much choice in the timing of the loan. It needed to fund the redemption of other debt (8-1/8-percent senior subordinated notes) in the next few months. Ginsburg said the fact that that Pro One was able to get the deal done at a time when "the debt market is effectively closed ... says a lot for our industry and for Protection One."
He said, "Market conditions are particularly harsh; existing debt is trading 70 to 80 cents on the dollar ... A lot of companies are having a difficult time financing anything," he said.
Protection One's term loan was from a syndicate of lenders led by two new investors, Highfields Capitol Management, of Boston, and Arlon Group, of New York. Others involved were Quadrangle Group and Monarch Alternative Capital, the company's largest shareholders.
Ginsburg said the loan "enhances the company's financial flexibility and allows the company to continue its focus on building operating momentum through market segmentation, technology-differentiated security systems and strategic acquisitions."