PE-backed Sorenson Communications seeks rapid Chapter 11 exit

The FCC provides the bulk of Sorenson’s revenue through a special fund set up to direct payments from carriers such as Verizon and Sprint under federal disability guidelines for providing phone service for the deaf and hard-of-hearing.

Sorenson reached an agreement with a majority of its owners and second lien note holders on the terms of a comprehensive debt restructuring to ”significantly strengthen” its balance sheet, the company said on March 3.

Sorenson said it is seeking expedited confirmation of a pre-packaged Chapter 11 plan of reorganization in the United States Bankruptcy Court in the Delaware. The filing is not expected to affect Sorenson’s users, employees, interpreters or suppliers. The company said it expects to emerge from the Chapter 11 process within 60 days, which would be around May 3. 

It’s not clear if GTCR or Madison Dearborn will remain owners of Sorenson Communications after the reorganization. Spokespeople for the two firms and for Sorenson Communications did not answer emails from Buyouts.

Sorenson Communications said an “evolving regulatory landscape” is forcing its industry to make changes.

The Salt Lake City company said last October that new compensation rates from the FCC are unsustainable and brush against the agency’s role in fulfilling mandates under the Americans with Disabilities Act.

“Recent FCC orders imposing technological and financial burdens on the people who use these services, as well as drastically reducing compensation rates paid to the providers of these services, run counter to the ADA mandate and threaten the future availability of such services,” the company said.

Moody’s Investors Service dropped coverage of Sorenson Communications debt on March 3, due to the Chapter 11 filing.

The ratings agency flagged a “significant” probability of default in the company’s debt in a note, due partly to the risk of reimbursement rate cuts by the FCC through its Telecommunications Relay Services Fund, which is the source of virtually all of Sorenson’s revenue.

On the plus side, Sorenson holds a dominant share of the video relay services market, offers a history of cash flow generation, “solid” EBITDA margins and the potential for growth from new products.

GTCR lists its initial investment date for Sorenson Communications on Nov. 15, 2005. Madison Dearborn also lists the company in its investment portfolio on its website, but does not provide a date.