Protection One sees progress in its long and winding journey

February 17, 2005 LAWRENCE, Kan. - As Richard Ginsburg, the president and chief executive officer of Protection One, put it last week when he spoke at the Barnes Buchanan Mallon Conference in West Palm Beach, Fla., the company has weathered through its own version of the perfect storm. But last week, that storm subsided as the company completed its out-of-court debt restructuring, and avoided Chapter 11 bankruptcy, with affiliates of the Quadrangle Group, the private equity firm that purchased the number three company from Westar Energy in 2004 for $122 million. “We have led the company though the largest operating restructuring in the alarm industry,” Ginsburg said at the event. The debt restructuring agreement reduced the company’s obligations under its credit facility by $120 million in exchange for 16 million shares of Protection One’s common stock on a post-reverse stock split basis. As a result, Quadrangle now owns more than 97 percent of the company’s stock. Protection One also paid $3 million in cash towards its credit facility and came to an agreement with Quadrangle to extend the maturity date of its credit until Aug. 15. In addition, the company’s previous owner, Westar Energy, agreed to pay Protection One $73 million to settle tax sharing-related obligations. "The restructuring really came out of the hide of Westar, which was appropriate,” said Michael Barnes, managing partner of Barnes Associates. “It's the price of ownership, especially when you are forced to sell a poorly consolidated business into a tough market.” When the company came under Quadrangle’s control it was burdened with approximately $550 million in debt. Now, the company accounts for $383 million in debt - a reduction of 30 percent. Protection One accumulated its burden during its years under Westar’s ownership, when the mass marketing of the late 1990s was at its height. Although a change in ownership was welcomed, its debt due dates were on the horizon. “The day after Quadrangle closed, debt maturities hit $250 million,” Ginsburg said. “This was simply an issue of debt maturing faster than we had ever anticipated.” According to Ginsburg, the company had two choices - a Chapter 11 filing or an out-of-court restructuring.  “Nearly 80 percent of companies in our situation would have filed for Chapter 11,” he said. “A Chapter 11 filing wasn’t good for Protection One or the industry.” For more on this story, see the April issue of Security Systems News.