Bonds of Altegrity Inc., which owns the background-checking business that vetted former National Security Agency contractor Edward Snowden, rose a fifth day as the company offered a debt-restructuring plan.
Altegrity’s $210 million of 12 percent notes due in November 2015 rose to 92.7 cents on the dollar, bringing their gain for the week to 2.8 cents, according to estimates compiled by Bloomberg. Moody’s Investors Service and Standard & Poor’s said the restructuring would probably trigger a technical default while allowing the company to contend with more than $1.7 billion of bonds and loans due in the coming 12 months.
The transaction would extend maturities, exchange existing unsecured and senior subordinated debt for second- and third-lien debt, and provide cash pay downs and increased payment-in-kind interest to existing senior unsecured creditors, according to a statement yesterday by S&P. Providence Equity Partners LLC, Falls Church, Virginia-based Altegrity’s owner, will invest $25 million in equity as part of the deal, according to a person with knowledge of the matter who asked not to be identified because the recapitalization discussions are private.
“This is a good thing because the company will be able to move forward and avoid a Chapter 11,” Steven Azarbad, co-founder of Magland Capital LP, a New York-based hedge fund specializing in distressed securities who doesn’t hold Altegrity debt, said in a telephone interview. “It’s way cleaner than if they go through a bankruptcy.”
Patrick Scanlan, a spokesman at Sard Verbinnen & Co. in New York who represents Altegrity and Providence Equity Partners, declined to comment on the recapitalization plan.
S&P lowered its rating on Altegrity to CC from CCC-, while Moody’s cut its probability of default rating to Ca-PD from Caa2-PD today and left its company rating at Caa2.
“Although debt balances and interest expense will increase slightly under the recapitalization plan, extension of debt maturities will allow management additional time to address the company’s weak operating performance,” according to a Moody’s report.
The company’s US Investigations Services LLC was responsible for vetting Edward Snowden, who leaked information about national surveillance programs, and Aaron Alexis, who shot and killed 12 people at the Washington Navy Yard on Sept. 16.
Altegrity also owns Kroll Inc., the private investigator, which it purchased for $1.13 billion in 2010.
The USIS unit faces a potential fine from a whistle-blower lawsuit. The Justice Department said in a January filing that it failed to do adequate investigations in at least 665,000 instances.
The inspector general at the U.S. Office of Personnel Management, which handles most federal background investigations, also is investigating USIS, Susan Ruge, associate counsel at the watchdog office, said in an e-mail.