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Secure Home Holdings LLC – My Alarm Center Holding Company Files Prepackaged Chapter 11 with $238mn of Funded Debt, Debt-for-Equity Exchange Will Leave Prepetition First Lien Lenders as Owners after Expected 60-Day Stay in Bankruptcy

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April  26, 2021 – Secure Home Holdings LLC and four affiliated Debtors (dbe My Alarm Center, “Secure Home” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-10745 (Judge Stickles). The Debtors, "a leading provider in home security," are represented by Robert A. Weber of Chipman Brown Cicero & Cole, LLP. Further board-authorized engagements include (i) Skadden, Arps, Slate, Meagher & Flom, LLP as general bankruptcy counsel, (ii) M3 Advisory Partners, LP (“M3”) to serve as financial advisor and to provide a Chief Restructuring Officer, (iii) Raymond James & Associates, Inc.as investment banker and (iv) Kurtzman Carson Consultants LLC as claims agent. 

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($238.3mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Goldman Sachs Specialty Lending Group LP ($34.0mn bank debt claim), (ii) Invesco Credit Partners Master Fund II, L.P ($15.0mn bank debt claim) and (iii) Woodforest National Bank ($6.8mn PPP loan claim). Invesco entities appear multiple times on the list of top 30 unsecured claims with additional claims of approximately $25.0mn.

In a press release announcing the filing, the Debtors advised that: “…100% of its senior lenders and other key stakeholders have agreed to support the Company’s prepackaged plan of reorganization (the ‘Plan’) under Chapter 11 of the U.S. Bankruptcy Code. The Plan provides for elimination of approximately $235 million of legacy debt obligations, strengthening of Secure Home Holdings’s financial structure, and support for the Company’s long-term growth plans. This decisive action will allow the Company to focus on core competencies, including providing superior service to its customers, without the burden of servicing significant debt levels. All operations will continue as usual without interruption and the Chapter 11 process is expected to conclude within approximately 60 days.

Secure Home Holdings will continue to operate in the ordinary course of business during the restructuring process. The Company has received commitments from its senior lenders for $15 million of fresh capital to continue providing exceptional, uninterrupted service to its customers during the period of the financial restructuring while also meeting its financial obligations to suppliers and other vendors and employees. This transaction will provide a capital structure to ensure the Company’s long-term viability and set the foundation for Secure Home Holdings’s next phase of growth."

The Debtors’ CEO Amy Kothari commented further: “The residential security industry faced numerous challenges over the last year, including multiple long-time industry lenders deciding to exit the space. This shift in the debt market was further exacerbated by the unprecedented COVID-19 pandemic resulting in significant pressure on cash flow and liquidity. As a result, we took decisive action to address these challenges and deleverage our balance sheet to position us for future growth and sustainable success."

Goals of the Chapter 11 Filings

The Disclosure Statement provides: "The Debtors intend to file the Chapter 11 Cases to implement a prepackaged chapter 11 plan of reorganization that provides for a comprehensive balance sheet restructuring of their funded debt obligations with the consent of the Consenting Secured Lenders."

Plan Overview

The Debtors' prepackaged Plan has only one voting class, comprised of its first lien lenders. Approximately half of the $197.5 mn of first lien claims will be treated as deficiency claims grouped with general unsecured creditors and deemed to reject the Plan and its 0% projected recovery. The second lien lenders are also getting nothing and are deemed to reject the Plan, but their support has nonetheless been acquired courtesy of the Debtors agreement to pay a $1.0mn waiver and consent fee and to cover up to $200k of expenses (the “Second Lien Waiver and Consent Payments”).

The Disclosure Statement [Docket No. 19] provides: “The Plan implements a prepackaged restructuring agreed to among the Debtors and the Consenting Secured Lenders. The restructuring will result in a significant deleveraging of the Debtors’ capital structure, as reflected in the chart below:

[FN4: Excludes proposed DIP financing]

 The anticipated benefits of the Plan include, without limitation, the following:

  • Payment of the DIP Lenders (i) in full of amounts outstanding under the New Money DIP Facility in either Cash or (with the prior written consent of the Consenting Secured Lenders) an equal amount of DIP Takeback Loans and (ii) in full of the amounts outstanding under the Roll-Up DIP Facility in Reorganized Equity Interests at an implied equity value based on an assumed plan enterprise value of $145 million after deducting the estimated funded portion of the Exit Facilities and any DIP Takeback Loans on the Effective Date, subject to dilution from the Management Incentive Plan;
  • Conversion of not less than $95.0 million of First Lien Secured Claims to equity;
  • Treatment of approximately $106.5 million of First Lien Deficiency Claims and Second Lien Deficiency Claims as General Unsecured Claims under the Plan;
  • An Exit Facility, which if obtained, will be set forth in the Exit Facility Documents filed as part of the Plan Supplement; and
  • Prompt emergence from chapter 11.

