Security Sales &Integration has learned that Protection One is considering as an option a restructuring plan that would include filing for Chapter 11 bankruptcy. In an annual report, form 10-K filed by Protection One with the Securities and Exchange Commission, the company says it continues “to face liquidity problems caused by our significant debt burden and continuing net losses” and is in discussions with Quadrangle and its other debt holders on a restructuring plan that would be filed under Chapter 11 of the U.S. Bankruptcy Code.

Protection One was sold by Westar Energy Inc. to the Quadrangle Group LLC – a New York-based investment firm – on Feb. 13. As part of the sale, Quadrangle took up $547 million in debt that Westar had tied up in Protection One. A spokesperson with Protection One cautions that Chapter 11 is only one of the options the company is considering to deal with its debt.

“As a publicly traded company, we are required under securities laws to provide information to company stakeholders on known events, trends or uncertainties, which may or may not occur and that could affect the company in the future, which is what we have done with this Form 10-K,” says Protection One spokeswoman Robin Lampe. “As a result of our former parent’s sale of its interests in our company … we must account for a number of different scenarios that could possibly happen, particularly any potentially negative outcomes, in order to fulfill our obligations to our stakeholders and the public markets.”

Lampe also notes that past Protection One filings with the SEC alluded to consideration of a Chapter 11 filing. However, looking at Protection One’s filings during the past year, this is the first time internal discussions of Chapter 11 have been mentioned.

Under Chapter 11, a company’s management may continue to run the day-to-day business operations, although the bankruptcy court must approve all significant business decisions. A noteworthy recent example of a Chapter 11 bankruptcy was Kmart, which filed for Chapter 11 in January 2002 but emerged from bankruptcy last May. There is no mention in Protection One’s 10-K of the possibility of a Chapter 7, where a company stops all operations and goes completely out of business.

Protection One has retained Houlihan, Lokey, Howard & Zukin Capital as its financial advisor.

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