Protection One weathers the storm

Company sees progress to its long and winding journey, but it is not out of the woods yet
Friday, April 1, 2005

LAWRENCE, Kan. - As Richard Ginsburg, the president and chief executive officer of Protection One, put it when he spoke at the Barnes Buchanan Mallon Conference in West Palm Beach, Fla., in early February, the company has weathered through its own version of the perfect storm.

But that storm subsided as the company completed its out-of-court debt restructuring with affiliates of the Quadrangle Group, the private equity firm that purchased the number three company in the industry from Westar Energy in 2004 for $122 million.

“We have led the company though the largest operating restructuring in the alarm industry,” Ginsburg said at the event.

The announcement of the move resonated through an industry that had continually speculated over whether the company would emerge from underneath its financial burdens and what effect, if any, it would have on the company as a whole.

The agreement reduced the company’s obligations under its credit facility by $120 million in exchange for 16 million shares of Protection One’s common stock on a post-reverse stock split basis. As a result, Quadrangle now owns more than 97 percent of the company’s stock. Protection One also paid $3 million in cash towards its credit facility and came to an agreement with Quadrangle to extend the maturity date of its credit until Aug. 15.

The restructuring also came at a cost for Westar. Ginsburg said that since Protection One consolidated its financials with Westar, the utility company benefited from Protection One’s losses, which saved Westar money on taxes. To settle this, Westar paid Protection One $73 million.

“The restructuring really came out of the hide of Westar, which was appropriate,” said Michael Barnes, president of Barnes Associates. “It’s the price of ownership, especially when you are forced to sell a poorly consolidated business into a tough market.”

When the company came under Quadrangle’s control it was burdened with approximately $550 million in debt. Now, the company accounts for $383 million in debt - a reduction of 30 percent.

In addition, in an effort to build confidence among employees, senior management purchased a percentage of the company, which according to Ginsburg, equaled out to approximately $1 million worth of the company.

“We felt it was important to show our employees that we believed in the company,” Ginsburg said.

Protection One accumulated its burden during its years under Westar’s ownership, when the mass marketing of the late 1990s was at its height. Although a change in ownership was welcomed, its debt due dates were on the horizon.

“The day after Quadrangle closed, debt maturities hit of $250 million,” Ginsburg said. “This was simply an issue of debt maturing faster than we had ever anticipated.”

The next step for the company at this point is to redeem another piece of debt - a $40-million bond payment is in the works now.

“We have the money in the bank to do that,” Ginsburg said.

Although the debris path is partially cleared, there are still hurdles to overcome. But Ginsburg said those will dissipate by keeping the company on track with its goals.

“We need to reinforce the fact that we are here and we are not going anywhere."