Refinancing woes short-circuit Aspect Software

Golden Gate Capital's equity bites the dust....Aivars Lode

Golden Gate Capital-backed Aspect Software Inc. has sought bankruptcy protection, just months after a ratings agency warned that the company would have a difficult time refinancing $1 billion in debt.

The Phoenix provider of contact center software solutions and services submitted its petition in the U.S. Bankruptcy court for the District of Delaware in Wilmington on Wednesday, March 9, along with four related entities. The companies requested joint administration of their cases with parent Aspect Software Parent Inc. serving as the lead case.

Judge Mary F. Walrath has yet to set a first-day hearing in the case.

In a Wednesday declaration, Stewart M. Bloom, chairman and CEO of ASP, said it had reached a deal on a restructuring transaction that would cut $320 million in second-lien debt. Additionally, the deal would give holders of $60 million of first-lien claims 100% of the reorganized debtor’s equity.

Funds managed by GSO Capital Partners LP, MidOcean Credit Fund Management LP and Guggenheim Partners Investment Management LLC have agreed to backstop a rights offering that would lead to the $60 million in first-lien debt, the proceeds of which would be used in the paydown of the second-lien debt.

Lenders on the company’s $585 million first-lien term loan, owed $446.4 million as of Sept. 30, would receive a restated $386 million senior secured first-lien term loan, court papers show.

Second-lien noteholders, owed $275 million on 10.625% second-lien notes due May 15, 2017, would have the right to participate in a $60 million new money investment for new PIK securities that would convert into 25% of the reorganized debtor’s equity in certain circumstances, subject to dilution. (The second-lien debt was issued on April 4, 2011.)

General unsecured creditors would be paid in full in cash, the declaration said.

Equity holders would be wiped out. Golden Gate announced the $1 billion acquisition of Aspect on July 6, 2005, but the San Francisco private equity firm won’t get completely wiped out because it does have some unsecured claims.

According to the declaration, holders of 33.3% of first-lien revolver claims, 94% of first-lien term loan claims and 42% of second-lien note claims have agreed to the deal, which would serve as the basis for a restructuring support agreement.

Aspect intends to complete its restructuring within 105 days.

In its petition, Aspect indicated that certain lenders had agreed to provide the company with debtor-in-possession financing, though it did not provide additional details about the financing. Prepetition lender Wilmington Trust NA would serve as administrative agent for the DIP. (Aspect spokesman Tim Dreyer declined to provide more details on the financing.)

Bloom said that Aspect has “left no stone unturned and no path unfollowed” in a year’s worth of pursuing strategic alternatives for the company. The software company has pursued “every realistic in-court and out-of-court restructuring solution” it could, including considering a sale, a debt-for-equity swap, a standalone reorganization, and a reorganization backed by third-party investors.

Ultimately, Aspect opted to pursue its current strategy because it provided the quickest exit from Chapter 11, maximized the value of the debtor’s estate and gave the company the flexibility to pursue alternative proposals from other interested parties.

“The term sheet and the PSA elegantly achieve these goals and leaves open the possibility of consummating a higher or better alternative, to the extent one emerges during the course of these Chapter 11 cases,” Bloom said in the declaration.

The Deal reported on Dec. 7 that Aspect may have a hard time refinancing its large debt load.

Moody’s Investors Service Inc. on Dec. 7 downgraded the company’s corporate family rating to Caa2 from B3, the first-lien debt to B3 from B1 and the second-lien notes to Caa3 from Caa2. The ratings agency said the outlook is negative.

In the report, Moody’s said the downgrade was driven by challenges the company faces in offsetting declines in its legacy product lines, high debt levels and upcoming debt maturities.

Aspect’s legacy products include its Signature call center infrastructure software, which helps a company run call centers, direct calls and control how the calls are distributed at the call center.

In the report, the ratings agency said Aspect is a longstanding leader in the contact center industry but noted: “The business is evolving, and it is unclear if the landscape will favor Aspect’s full-suite hardware and software competitors. Aspect remains particularly exposed to being displaced from its legacy installed base as customers consider contact center purchases as part of enterprise wide unified communications build-outs rather than standalone decisions – a shift that benefits some of Aspect’s key competitors.”

At the time, the company had fully drawn down on its $30 million first-lien revolver and had $446.4 million outstanding on its first-lien term loan as of Sept. 30. The revolver and term loan, led by administrative agent Wilmington Trust, are priced at Libor plus 525 basis points, with a 1.75% floor on Libor.

The revolver matures on March 8, 2016, and the term loan comes due on May 7, 2016. The first-lien debt was issued on May 7, 2010.

Aspect had $936.59 million in assets and roughly $1 billion in liabilities as of Sept. 30.

In its petition, the company said its largest unsecured creditors include U.S. Bank NA (owed $320 million), Golden Gate ($4.83 million), Microsoft Corp. (MSFT) ($1.53 million), Ernst & Young LLP ($1.16 million) and United States Advanced Network Inc. ($824,654).

William A. Guerrieri, James H.M. Sprayregen, Joshua A. Sussberg and Aparna Yenamandra at Kirkland & Ellis LLP and Morton Branzburg, Domenic E. Pacitti and Michael W. Yurkewicz at Klehr Harrison Harvey Branzburg LLP are debtor counsel. Sprayregen, Sussberg, Pacitti and Branzburg couldn’t immediately be reached for comment Wednesday.

By Kelsey Butler - The Deal