Rural/Metro bankrupt, inks agreement-in-principle on restructuring

By Caroline Salls

Pittsburgh, Aug. 5 - Rural/Metro Corp. filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware after reaching an agreement in principle with a majority of its senior lenders and roughly two-thirds of its bondholders on a comprehensive financial restructuring plan, according to a company news release.

The company said the proposed restructuring will strengthen its balance sheet by reducing its funded debt by about 50% via a conversion of some debt to equity and cutting its interest expenses in half.

The terms of the restructuring will include the following:

• The company' senior secured credit facility will be paid down by $50 million;

• The company's senior notes will be converted into 100% of the common stock of the holding company, subject to dilution by warrants to be issued to noteholders providing exit financing and by a management incentive plan;

• Investors' equity interests will be cancelled; and

• The bondholders have committed to invest an additional $135 million of new equity in the fourth quarter to complete the financial restructuring and position Rural/Metro for renewed growth.

The company said it intends to file the plan and related disclosure statement by Sept. 15. Under a restructuring support agreement, the disclosure statement must be approved by Nov. 8 and the plan confirmed by Dec. 20.

Rural/Metro said the financial restructuring process will help ensure that it can continue to invest in its business, meet the needs of customers, patients and communities and further improve service. Operations are expected to continue as normal throughout the process.

"We have a solution that keeps our operations moving forward while cutting our debt in half," Rural/Metro new president and chief executive officer Scott A. Bartos said in the release.

"The significant infusion of new capital by our lenders underscores their confidence in the value of our business, and will help ensure that we have a strong financial footing to resume growth and investment while honoring our agreements and continuing to provide outstanding service and patient care."

"We expect to move through this process quickly and to be a stronger, more competitive and more profitable organization."

Payment issues

According to the release, Rural/Metro's capital structure was created under different economic circumstances, and making interest payments on the debt while at the same time investing in operations was more than its earnings could support.

The company said it plans to use the Chapter 11 process to significantly reduce its debt, renegotiate unprofitable contracts and free up capital for investments to strengthen its business and further improve patient care.

Rural/Metro said it expects to complete its restructuring in the fourth quarter.

DIP financing

In conjunction with the filing, the company received a commitment for $75 million of debtor-in-possession financing from some of its secured lenders. Credit Suisse AG is the administrative and collateral agent.

This financing, combined with cash generated by Rural/Metro's ongoing operations, will provide it with sufficient liquidity to meet its operational and restructuring needs, the release said.

The facility will mature on the earliest of March 1, 2014, the plan effective date, 45 days after entry of the interim order if the final order has not been entered and the date of acceleration of the loans.

Interest will be either Base rate plus 850 basis points, of which 750 bps will be paid in cash and 100 bps will be paid in kind, or Libor plus 950 bps, of which 850 bps will be paid in cash and 100 bps in kind.

The company is seeking interim access to $40 million of the DIP financing.

Debt details

According to court documents, Rural/Metro has $500 million to $1 billion in both assets and debt.

The company's largest unsecured creditors are indenture trustee Wells Fargo Bank, NA, with a $308 million notes claim and Henry Schein of Melville, N.Y., with a $1.05 million trade claim.

Rural/Metro is a wholly owned subsidiary of WP Rocket Holdings, Inc. Warburg Pincus Private Equity X, LP owns 96.9% of WP Rocket's equity interests.

Willkie Farr & Gallagher LLP and Young Conaway Stargatt & Taylor, LLP are serving as legal counsel, Lazard Freres & Co. LLC is serving as investment banker, and Alvarez & Marsal and FTI Consulting, Inc. are serving as financial advisers to Rural/Metro.

Rural/Metro is a Scottsdale, Ariz.-based provider of emergency and non-emergency ambulance services and private fire protection. The Chapter 11 case number is 13-11952.

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