Frontenac-backed company in Chapter 11; Littlejohn bids

The company plans to conduct a court-supervised auction of its business, according to court filings.

After Hospitality Staffing was acquired for $80 million in 2010, it discovered problems with employee verification and other operational issues. The company was squeezed by the cost of correcting those problems, a sluggish economic recovery, and increased competition, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware.

In April, the company defaulted on its secured credit facility.

Hospitality Staffing, which calls itself the largest U.S. provider of housekeeping staff for hotels, has about $60 million in secured, unsecured and trade debt, according to court documents. It employs 6,700 people and operates in 35 states. It said in a statement it does not expect to make meaningful cuts in its workforce.

The company is seeking court approval to borrow $7 million to fund its business until the auction is completed, which is expected by the end of the year.

In the auction, an initial, or “stalking horse,” bid will come from affiliates of Littlejohn & Co, a private equity firm that specializes in investing in distress. The bid will be the $23 million in secured debt that Littlejohn is owed, according to the court filings.

Rick Holliday, the company’s president and chief executive, said in a statement the sale of the company would clean up the balance sheet and allow a stronger company to emerge from bankruptcy.

The Atlanta-based company last year settled a class action lawsuit by workers at Indianapolis hotels who alleged they were denied overtime pay. The terms of the agreement were confidential.

At least nine Hospital Staffing affiliates also filed for bankruptcy.