Interface Security Systems closes on $600m refinancing for new capital structure

ST. LOUIS and PLANO, Texas—Interface Security Systems on Aug. 3 announced the completion of a $600 million refinancing for a new capital structure that will facilitate strategic growth and expansion, with substantial contributions of new growth equity capital of $125 million from SunTx Capital Partners and Prudential Capital Partners.

Pursuant to the $600 million refinancing, the company's existing debt—including the $50 million Capital One revolving credit facility, the $230 million senior secured notes due 2018 and the $115 million senior contingent cash pay notes due 2018—have been redeemed in full and the $67 million PIK senior notes due 2019 have been exchanged for new PIK senior notes due 2023.

The new debt capital structure includes a $290 million senior credit facility consisting of a $230 million term loan A and an undrawn $60 million revolving credit facility led by Capital One. Additionally, Prudential Capital Partners will be providing $100 million of senior subordinated notes.

“With a new capital structure Interface is now ideally positioned to continue capitalizing on opportunities for accelerated growth and expansion,” Ned N. Fleming, III, founder and managing partner of SunTx Capital Partners, said in the announcement. “We are excited to invest additional growth-equity capital into the company and, in particular, to partner with Prudential Capital Partners. We look forward to further enhancing our productive partnership with Interface, as the company continues to achieve record growth.”

“Interface has been a long-standing customer and we are excited to be a part of this significant capital raise, which will help support continued growth for the business,” John Robuck, managing director of Capital One's Security Finance team, said in the announcement. “Interface's unique bundled service offering, its emphasis on growing segments of the commercial security sector, and the strength of its equity partners all contribute to their leading position in the market.”

Interface, headquartered here, provides a comprehensive bundle of monitored, mission-critical managed network, physical security and business intelligence services to large multi-location businesses over a private PCI-compliant cloud-based network.

“This recapitalization is an important step forward for the company as we continue to lead the retail digital technology transformation with our cloud-based bundled IP managed security, network and interactive video services,” Michael Shaw, CEO of Interface Security Systems, said in a prepared statement. “Moving forward now with a stronger balance sheet and improved cash flows, the company will focus on increasing our sales and marketing initiatives, expansion into new vertical markets, investment in new technologies and development of additional managed services that will enable us to provide an even broader range of mission critical cloud-based bundled services to both our existing customers and new clients.”

Jeff Frye, SVP for Interface, told Security Systems News, “It is very exciting to not only have validation from our existing partner, SunTx, which has been with us for well over a decade, but also to have our growth backed by the assets of a global capital partner, Prudential Capital.” Frye noted that this support will help the company to “expand the vertical markets where our services are relevant, and to bring to market quicker some of our better ideas for new products, most of those wrapped around business intelligence.”

He explained that Interface also plans within the next 12 months to double the capacity of its data centers to include new sites in Chicago and Plano, Texas, in addition to existing data centers in Atlanta and Salt Lake City. “We are adding additional data centers so that we can provide faster, better, quicker services and take advantage of some emerging technologies like software-defined networking,” said Frye.

Imperial Capital LLC acted as financial advisor to Interface and Akin Gump Strauss Hauer & Feld LLP served as legal counsel for Interface. Schiff Hardin LLP served as legal counsel for Prudential Capital Partners; Buchanan Ingersoll & Rooney PC served as legal counsel for the lenders; and Wilmer Cutler Pickering Hale and Dorr served as legal counsel for the bondholders.

“We could not be more excited at the successful completion of this new financing for Interface,” John E. Mack III, executive vice president, co-head of investment banking and mergers & acquisitions at Imperial Capital, said in the announcement. “It is gratifying to be associated with such an innovative and successful company at the front edge of new and more effective security and business intelligence solutions within the security industry. We appreciate the confidence placed in us by the management team and SunTx to lead this new financing, which was oversubscribed, and we look forward to continuing to work alongside the company and its investors for more success in the future.”

Mack told SSN: “This is a strong 'good-news story' here representing validation from big players in the capital markets around a leading company in the industry.”