Ascent Capital Group Inc. announced that its wholly owned subsidiary, Monitronics International Inc., entered into a restructuring support agreement with its largest creditors that will eliminate approximately $885 million in debt. Monitronics operates in the market as Brinks Home Security and is ranked as No. 3 on the 2019 SDM 100.

Under the terms of the support agreement, up to approximately $685 million of debt will be converted to equity, including up to approximately $585 million of the company’s 9.125 percent senior notes due in 2020 and $100 million of the company’s term loans. The company will also receive an additional $200 million in cash from the company’s noteholders through an equity rights offering and, subject to certain conditions, from Ascent in connection with the proposed merger with Monitronics, which cash will be used to, among other things, repay remaining term loan debt.

Following the completion of the restructuring, the company is currently expected to have approximately $990 million of total debt. Recurring monthly revenue (RMR) as of March 31, 2019, was $40.8 million.

Under the terms of the support agreement, Monitronics and its subsidiaries would effectuate the proposed transactions through a partial pre-packaged plan of reorganization under chapter 11 of the U.S. Bankruptcy Code. The company has already obtained support for the proposed transactions from holders of approximately 83 percent of its secured term loans and approximately 72 percent of its senior unsecured notes. 

Ascent Capital Group Inc. reported that the company is confident, based on the support agreement reached with its largest creditors, that it will be able to meet its financial commitments and otherwise continue to operate its business as usual throughout the restructuring period, including paying its employees, dealers and suppliers in the normal course of business and providing home security to all of its customers. As part of the anticipated chapter 11 process, the company has secured a commitment for $245 million in debtor-in-possession (DIP) financing that will be replaced by $295 million in exit financing at the completion of the reorganization. The support agreement contemplates that all trade claims (whether arising prior to or after the commencement of the voluntary chapter 11 cases) will be paid in full in the ordinary course of business, and that the company will continue operating its business without disruption to its customers, vendors, partners or employees.

“The restructuring announced today will give our company the strongest balance sheet in our industry and, in doing so, will make us an even stronger competitor and partner,” said Jeffery Gardner, president and chief executive officer of Monitronics. “With the support of our largest creditors now solidly behind us, we look forward to efficiently and definitively completing this debt restructuring, so we may realize our full potential for long-term growth and success.”

Ascent will, subject to, among other things, the receipt of the requisite approval of Ascent’s stockholders, merge into Monitronics. As a result of the merger, all assets of Ascent, including an anticipated approximately $23 million in cash, will become assets of Monitronics. Ascent’s stockholders are expected to receive approximately up to 5.82 percent of the total shares of Monitronics common stock expected to be issued and outstanding immediately following completion of the reorganization and merger, but subject to dilution by certain shares issued under a management incentive plan for the company, in exchange for all then issued and outstanding shares of Ascent common stock. If, however, Ascent is expected to hold cash equal to or in excess of $20 million but less than the target cash amount as of the date of completion of the reorganization of Monitronics under the plan, the stockholders of Ascent will receive a proportionately lower percentage of shares of Monitronics common stock, and certain participants in the equity rights offering have agreed to contribute the shortfall. If Ascent is expected to hold less than $20 million in cash as of the date of completion of the reorganization of Monitronics under the plan, the merger will not be consummated, and certain participants in the equity rights offering have agreed to contribute the full target cash amount. 

Under the terms of the support agreement, Ascent must obtain approval for the merger from its stockholders within 65 days following the date on which Monitronics commences the chapter 11 cases. If the merger is not approved within 65 days following the petition date or the merger is not completed on the effective date of the plan for any reason, the merger will not occur, and the restructuring of Monitronics will be completed without the participation of Ascent. If the restructuring of Monitronics occurs without the participation of Ascent, Ascent’s equity interests in Monitronics will be cancelled without Ascent recovering any property or value on account of such equity interests.

“It was important to us to retain value for the Ascent stockholders, and the proposed plan allows us to achieve this objective,” said William Niles, chief executive officer and general counsel of Ascent. “If the restructuring is completed with the participation of Ascent, we believe Ascent stockholders will be able to benefit from their investment in what will then be a financially stronger and more competitive Monitronics.”

A new Monitronics board of directors will be appointed at the completion of the reorganization.

Monitronics is represented in this matter by Latham & Watkins LLP, Hunton Andrews Kurth LLP, Moelis & Company LLC and FTI Consulting Inc. Ascent is represented in this matter by Baker Botts L.L.P. and B. Riley FBR Inc.

See a related story on Monitronics’ licensing agreement with the Brinks brand at www.SDMmag.com/articles/94894-moni-to-license-the-brinks-home-security-brand.