Warburg’s Rural/Metro Files for Bankruptcy ProtectionMichael Bathon and Phil Milford
Rural/Metro Corp., a nationwide ambulance operator owned by Warburg Pincus LLC, sought bankruptcy protection after negotiating a proposal with lenders and certain noteholders to cut debt by about half and obtain a new infusion of equity capital.
The creditors’ support ensures the company will continue to provide vital emergency services, Chief Financial Officer Stephen Farber said in court papers filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.
Under the proposed restructuring, secured lenders would provide $75 million in financing to help fund the quick turnaround effort intended to be completed before the end of the year, according to court documents. Rural/Metro will seek court approval to borrow as much as $40 million from the loan at a hearing tomorrow.
Noteholders that are supporting the reorganization have agreed to make a $135 million equity investment when the company exits court protection, court papers show.
Holders of $308 million of senior notes would have their debt swapped for all of the reorganized company’s equity, subject to dilution for warrants to the noteholders providing the exit investment and a management incentive plan, according to court filings. All current equity interest in the company would be canceled.
Rural/Metro said it will submit its reorganization plan by Sept. 15, in line with milestones in the creditors’ support agreement, court papers show. The company would seek court approval of its plan, designed to shed half of its $735 million in funded debt, by Dec. 20 under the timetable.
The company said in court papers it was forced to seek bankruptcy protection in part because it “experienced significant challenges and disruptions operating its billing and collections functions,” which resulted in “reduced revenue and delayed cash collections.”
Among the largest unsecured creditors listed in court papers are the holders of $308 million in 10.125 percent notes due 2019 with Wells Fargo Bank NA as trustee.
Warburg Pincus, the New York-based investment firm, bought Rural/Metro in July 2011 for about $676.5 million, including $236.3 million in debt.
Rural/Metro missed a July 15 interest payment on senior unsecured notes due in 2019, leading Standard & Poor’s to downgrade the debt and the corporate credit rating. The company has two note issuances, of $200 million and $108 million. S&P estimated that holders would recover no more than 10 percent in the event of a default.
The company, based in Scottsdale, Arizona, listed assets and debt of more than $500 million each in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.
The $200 million in notes today traded at about 59.8 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The $108 million in notes traded at about 56.3 cents on the dollar as of today. Both had fallen more than 40 percent since May 16.
The company also has a $100 million senior secured revolving credit facility and a $325 million term loan. The secured debt would recover 70 percent to 90 percent in a default, S&P estimated in its July 24 report.
Rural/Metro provides ambulance and firefighting services to about 700 communities in 21 states, according to its website. The company also offers industrial fire protection services to airports, oil refineries and manufacturing plants and counts FedEx Corp., Citgo Petroleum Corp. and Textron Inc.’s Bell Helicopter as customers.
The company was started 65 years ago when founder Lou Witzeman bought a fire truck to protect his local community after a neighbor’s house burned down, according to the site.
More than 50 affiliates of the company also filed bankruptcy petitions, including ambulance services from Pennsylvania to California.
The case is In re Rural/Metro, 13-bk-11952, U.S. Bankruptcy Court, District of Delaware (Wilmington).