The Plan provides for a comprehensive restructuring of the Debtors’ prepetition obligations, preserves the going-concern value of the Debtors’ business, maximizes all creditor recoveries, and protects the jobs of the Debtors’ invaluable employees, including Management. As described in further detail below, under the terms of the Plan, among other things, each Holder of Claims under the Roll-Up DIP Facility will be paid in full with Reorganized Equity Interests at an implied equity value based on an assumed plan enterprise value of $145 million after deducting the estimated funded portion of the Exit Facilities and any DIP Takeback Loans on the Effective Date and each Holder of First Lien Secured Claims will receive, on account of their First Lien Secured Claims, a Pro-Rata Share of the First Lien Equity Allocation.

In addition, while the Company is executing its chapter 11 process, the Company will explore efficient sources of liquidity including, among other things, a revolving line of credit, a term loan facility, or equity-based financing. The Company is also in discussion with its key stakeholders regarding additional sources of liquidity that would be available on or immediately after the Effective Date. Accordingly, on the Effective Date, the Reorganized Debtors expect to be sufficiently capitalized to operate on a go-forward basis.

The purpose of this Disclosure Statement is to provide Holders of Claims entitled to vote to accept or reject the Plan with adequate information about (i) the Debtors’ business and certain historical events, (ii) the Chapter 11 Cases, (iii) the rights of Holders of Claims and Equity Interests under the Plan, and (iv) other information necessary to enable each Holder of a Claim to make an informed judgment as to whether to vote to accept or reject the Plan.”

The Disclosure Statement adds: “The Plan provides for the treatment of Claims against and Equity Interests in the Debtors through, among other things, the following:

  • Each Holder of an Allowed Administrative Claim will receive full and final satisfaction, settlement, release, and discharge of and in exchange for of its Allowed Administrative Claim an amount of Cash equal to the unpaid portion of such Allowed Administrative Claim;
  • Each Holder of an Allowed Priority Tax Claim will be treated in accordance with the terms set forth in section 1129(a)(9)(C) of the Bankruptcy Code;
  • On the Effective Date, unless otherwise agreed to in writing by each affected DIP Lender, the DIP Lenders will receive (i) payment in full of the amounts outstanding under the New Money DIP Facility and of any interest accrued under the DIP Facility, payable in Cash or (with the prior written consent of the Consenting Secured Lenders) an equal amount of DIP Takeback Loans and (ii) payment in full of the principal amounts outstanding under the Roll-Up DIP Facility, payable in a Pro Rata Share of the DIP Equity Allocation;
  • Each Holder of an Allowed Other Priority Claim, in full and final satisfaction, settlement, release, and discharge and in exchange for each Other Priority Claim, shall (i) be paid in full in Cash, or (ii) receive such other recovery as is necessary to satisfy section 1129 of the Bankruptcy Code;
  • Each Holder of an Other Secured Claim shall receive, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed Other Secured Claim: (i) payment in full in Cash; (ii) delivery of the collateral securing any such Claim and payment of any interest required under section 506(b) of the Bankruptcy Code; (iii) Reinstatement of such Claim; or (iv) other treatment rendering such Claim Unimpaired in accordance with section 1124 of the Bankruptcy Code;
  • Each Holder of an Allowed First Lien Secured Claim in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed First Lien Secured Claim, shall receive its Pro-Rata Share of the Reorganized Equity Interests;
  • All Second Lien Secured Claims will be cancelled, released and discharged without any distribution on account of such claims;
  • All First Lien Deficiency Claims and Second Lien Deficiency Claims will be treated as General Unsecured Claims. In addition, PPP Loan Claims, including for which the Debtors have requested loan forgiveness pursuant to applicable Law, shall be treated as General Unsecured Claims to the extent not forgiven;
  • All General Unsecured Claims shall be discharged and will receive no distribution on account of such Claims;
  • Each Intercompany Claim shall, at the option of the Debtors and the Consenting Secured Lenders be (i) Reinstated or (ii) cancelled, released and discharged without any distribution on account of such Claims;
  • All Subordinated Claims shall be cancelled, released, and discharged as of the Effective Date, and shall be of no further force or effect;
  • All Other Equity Interests shall be cancelled, released and discharged without any distribution on account of such Other Equity Interests; and
  • The Intercompany Equity Interests shall be cancelled, released and discharged without any distribution on account of such Intercompany Equity Interests; provided, however, that at the option of the Debtors and the Consenting Secured Lenders, the Intercompany Equity Interests may be Reinstated for administrative convenience.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Recovery Analysis and Liquidation Analysis below):

