Alexander Gallo Holdings

Situation

Since its inception in 1999, AGH had grown both organically and through roll-up acquisitions to become one of the largest providers of court reporting and legal support services in the United States, with approximately $150 million in revenue and $250 million in debt. However, the combination of debt service related to a highly-levered acquisition in late 2008, unforeseen inherited litigation costs related to that acquisition, and generally poor macroeconomic conditions left the Company short of working capital.As a result, from the end of 2009 through June 2011, revenue and EBITDA declined steadily by approximately 25% and 50%, respectively. By June of 2011, with a Total Debt/ EBITDA ratio of approximately 18.0x and a Secured Debt / EBITDA ratio of approximately 5.0x, the Company’s ability to meet its debt service obligations was in doubt and the Company faced the threat of liquidation.

Engagement

Initially upon Gordian’s engagement in May 2011, Gordian facilitated negotiations between AGH’s CEO, founder, and majority equity holder, on one hand, and an AGH security holder and designator of two Board seats, on the other, with regard to a potential equity investment. Shortly thereafter, it became clear that the Company would incur covenant breaches under its first lien debt agreement.Gordian, along with the Company’s legal advisors, moved quickly to help negotiate waivers under AGH’s secured debt agreements. In parallel with waiver negotiations and providing ongoing assistance to the Company in evaluating its strategic alternatives, Gordian ran an extensive fast-track capital raising process to identify replacement and / or expansion capital in the Company. The timing of the process was initially driven by the terms of the waiver, which essentially required that a transaction be complete by September 2011. By the end of July 2011, Gordian had obtained five proposals for financing for the Company. The Company selected the proposal from Bayside Capital (“Bayside”), which contemplated providing subordinated DIP financing pursuant to a Chapter 11 filing. As the Company’s cash position faltered in the summer, Gordian negotiated the purchase of the Company’s second lien debt position by Bayside, which ultimately enabled the August funding of an incremental $5 million in Bayside pre-petition emergency financing to bridge to a “soft-landing” bankruptcy filing in early September, and ensured that the Company would not miss payroll and tax obligations.When Bayside elected to provide a $20 million DIP financing facility and act as the Stalking Horse Bidder (at a price of $101.6 million) pursuant to a Section 363 filing, Gordian conducted a comprehensive auction process for the assets of the Company, reaching out to over 70 potential bidders, both strategic and financial.

Outcome

At a purchase price of more than $100 million (approximately 9x last twelve months’ EBITDA), the sale was an extraordinary success, particularly in light of the abyss the Company found itself staring into prior to filing. Gordian was able to orchestrate a process that not only resulted in significant recoveries to the Company’s constituencies, but also allowed the Company to exit bankruptcy in less than three months. Among other benefits, the sale provided for:

• Full repayment of approximately $71 million in first and second lien secured debt (as well as the satisfaction of more than $7.5 million of DIP financing);
• Recoveries of approximately 67 cents on the dollar to non-insider unsecured creditors;
• Estimated payment of more than $6.4 million in administrative expenses and priority claims, including $1.2 million to wind down the estates; and
• Preservation of hundreds of jobs.