Encompass Services' bank debt remained stable, albeit in the 31-32 context, after the company announced that it would pursue a pre-packaged bankruptcy plan. The restructuring plan stipulates that $200 million of the company's outstanding $600 million of bank debt will be rolled into a new term loan and the remaining amount will be converted into an 80% equity stake in the reorganized company. One trader estimated that the recovery value of the bank debt could be as low as 35 under this scenario. No trades could be confirmed last week, but one dealer noted that two weeks ago market players were interested in the paper for the value of the equity alone.
The pre-packaged bankruptcy plan also provides for trade claims to be paid in ordinary course and for the 101/ 2% senior subordinated note holders to exchange their exposure for a 20% stake in the reorganized company. All junior subordinated notes, redeemable convertible preferred stock, common stock and outstanding options and warrants would be cancelled.
Encompass has yet to secure creditor support for the plan, but the company maintains this is the best option. "The plan offers the best recovery for all concerned constituents," a company spokesman said, explaining that Encompass was looking for support from its senior lenders.
One market player speculated that because of the nature of the company's business providing mechanical and electrical services and cleaning systems for the commercial, industrial and residential markets the recovery value for bank debt holders could diminish as time drags on due to the possibility of the company losing contracts. The bank debt is secured by the inventory, receivables and all the assets of the company, one analyst noted. But Encompass does not have much in the way of fixed assets, so basically the receivables are the collateral for the bank loans, he said.