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What does My Alarm Center’s bankruptcy mean  
May 7, 2021
What does My Alarm Center’s bankruptcy mean  
          On April 26, 2021 My Alarm Center, part of Secure Home Holdings, filed Chapter 11 bankruptcy and submitted a “pre-packaged” Plan of Reorganization.  Why did it file?  The short answer is that this is essentially an ownership swap where secured lenders convert the debt to equity ownership. 
          According to Secure a primary cause of the bankruptcy filing was that it was carrying significant revolving debt [credit facilities] and was required by the lenders to operate in ways that were either too costly or not practical, resulting in certain operating violations.  As a result of those violations Secure was unable to access new funds under revolving credit facilities which hampered its ability to fund and grow its business by generating new contracts.
          Unsecured vendors [trade debt] will be paid on claims for debt incurred within 90 days of the bankruptcy filing.  Tax debt will be paid in the future by the emerging companies.  All other creditors will receive nothing.
          The obvious question is how can it do this, and the answer is simple; they obtained the consent of the secured creditors before it filed the case.  A “pre-packaged” Plan means that Secure obtained $20 million in new financing to pay the costs of the bankruptcy and to allow it to pay its post-filing operating costs (not including debt servicing payments).  It also negotiated a deal with its secured lenders whereby 70% of those lenders agreed to convert $240 million of debt into $145 million of equity shares in the emerging debtors.  This was essential because in order to obtain Bankruptcy Court approval of a Plan of Reorganization a debtor must obtain approval by majority votes of an impaired class of creditors.  By not paying the secured creditors in full in cash for the claims, and by giving them a reduced equity share instead, those secured creditors are an impaired class and they have already agreed to being affected in this manner.  As a result Secure was able to exclude payment for all other impaired classes since it no longer needs the vote of those creditors. 
          By way of example, Secure is proposing to convert $107 million of default interest into unsecured claims, which will receive a zero distribution.  Similarly, any other unsecured creditor is also going to receive a zero distribution.  Inter-company loans will also receive nothing.
          As a result, if the Plan is confirmed, Secure will have shed hundreds of millions of dollars of secured and unsecured debt and the former secured creditors will now hold what can only be presumed to be the majority equity ownership of the emerging debtors.
          This will permit My Alarm Center to continue in operation in a vibrant way.
          Alarm companies who borrow money need to be very careful about the lending terms.  Making the payments is often not enough.  When operating terms are violated a default occurs and that triggers increased interest on the debt, could change payment schedules and could require additional onerous operating requirements, making it all but impossible to continue in business.
          Shakespeare, through Polonius counseling his son Laertes when preparing his trip to Paris said it better than me: “Neither a borrower nor a lender be”.  Hamlet.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301