Debt collection agency SquareTwo Financial Services announced it reached an agreement with Resurgent Holdings LLC under which Resurgent or one or more of its subsidiaries or affiliates will acquire substantially all of SquareTwo’s portfolio of assets. The acquisition will occur through the purchase of the equity interests of certain of SquareTwo’s subsidiaries, including its Canadian subsidiaries and business. Resurgent through its subsidiaries and affiliates is a purchaser, manager and servicer of domestic and international consumer debt portfolios across the credit spectrum. It is an affiliate of Sherman Financial Group LLC, a privately-held global investment company.
Upon completion of the transaction and following the transfer of the servicing of accounts in the U.S. to Resurgent and its affiliates, SquareTwo will wind down its U.S. operations, including those of its subsidiary Fresh View Solutions. The wind-down process is expected to be completed by the end of 2017. SquareTwo’s Canadian operations will continue under Resurgent’s ownership.
To facilitate the transaction in an expedient manner, SquareTwo and its affiliates filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York. SquareTwo will also be filing for recognition of the U.S. chapter 11 proceedings under Part IV of the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice.
SquareTwo enters chapter 11 having already secured the agreement and necessary support from a significant number of its secured lenders to undertake a “prepackaged” restructuring plan that contemplates a change of control transaction pursuant to the chapter 11 restructuring plan. The Company expects to complete this “prepackaged” process in an expedited manner, pending receipt of Court approval, after which time the transaction with Resurgent will be completed.
SquareTwo expects to continue normal day-to-day operations during the restructuring process. This includes the payment of wages and benefits to employees in the normal course, payment in full to vendors for goods and services provided during the reorganization process, and continued asset recovery work with consumers to resolve outstanding financial obligations. To this end, the Company has secured commitments for debtor-in-possession (DIP) financing which will ensure it is able to continue ordinary course business and meet its financial obligations throughout the chapter 11 case.
For customers with an active account with any of SquareTwo’s subsidiaries, including Fresh View Solutions and SquareTwo’s law firm partners, the restructuring plan will not have any effect on such customer’s account or the money owed. Customers should continue to make payments as usual.
“Unfortunately, changes in the regulatory and business environment over the last several years have had a significant economic impact on the company,” said J.B. Richardson, Jr., Chief Operating Officer of SquareTwo. “We reviewed many strategic alternatives over the past nine months to find a path that would allow us to operate competitively and continue operations with our workforce in place. We ultimately determined that the sale to Resurgent and the attendant wind-down was the most value-maximizing approach. We would like to thank our employees for their dedication to SquareTwo during a challenging time and we are committed to handling the transition period in a professional and respectful manner.”
The Company has made customary filings, including first day motions, with the Court, which, once granted, will help ensure a smooth transition into the reorganization process without business disruption. The motions are expected to be addressed promptly by the Court. Once addressed by the Court, the Company will seek approval in Canada of the U.S. Court’s orders approving the first day motions through the recognition proceedings to facilitate continued Canadian operations and a prompt transaction completion.
AlixPartners is serving as restructuring advisor and Keefe, Bruyette & Woods, Inc. is serving as SquareTwo’s financial advisor. Willkie Farr & Gallagher LLP is providing legal counsel in the U.S. and Thornton Grout Finnigan is providing legal counsel in Canada to SquareTwo. Foley & Lardner LLP is providing legal counsel in the U.S. and McCarthy Tétrault LLP is providing legal counsel in Canada to Resurgent Holdings LLC.