Secure Home Holdings makes pre-packaged Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., April 26 – Secure Home Holdings LLC made a pre-packaged Chapter 11 bankruptcy filing in the U.S. Bankruptcy Court for the District of Delaware on Sunday.

Prior to the onset of the Covid-19 pandemic, in late 2019, the debtors sought an amendment to their revolving credit facility to avoid projected potential covenant defaults. However, the debtors were unable to obtain the necessary consents to amend the facility, and the projected covenant violations occurred, Amy V. Kothari, the company’s chief executive officer, said in a declaration.

The covenant violations reduced the debtors’ ability to access funds under the revolver, and, as a result, hampered their ability to replace attrition and grow their business by generating new contracts and acquiring contracts originated by third parties, Kothari said.

The debtors’ business has also been negatively impacted by the pandemic, Kothari added. Historically, a significant portion of the debtors’ customer contracts resulted from door-to-door sales activity and in-home installations, but these activities came to an abrupt halt with the onset of the pandemic and mandatory state-wide stay-at-home orders.

In addition, the pandemic impacted the debtors’ ability to raise capital and pay down debt.

Finally, as a result of the current economic environment, disruption within the home security industry, and the decision by two of the debtors’ major lenders to exit all home security loans, the debtors defaulted under both of their credit agreements.

The debtors also lack significant cash reserves, Kothari said.

DIP financing

The company is seeking court approval to enter into a debtor-in-possession facility that provides for a proposed $15 million new money facility and a roll-up of $30 million of first-lien pre-petition obligations.

Invesco and the company’s remaining first-lien lenders are the DIP lenders. Seaport Loan Products LLC and Acquiom Agency Services LLC are the co-administrative agents and Acquiom Agency Services LLC is the collateral agent.

The company is also seeking court approval to use pre-petition cash collateral.

The facility is scheduled to mature 90 days after the closing date.

Interest on new money loans is Libor plus 500 basis points, and interest on roll-up loans is Libor plus 425 bps.

There is a 1% upfront fee.

Plan terms

According to the disclosure statement, the restructuring will result in a significant deleveraging of the debtor’s capital structure, which currently includes a $197.5 million first-lien facility, a $34 million second-lien term loan, and a $6.8 million PPP loan.

The post-emergence structure would consist of a $20 million exit facility and/or DIP takeback loans, and $125 million of reorganized equity interests.

The plan provides for payment of the DIP lenders (i) in full in either cash or 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.

The plan also provides for the conversion of not less than $95 million of first-lien secured claims to equity, and treatment of about $106.5 million of first-lien deficiency claims and second-lien deficiency claims as general unsecured claims under the plan.

The company said the plan provides for a comprehensive restructuring of the debtors’ pre-petition obligations, preserves the going-concern value of the debtors’ business, maximizes all creditor recoveries, and protects the jobs of the debtors’ employees, including management.

Debt details

The company listed $100 million to $500 million in both assets and liabilities.

The company’s largest unsecured creditors are Goldman Sachs Specialty Lending Group LP, based in Irving, Tex., with a $33.95 million bank debt claim, Invesco Credit Partners Master Fund II, LP, based in New York, with a $14.96 million bank debt claim, Woodforest National Bank, based in Woodlands, Tex., with a $6.81 million PPP loan claim, First Midwest Bank, based in Chicago, with a $6.06 million bank debt claim, CIT Bank, NA, based in New York, with a $6.06 million bank debt claim, Invesco Senior Floating Rate Fund, based in New York, with a $5.87 million bank debt claim, and Invesco US Senior Loan Fund, based in New York, with a $5.52 million bank debt claim.

The Newtown Square, Pa.-based company provides technologically advanced security solutions, including residential and commercial security systems, home automation systems, smoke and carbon monoxide detectors, and other security solutions. The Chapter 11 case number is 21-10745.

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