  • Class 1 (“Other Priority Claims”) is unimpaired and not entitled to vote on the Plan. The aggregate amount of claims is $0-$0.5mn and the estimated recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired and not entitled to vote on the Plan. The aggregate amount of claims is $0 and the estimated recovery is 100%.
  • Class 3-A (“First Lien Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is not less than $95.0mn and the estimated recovery is 100%. Except to the extent that a Holder of an Allowed First Lien Secured Claim agrees to less favorable treatment, on or as soon as is reasonably practicable after the Effective Date, in full and final satisfaction, compromise, settlement, release, and discharge of and in exchange for each Allowed First Lien Secured Claim, each Holder thereof shall receive their Pro-Rata Share of the First Lien Equity Allocation.
  • Class 3-B (“Second Lien Secured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is not less than $0 and the estimated recovery is 0%. NB: The Debtors have agreed to pay the Second Lien Lenders a waiver and consent fee  in  an aggregate amount equal to $1.0mn along with up to $200k of legal expense reimbursement (the “Second Lien Waiver and Consent Payments”), in exchange for the Second Lien Lenders agreeing to, among other things, waive certain rights under the Intercreditor Agreement and to support the Plan.
  • Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is not less than $110.5mn – $116.5mn and the estimated recovery is 0%.
  • Class 5 (“Intercompany Claims”) is unimpaired/impaired, conclusively presumed to accept/ deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 100% or 0%.
  • Class 6 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is not less than $0 and the estimated recovery is 0%.
  • Class 7 (“Equity Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is not less than $0 and the estimated recovery is 0%.
  • Class 8 (“Intercompany Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is not less than N/A and the estimated recovery is 0%.

DIP Financing

The Debtors have commitments from their First Lien Lenders in respect of a $45.0mn debtor-in-possession ("DIP") financing facility to be comprised of (i) a $15.0mn new money, term loan and (ii) a $30.0mn roll-up of First Lien Claims.

Key Documents

The Disclosure Statement [Docket No. 19] attached the following exhibits:

  • Exhibit A: Joint Prepackaged Chapter 11 Plan of Reorganization (Filed Separately [Docket No. 18])
  • Exhibit B: Liquidation Analysis 
  • Exhibit C: Financial Projections 
  • Exhibit D: Valuation Analysis 
  • Exhibit E: Corporate Organizational Chart 
  • Exhibit F: Certain Restructuring Transactions

Proposed Key Dates

  • Plan Supplement Deadline: May 13, 2021
  • Objection Deadline: May 17, 2021
  • Combined Hearing: May 24, 2021

Events Leading to the Chapter 11 Filings

The Disclosure Statement notes: “Prior to the onset of the COVID-19 pandemic, in late 2019, the Debtors sought an amendment to their revolving credit facility to avoid certain projected potential covenant defaults. The Debtors were unable to obtain the necessary consents, however, and the projected covenant violations occurred. The covenant violations reduced the Debtors’ ability to access funds under the revolving credit facility, and, as a result, hampered their ability to grow their business by generating new contracts and acquiring contracts originated by third parties… Although the Debtors were ultimately able to obtain a $6.8 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP Program”), entered into forbearance agreements with their Prepetition Secured Lenders, and have continued to undertake significant efforts to implement a transaction that would maximize value and address their liquidity constraints, these measures were insufficient to allow the Debtors to achieve a viable out-of-court restructuring. Accordingly, after significant negotiations with their Prepetition Secured Lenders, the Debtors and Prepetition Secured Lenders determined that optimal value would be achieved through the proposed prepackaged consensual restructuring the Debtors seek to effectuate through these Chapter 11 Cases.”

Recovery and Liquidation Analysis (See Exhibit B to Disclosure Statement [Docket No. 18] for notes)

Recovery Analysis

Liquidation Analysis 

About the Debtors

According to the Debtors: “Secure Home Holdings is a leading provider of security and smart home automation to residential and small business customers throughout the United States. With a primary focus on providing best-in-class security and alarm monitoring, Secure Home Holdings offers a range of services to help protect customers. In addition to intrusion, fire and carbon monoxide protection, Secure Home Holdings delivers smart home integration, expanding security services to a total lifestyle solution—and keeping customers connected to home and family from anywhere. 

Corporate Structure

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The post Secure Home Holdings LLC – My Alarm Center Holding Company Files Prepackaged Chapter 11 with $238mn of Funded Debt, Debt-for-Equity Exchange Will Leave Prepetition First Lien Lenders as Owners after Expected 60-Day Stay in Bankruptcy appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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