Protection One skirts bankruptcy by converting debt with its creditor

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Wednesday, December 1, 2004

TOPEKA, Kan. - In a move that will prevent the company from bankruptcy or an extended court battle with its largest creditor Quadrangle Group, Protection One has worked out an agreement to covert $120 million of debt into 800 million common shares of stock.
Protection One had delayed payment of its debt to Quadrangle Group since Quadrangle purchased the company from Westar Energy in February. As a result of the restructuring, Protection One decreases the amount of debt held by Quadrangle to approximately $350 million, and Quadrangle increase its position in the company to more than 97 percent.

The transaction also calls for a 1:50 reverse stock split and is expected to be finalized within the first quarter of next year.

With the uncertainty of Protection One’s future no longer in doubt, Protection One the business and the security industry as a whole benefits from the company strengthening its position, according to John Mack III president and chief executive officer of USBX Advisory Services and a one-time executive at Protection One.

“They’ve been in the state of limbo for the last couple of years,” said Mack.

How to deal with its debt has been an ongoing issue for Protection One. As early as this summer, the company negotiated with the Quadrangle Group, and its related entities, to extend payment of its notes. And in March, the company stated in its yearly report that it would consider protection from creditors under Chapter 11 if it did not work out a resolution to its debt problem.

And having reported revenue of $277 million in 2003, Protection One is one of the biggest firms in the marketplace. Quadrangle has proved it is financially behind the company, and Protection One can now focus on its business opportunities, said Mack.

“This is good news for the company,” said Richard Ginsburg, president and chief executive officer of Protection One. “This clearly makes us a better company and a stronger competitor.”

In addition, Westar Energy, its former owner, has negotiated to end its tax-sharing obligations with Protection One. This includes a $45.9 million cash pay-out to Protection One and the transfer of senior notes due in 2005, valued at $26.6 million.

“This closes out this chapter for them,” said Mack on the end of Protection One’s relationship with Westar. “It’s good for Protection One, since Westar wasn’t committed to the business for many years.”

Protection One will use $14.5 million of the monies received from Westar to reduce the principal of its credit facility with Quadrangle, $2.2 million to pay down accrued interest on the same debt and further invest in the company, according to Ginsburg.

“With its improved balance sheet, Protection One is well positioned to take advantage of interesting growth opportunities going forward,” said Michael Weinstock, managing principal of Quadrangle Group, in a prepared statement.

The remaining debt held by Quadrangle Group will now be due in August 2005.

Ginsburg said the management team at Protection One will not be affected by the restructuring and that the two companies have a strong relationship.

“We’ve had this dark cloud over the company and we’re in good shape. We’re eager to show people what we can do,” said Ginsburg.