Updated: Select Staffing files pre-packaged Ch. 11 bankruptcy
[EDITOR’S NOTE: This story was updated at 11:55 a.m. with additional reporting and quotes from Select Staffing’s CEO.]
The Select Staffing Family of Companies, the Santa Barbara-based staffing services giant, filed a pre-packaged Chapter 11 bankruptcy on April 1 listing between $50 million and $100 million in debts and $100 million to $500 million in assets.
Select Staffing executed a leveraged recapitalization at the height of the credit bubble but then struggled with debt that had reached $535.5 million in 2010, when the company attempted to go public in a deal that was ultimately shelved. Select said Tuesday it has reached an agreement with creditors to recapitalize itself and focus on energy services as a growth field.
The company said 90 percent of its first- and second-lien holders have agreed on a plan that would provide $225 million in new equity financing. Anchorage Capital, Blue Mountain Capital Management, Pine River Capital Management and Redwood Capital Management will provide the new equity, the statement said.
The new financing will allow the company to acquire Decca Consulting, a staffing firm specializing in the energy business that billed $128 million in revenue in 2013, Select said.
Lenders will provide $50 million in debtor-in-possession financing. Select expects to emerge from a pre-packaged Chapter 11 filing with an additional $120 million in revolving credit and a term loan of $350 million. Unsecured creditors won’t be affected, Select said.
One of the largest privately-held companies in the region with $1.9 billion in revenue in 2012, Select has faced a series of problems since the 2008 financial crisis.
Led by CEO and Chairman D. Stephen Sorensen, Select Staffing has spent the past five years digging out from a mountain of debt the company took on in a go-private transaction. That deal also resulted in a reported $80 million cash-out to Sorensen and his family.
The company has reached a settlement with the California State Compensation Insurance Fund. A jury found that Select Staffing had underpaid its workers compensation premiums and awarded the State Fund $50 million. But the State Fund was unable to enforce the state court judgment because it had sued the wrong corporate entity and pursued Select Staffing in federal court.
Sorsensen, 54, also told the Business Times that he is in “advanced settlement talks” over litigation filed late last year by Bowery Opportunity Fund, which alleged, among other claims, that Sorensen had used the company as “his personal piggy bank” and had sought a restructuring deal that would treat Bowery and other creditors unfairly.
Founded 29 years ago, Select Staffing is one of the 10 largest staffing firms in the U.S., finding placements for about 300,000 temporary employees. It provides staff for accounting, finance and IT firms. The company has about 200 employees in the Tri-Counties and 1,100 around the world, according to Business Times records.
In a wide-ranging interview with the Business Times, Sorensen said the company that emerges from bankruptcy will be more diverse and better capitalized than the Select Staffing that hit the wall after the financial crisis erupted in 2008.
“This is a transformational event,” he said, adding that while he was worried about the “drama and negativity” of a bankruptcy filing, he was intent on building a new Select Staffing focused on the long-term.
The bankruptcy proceeding will result in drastically-reduced debt levels, Sorensen said, and he will be assembling a new board of directors that includes veterans of the staffing industry. Although the company will remain private, Sorensen said the goal is to institute governance practices that meet the New York Stock Exchange standards for publicly traded firms.
As part of the settlement with creditors, Sorensen and his family are contributing Decca Consulting, a separately-owned energy staffing firm, to the Select Family in a diversification move. Sorensen said he was personally contributing a “small amount” of cash, which he described as less than $10 million, to the bankruptcy settlement.
Between Decca and their cash contribution, the Sorensen family will own a stake in the “low to mid-teens” in terms of percent ownership, Sorensen said.
A hundred hedge funds
Select Staffing found itself in a deep financial hole after its principal lender, BNP Paribas, sold its Select Staffing debt. The debt wound up in the hands of what Sorensen estimated to be about 100 hedge funds. He said he’s spent the past five years in meetings and negotiations in an effort to save the company he and his family built from scratch through aggressive dealmaking.
“I would not have signed up for this, but you have to play the cards you have,” he said. “A lot of my personal liabilities are being cleared up, and we’ve secured the stability of the enterprise and our people.”
Although nearly all of the creditors have signed on, Sorensen said a small minority of equity owners has been non-responsive or remains opposed to the plan.
Select Staffing was advised by Alix Partners and represented by Goldman Sachs. Pachulski Stang Ziehl & Jones and Skadden Arps were its legal advisers. The lenders were advised by Milbank, Tweed, Hadley & Mccloy.