Encompass Services plans restructuring, to exchange some debt for stock

New York, Oct. 14 - Encompass Services Corp. said it intends to make a prepackaged Chapter 11 bankruptcy filing under which some of its debt will be exchanged for stock.

The Houston provider of facilities systems and services is proposing to restructure its bank debt into a new $200 million term loan and give the lenders 80% of its common stock.

Its 10½% senior subordinated notes due 2009 would be exchanged for the other 20% of the stock.

Holders of the existing stock, the company's mandatory convertible preferreds and the junior subordinated notes will receive nothing.

Encompass Services said it will shortly begin soliciting consents for the plan.

Encompass Services also said it has cancelled its special meeting of shareholders scheduled for Oct. 15 and terminated its previously announced rights offering.

"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 Services, in a news release. "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."

Encompass Services said the Chapter 11 restructuring would include a debtor-in-possession loan facility and it anticipates obtaining a new revolving credit facility when the restructuring is complete to fund general corporate purposes and working capital needs, including the issuance of letters of credit.

The company said it has not received any indication of support from its creditors for the proposed restructuring but believes it will preserve the most value for its creditors and other constituencies, if approved.

If creditors do not support the plan, Encompass Services will "explore alternate courses of action to preserve the value of the company."

Encompass Services also noted the waiver of compliance with financial covenants it received from its senior lenders expires on Oct. 15 and it does not expect to receive a new waiver. In addition, because of the termination of the rights offering it will not make a $31 million principal payment due Oct. 15.

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