Encompass Services to sell residential service group under Chapter 11 plan

By Carlise Newman

Chicago, March 6 - Encompass Services Corp. will sell its residential services group to a private equity firm and management under its plan to emerge from Chapter 11.

The proposed transaction was announced Thursday, with details included the company's reorganization plan and disclosure statement filed with the U.S. Bankruptcy Court for the Southern District of Texas.

Encompass scheduled May 21 for a confirmation hearing on the plan.

The residential services group, which specializes in the installation and service of heating, ventilation and air conditioning systems, will be reorganized as a new company through an investment from Wellspring Capital Management, a New York-based private equity firm. Wellspring and management will own the new business.

Holders of claims under Encompass' existing credit agreement will receive the asset sale proceeds, the proceeds of all post-petition collateral and the proceeds of the pre-petition collateral, including any collected after the confirmation date.

Asset sales of several subsidiaries within the last six months totaled about $176.5 million. Encompass said it has completed the sale of substantially all of the company's assets outside of the residential services group during the Chapter 11 proceedings.

The plan did not disclose the price that will be paid for the residential services group.

The bank lenders' claims total an estimated $578.4 million plus $22.6 million for letters of credit. The agent for the credit facility was Bank of America, with JP Morgan as syndication agent and Wachovia Bank as documentation agent.

Although holders of general unsecured claims will receive the proceeds from the sale of any unencumbered assets, any payment that would have been made to noteholders will be reallocated to bank lenders who have unsecured claims.

Encompass' notes are its $335 million 10½ % senior subordinated notes due 2009 and small amounts of subordinated notes.

Holders of Encompass's existing preferred stock and existing common stock will receive nothing.

"We are pleased to be submitting this plan to the court," said Michael F. Gries, chief restructuring officer of Encompass Services Corporation, in a news release. "We have made significant progress with our restructuring efforts in a short period. We expect to emerge from Chapter 11 in the second quarter of 2003."

Hearings on the approval of the disclosure statement and confirmation of the plan are tentatively scheduled for April 9 and May 21, respectively

Houston-based Encompass filed for Chapter 11 on Nov. 20, 2002 after filing to receive creditor support for a restructuring plan.

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