Encompass Announces Plan for Comprehensive Financial Restructuring to Strengthen the Company's Financial Position
HOUSTON--(BUSINESS WIRE)--Oct. 14, 2002--
Cancels Special Shareholders' Meeting and Terminates Rights Offering
Encompass Services Corporation (Pink Sheets: ESVN) announced today that it is proposing a financial restructuring plan designed to strengthen the Company's financial condition.
The Company will solicit approval of its restructuring plan from its creditors.
The Company also announced today that it has cancelled its Special Meeting of Shareholders, originally scheduled for October 15, 2002, and terminated its previously announced Rights Offering. The Company said it will file a request with the Securities and Exchange Commission (SEC) to withdraw the related Registration Statement.
"With the proposed restructuring, we are pursuing a significant improvement to our capital structure and substantially strengthening our business prospects," said Joe Ivey, President and Chief Executive Officer of Encompass. "This plan, if approved, will significantly reduce our total debt and improve our financial flexibility. Moving forward quickly with this plan should provide Encompass and our stakeholders with the best prospects for realizing the value of the business."
The proposed financial restructuring plan would eliminate all of the Company's subordinated debt, all of its mandatorily redeemable preferred stock, and a significant portion of its senior debt. It would significantly reduce annual cash interest payments and eliminate dividend obligations.
Ivey continued, "We believe that this restructuring plan, if approved, will allow the Company to operate its business in the ordinary course, with minimal disruption to our customers, suppliers and employees, and will provide the company with the opportunity to reach its full potential."
Terms of the Proposed Restructuring
The key components of the Company's proposed restructuring plan include:
(i) Trade claims to the Company's vendors would be paid in the
ordinary course, consistent with the Company's normal
business practices and current credit terms;
(ii) The Company's senior secured lenders would restructure a
portion of their loans into a new $200 million term loan
and exchange the remaining amount for 80% of new Common
Stock;
(iii) The Company's 10 1/2% Senior Subordinated Notes due 2009
would be exchanged for 20% of new Common Stock;
(iv) The Company's Junior Subordinated Notes, mandatorily
redeemable convertible preferred stock, common stock and
all outstanding options and warrants would be cancelled
and current holders would receive no value in exchange
therefore.
If its solicitation is successful, Encompass intends to implement the restructuring transaction through a "pre-packaged" Chapter 11 filing in order to complete its restructuring in an expedient manner. The proposal contemplates a debtor-in-possession loan facility for the Company during the Chapter 11 proceeding. Upon completion of the proposed restructuring, the Company expects to receive a new revolving credit facility to fund general corporate purposes and working capital needs, including the issuance of letters of credit.
Although the Company has not received any indication of support from its creditors for the proposed restructuring, it believes this expedited restructuring process will preserve the most value for its creditors and other constituencies, if approved. The Company stated that in the event it does not receive the support required from its creditors to implement this plan, it would explore alternate courses of action to preserve the value of the Company. The Company intends to commence the solicitation of approvals of the proposed plan shortly. The solicitation of approvals would expire 30 days after commencement.
Status of Senior Lender Waiver
The Company also said that the waiver it received from its senior lenders relieving it from compliance with the financial covenants contained in its senior credit facility will expire on October 15, 2002. With the termination of the Company's Rights Offering, the Company will not make a $31 million principal payment on its senior debt due October 15, 2002. The Company does not expect to receive a new waiver before the expiration of its existing waiver |
