Tuesday, February 3, 2015

Altegrity to Declare Chapter 11

WSJ reported:

Altegrity Inc. expects to file for Chapter 11 bankruptcy after reaching the terms of a restructuring agreement with bondholders owed $1.3 billion, the company said Tuesday.

The service began as a government function. It was one of the first privatized, before coming an investment darling for various private equity underwriters.  Here's the history:

1995-President Bill Clinton spins off the security investigation arm of the Office of Personnel Management. It is an employee stock owned firm. Government Executive reported "When USIS was formed, lawmakers were concerned about the job risk for employees leaving the protected confines of the federal government for the business world." It granted the company an exclusive contract in 1996 to perform background investigations and related work.

1999-The Carlyle Group invests in USIS as a minority shareholder.

2001-OPM conducted a new competition for its investigations work, and USIS won the contract again.

2003-Welsh, Carson, Anderson & Stowe (WCAS) paid $545 million for the firm. Employees got $500 million, while the Carlyle Group netted $45 million. Carlyle reinvested $172 million, along with USIS senior managers.

2007-Providence Equity Partners purchased USIS for $1.5 billion at the height of the buyout boom. WCAS, the Carlyle Group, and other investors made nearly a $1 billion profit. 

Carlyle and company garnered a $1 billion from the sale that burdened the company a crushing debt load.  The bankruptcy is expected to reduce Altegrity's debt by $700 million.  That's over a 50% haircut.  It will be interesting to see who owes who in credit default swap settlements.

It took nearly two decades for lawmakers' job risk concern to manifest.

The loss of the contracts led USIS to lay off more than 2,500 employees and effectively shut down its background-check business.
Altegrity is down to two divisions, corporate investigator Kroll and employment screener HireRight.  I offer the following tag line for the firm as it tries to rebuild:

Altegrity:  PEU Built, PEU Imploded

No charge.

Update 4-24-15:  The company paid executive bonuses of $26 million before filing for bankruptcy. Providence Equity Partners senior advisor Admiral Michael Mullen received $125,000.  It's the PEU way to enrich those at the top before shafting employees, vendors and lenders.

Update 12-19-15:  WaPo reported "665,000 cases had been dumped between 2008 and 2012. Internal documents “confirmed that USIS senior management was aware of and directed the dumping practices,” it asserted. The alleged motive was simple greed: “This practice was followed in order to meet USIS’s internal goals for completed cases and, therefore, to increase the company’s revenue and profits.”  The lawsuit cited emails from executives detailing the alleged practice, such as the one that proclaimed: “Shelves are clean as they could get. Flushed everything like a dead goldfish.”