Telecom servicer QualTek enters bankruptcy to cut $307 million debt
By Dietrich Knauth
(Reuters) - Telecommunications and power contractor QualTek Services Inc filed for bankruptcy on Wednesday, armed with a restructuring deal that could slash $307 million of the company's $625 million debt.
QualTek filed for Chapter 11 protection in Houston, saying that increasing debt costs were beginning to cut into its operating budget, at a time when inflation was already causing it to pay more for labor and energy.
Rate hikes caused QualTek's 2022 interest expense to balloon by 33% to $59.3 million, according to its court filings.
QualTek went public through a special purposes acquisition vehicle (SPAC) deal in February 2022, just before the Federal Reserve began raising interest rates in an effort to curb inflation in the U.S. economy. QualTek's public offering raised "far less" equity investment than the company anticipated, requiring it to take on additional interest-bearing debt, according to court filings.
QualTek enters bankruptcy with a restructuring agreement that is supported by 80% of its lenders, who are collectively owed $625 million. The restructuring deal would reduce the company's overall debt by $307 million and provide $40 million of new loans that will fund the company's post-bankruptcy operations.
"We are entering this process with the overwhelming support of our lenders and customers, which we expect will enable us to move through this process quickly and without disruption," QualTek CEO Scott Hisey said in a statement.
QualTek hopes to emerge from bankruptcy within 65 days, and it plans to pay vendors in its supply chain and other junior creditors in full.
The Blue Bell, Pennsylvania-headquartered company has 1,800 employees, and it provides a range of telecom and power infrastructure services throughout the United States. The company had $753.1 million in revenue for 2022, more than half of which came from providing infrastructure support to wireless phone companies like AT&T, Verizon, T-Mobile, and Comcast, according to court documents.
The case is QualTek Services Inc, U.S. Bankruptcy Court for Southern District of Texas, No. 23-90584.
For QualTek: Joshua Sussberg, Christopher Greco and Jaimie Fedell of Kirkland & Ellis; and Matthew Cavenaugh of Jackson Walker
Overstretched U.S. companies feel pinch of higher borrowing costs
Special Report: How Wall Street banks made a killing on SPAC craze
(Reporting by Dietrich Knauth)