Ascent buys convertibles as part of settlement, to hold tender offer

By Angela McDaniels

Tacoma, Wash., Feb. 14 – Ascent Capital Group, Inc. repurchased the 4% convertible senior notes due 2020 held by a group of holders and plans to begin a tender offer for the remaining convertibles, according to a company news release.

The repurchase is part of a settlement reached with the noteholder group.

As previously reported, the noteholder group claimed that Ascent’s participation in an exchange offer for some Monitronics International, Inc. notes would cause Ascent to become insolvent, if consummated.

The group filed a complaint in the Court of Chancery of the State of Delaware on Aug. 27.

On Feb. 11, the company, its directors and its executive officers entered into a settlement and note repurchase agreement and release with the holders of $75,674,000 principal amount, or 78.2%, of the convertibles.

The noteholders agreed to amendments to the indenture governing the convertibles, and the company agreed to repurchase the convertibles held by the group.

The amendments modified the indenture to remove references to the subsidiaries of the company from certain events of default provisions and to allow conversion of the company into a non-corporate legal form.

Ascent paid to the noteholders $70.67 million in cash, consisting of $6.1 million for professional fees and expenses, $2 million in consideration for the noteholder consents, $10.81 million in consideration for and in full satisfaction of claims settled by the settlement agreement and $51.75 million on account of the note repurchase.

The company plans to begin a cash tender offer shortly for the convertibles that remain outstanding. It is not soliciting consents.

“We are pleased to resolve the noteholder action. We continue to actively evaluate potential strategic alternatives, which may include making a cash investment in our operating subsidiary, Monitronics International Inc.,” chief executive officer William Niles said in the news release.

Exchange offer canceled

On Aug. 30, Ascent and Monitronics began an offer to exchange Monitronics’ $585 million of 9 1/8% senior notes due 2020 for cash and/or new notes and warrants to purchase Ascent’s series A common stock. The offer was terminated in December.

The noteholder complaint claimed that the exchange offer would result in a breach of Ascent’s directors’ fiduciary duties to Ascent and “constitute a constructive or intentional fraudulent transfer by using assets of Ascent necessary for the repayment of the notes to purchase outstanding” Monitronics senior notes, according to a September 8-K filing with the Securities and Exchange Commission.

Ascent and Monitronics offered up to $100 million in cash from Ascent and/or a combination of $585 million of new Monitronics 7¾%/3¾% senior unsecured cash pay/PIK notes due 2023 and, for each $1,000 principal amount of old notes, one warrant for 2.64 shares of Ascent’s series A common stock at an exercise price of $5.00 for each whole share.

The complaint sought an injunction preventing Ascent from participating in the exchange offer.

The complaint also sought a declaratory judgment that approval of the exchange offer constitutes a breach of fiduciary duty by Ascent’s directors and that consummation of the offer would amount to a fraudulent transfer by Ascent.

Englewood, Colo.-based Ascent Capital is a holding company whose primary subsidiary, Monitronics, operates as Brinks Home Security.

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