The bank debt of Encompass Services traded at 27 last week, down from the 35 level where traders had quoted the paper two weeks ago. The trade comes as the company announced that it has received a waiver to avoid defaulting on its bank debt due to covenant non-compliance. The waiver, which is secured through Oct. 15, was needed after the company maintained an outstanding amount on its revolver past Sept. 30.
In addition, the company also stated that a rights offering, which incorporated a $35 million equity investment from Apollo Management, is not likely to be completed. In exchange for a previous amendment to its bank loan, the company had pledged $31 million from the equity injection to pay back bank debt holders. Encompass, therefore, will be in default under its bank agreement if the rights offering is not completed. The company has announced that it is exploring options for restructuring its debt.
Encompass' current woes are the result of a highly leveraged position in the face of a slowdown in commercial construction. When Moody's Investors Services downgraded the company in mid-summer, it said that lower-than-expected EBITDA would impact the ability of the company to stay in compliance with its debt-to-EBITDA and interest coverage ratios (LMW, 7/8). Calls to Darren Miller, cfo, and an investor relations spokesman were not returned by press time.