May 4, 2015: Allen Systems emerges from bankruptcy
Naples-based Allen Systems Group Inc. has quietly and swiftly emerged from Chapter 11 bankruptcy.The multimillion-dollar software company, known as ASG, has completed its financial restructuring, slashing its debt by more than 60 percent. It has emerged from bankruptcy with new capital and new owners.
Its new owners are some of the largest institutional investors in the world, who were its senior secured, or top-ranking, lenders and now have a controlling interest in the company.
"They did a debt for equity exchange with some of their debt," said Ernest Scheidemann, ASG's executive vice president and chief financial officer.
The new owners include affiliates of KKR Credit Advisors, and GSO Capital Partners LP, the credit arm of Blackstone Group LP, the world's largest alternative investment firm.
"They are already starting to help us operate more efficiently, providing access to very large purchasing pools, giving us access to and helping us with relationships, with customers. So we are starting already to see the benefits of being part of that family," Scheidemann said.
ASG's exit from bankruptcy comes a little over two months after its Chapter 11 filing in Delaware. The filing, made in February, followed the resignation of the company's founder, CEO and chairman, Arthur Allen Jr., who quietly stepped aside in December.
"He's not a shareholder any longer," Scheidemann said.
The company has sliced its debt from $666 million to $240 million. As part of its restructuring, it acquired a new term loan of $240 million.
ASG's financial problems have festered since 2012. In November, the company announced KKR & Co. LP, Franklin Square Capital Partners and GSO Capital Partners had purchased of all of its first-lien debt, including more than $200 million in term loans, and that discussions were underway with the investors to trim ASG's debt and provide future growth capital. The same three investors already held most of the company's second-lien debt.
ASG, with more than 1,100 employees and more than 70 offices worldwide, reports annual revenues of about $300 million.
Providing cloud, content and systems solutions, it develops products that help large corporations run their IT departments, with more than 5,000 customers, including some of the world's largest corporations, such as Coca-Cola, General Electric and Toyota.
"Our emergence from Chapter 11 marks the start of a new beginning for our company. As a result of the financial restructuring, we now have a more serviceable level of debt and the capital to sustainably operate, invest in, and grow the business," said John DiDonato, ASG's restructuring officer and acting president, in a statement.
As part of the restructuring, the company has a new board of directors. The new board includes Brad Colman with GSO and Michelle Hour with KKR, as well as independent directors Paul A. Lacy and Eric C. Salzman, who served on ASG's board of directors during the restructuring.
A search is underway for a CEO to replace Allen. Several candidates have been interviewed, with a hiring decision expected to be made within a few months.
"I think we would want to see this happen as soon as possible," Scheidemann said.
Throughout the Chapter 11 process, it was business as usual for ASG, he said. The company honored its commitments to its customers, suppliers and employees.
"We are pretty excited about the future to tell you the truth and believe our customers are excited, too," Scheidemann said.
Credit analysts have criticized the company for an inability to compete with larger tech companies, poor transitioning to cloud computing services, slow integration of newly acquired companies, and weak corporate management.
Over the years, much of ASG's growth has come from the acquisition of other companies.
Looking forward, its new owners are optimistic about the company's future.
"Throughout the restructuring, ASG and its executive team have remained dedicated to delivering value to the market," Brad Marshall, GSO's senior managing director, said in a statement.
"We are excited about its product direction and strategy for lasting success, and we anticipate our ongoing support will help ASG continue to meet its goals of advancing IT solutions to address industry demands and customer requirements."
Allen could not immediately be reached for comment. The terms of his separation from ASG are confidential.
He owns the twin three-story, Class A office buildings at the Common Professional Park off Goodlette-Frank Road that are home to ASG's headquarters. He also owns a five-story office building off Third Avenue South in Bayfront that now is vacant but last served as ASG's south campus.
The three buildings have been actively marketed for sale or lease. Through a compromise struck with Allen, ASG got out of two of the leases, consolidating its headquarters into one building and lowering its costs, including its lease rate.
Allen also agreed to waive all claims for unpaid rent, according to filings in bankruptcy court.
Allen supported the reorganization plan and agreed not to compete with the company, not to solicit its customers and not to talk badly about ASG.
With the settlement, he received payments from the company, which have been kept confidential, and warrants for 10 percent of the new stock, according to court records.
A former Marine and systems analyst for General Motors, Allen retired to Naples in 1981, at age 34, after selling his first software company for $18 million.
His retirement didn't last long, when he saw the opportunity to deploy new software technology in an IBM-dominated mainframe environment. Thus, ASG was born.
With a financially stronger company, the executive team at ASG expects to have the ability to not only invest in its business, its products and its employees, but in its local community again.
"Obviously, ASG has been a real supporter of the local community in Southwest Florida," Scheidemann said. "We know the last couple of years we haven't done as much as we did in our earlier years. We would aspire to continue supporting the community as we have in the past."
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