Corporate Risk Holdings 3480150Z
October 01, 2015 - 3:34pm EST by
Akritai
2015 2016
Price: 14.00 EPS NA NA
Shares Out. (in M): 22 P/E NA NA
Market Cap (in $M): 308 P/FCF NA NA
Net Debt (in $M): 1,082 EBIT 0 0
TEV ($): 1,389 TEV/EBIT NA NA

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  • Distressed debt
 

Description

 
1) Corporate Risk Holdings is currently an undiscovered and underfollowed name, traded via broker desks (mainly Baird and Stifel). Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential to more than double) from $14/share today to $30/share. Each turn of estimated 2016 EBITDA is $7/share.
 
2) Corporate Risk Holdings holders are distressed debt investors whose motivation is to monetize their investment now that it has emerged from bankruptcy.
 
3) Corporate Risk Holdings has three discrete businesses which can be sold one by one.
 
4) Corporate Risk Holdings was a Providence Equity buy-out. Providence’s equity went to zero. Altegrity’s second liens were given 96% of the equity in Chapter 11.
 
In February 2015, Altegrity, the security firm that vetted the infamous NSA contractor Edward Snowden for the U.S., filed for bankruptcy after state-sponsored hackers cost it two government contracts which closed down one of its subsidiaries, USIS.
 
Altegrity was left with three discrete businesses:
 
HireRight: Provider of employment background screening, drug/health screening and employment eligibility solutions.
 
Kroll Ontrack: E-discovery technologies and data recovery solutions.
 
Kroll Investigation (which contains ID Shield): Investigations and due diligence advisory services, risk mitigation and verification services, cybersecurity practice and compliance/ monitor ships, and ID Shield.
 
Second-tier bondholders exchanged debt for 96% of stock in the refinanced company. Bondholders promoted David Fontaine from within to be CEO and reconstituted the board. Providence no longer has any equity or managerial control. The U.S. government released Corporate Risk Holdings from any past liability.
 
Providence could not sell the pieces, pay down debt and be left with anything for its equity due to its low tax basis. In
Chapter 11, the tax basis stepped up to fair market value at the time of emergence, or approximately $1.3B TEV, or
approximately $14/share on the current capital structure.
(See Disclosure Stmt. pp. 127-128 and Ex. F-3) Given the step up, bondholders can monetize the pieces with minimal tax
consequences.
 
5) Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential for a 130% upside - or
from $14/share today to $30/share). Corporate Risk Holdings is currently trading at $14/share or 9.7 times est. 2016
(FYE 9/30) EBITDA of $143mm. Current market price of $14/share times 22mm fully diluted shares outstanding, plus
$1082mm of debt, equals $1389mm or 9.7 times $143mm of estimated FYE 2016 EBITDA. (I am not including BS cash). I
believe acquisitions of companies comparable to two of Corporate Risk Holdings’ parts make it worth north of 12 times
or over $30/share. Each turn of estimated 2016 EBITDA is $7/share.
 
Goldman Sachs bought Sterling Backcheck, a HireRight comparable for 13.7 times adj/ EBITDA. OMERS bought
Document Technologies, an Ontrack comparable, for an estimated 12 times EBITDA.
 
 
Common stock: 20mm (basic shares) and ~22mm (fully diluted) including mgt/ director grant dilution (given in a
supplement to the docket).
 
On page 377 of the disclosure statement (the pdf) you can see full financials including projections. Above is the overview from page 377
 
All information in this write-up is publically available via the bankruptcy docket. To facilitate research on the stock I have listed the disclosure statement below. The disclosure statement was filed on 5/16/15, docket # 533.
 
https://cases.primeclerk.com/Altegrity/Home-
DocketInfo?DocAttribute=1307&DocAttrName=PLANAMP%3BDISCLOSURESTATEMENT
 
Further information beyond the disclosure statement can be obtained by contacting the company directly. This write-up only draws from the disclosure statement as well as an old publically available Altegrity prospectus . 
 
 
 
 
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Asset sales, segment monitization, hiring of bankers to sell company, potential listing if the company isn't acquired first. 

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    Description

     
    1) Corporate Risk Holdings is currently an undiscovered and underfollowed name, traded via broker desks (mainly Baird and Stifel). Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential to more than double) from $14/share today to $30/share. Each turn of estimated 2016 EBITDA is $7/share.
     
    2) Corporate Risk Holdings holders are distressed debt investors whose motivation is to monetize their investment now that it has emerged from bankruptcy.
     
    3) Corporate Risk Holdings has three discrete businesses which can be sold one by one.
     
    4) Corporate Risk Holdings was a Providence Equity buy-out. Providence’s equity went to zero. Altegrity’s second liens were given 96% of the equity in Chapter 11.
     
    In February 2015, Altegrity, the security firm that vetted the infamous NSA contractor Edward Snowden for the U.S., filed for bankruptcy after state-sponsored hackers cost it two government contracts which closed down one of its subsidiaries, USIS.
     
    Altegrity was left with three discrete businesses:
     
    HireRight: Provider of employment background screening, drug/health screening and employment eligibility solutions.
     
    Kroll Ontrack: E-discovery technologies and data recovery solutions.
     
    Kroll Investigation (which contains ID Shield): Investigations and due diligence advisory services, risk mitigation and verification services, cybersecurity practice and compliance/ monitor ships, and ID Shield.
     
    Second-tier bondholders exchanged debt for 96% of stock in the refinanced company. Bondholders promoted David Fontaine from within to be CEO and reconstituted the board. Providence no longer has any equity or managerial control. The U.S. government released Corporate Risk Holdings from any past liability.
     
    Providence could not sell the pieces, pay down debt and be left with anything for its equity due to its low tax basis. In
    Chapter 11, the tax basis stepped up to fair market value at the time of emergence, or approximately $1.3B TEV, or
    approximately $14/share on the current capital structure.
    (See Disclosure Stmt. pp. 127-128 and Ex. F-3) Given the step up, bondholders can monetize the pieces with minimal tax
    consequences.
     
    5) Corporate Risk Holdings is trading at a significant discount to value (we think there’s a potential for a 130% upside - or
    from $14/share today to $30/share). Corporate Risk Holdings is currently trading at $14/share or 9.7 times est. 2016
    (FYE 9/30) EBITDA of $143mm. Current market price of $14/share times 22mm fully diluted shares outstanding, plus
    $1082mm of debt, equals $1389mm or 9.7 times $143mm of estimated FYE 2016 EBITDA. (I am not including BS cash). I
    believe acquisitions of companies comparable to two of Corporate Risk Holdings’ parts make it worth north of 12 times
    or over $30/share. Each turn of estimated 2016 EBITDA is $7/share.
     
    Goldman Sachs bought Sterling Backcheck, a HireRight comparable for 13.7 times adj/ EBITDA. OMERS bought
    Document Technologies, an Ontrack comparable, for an estimated 12 times EBITDA.
     
     
    Common stock: 20mm (basic shares) and ~22mm (fully diluted) including mgt/ director grant dilution (given in a
    supplement to the docket).
     
    On page 377 of the disclosure statement (the pdf) you can see full financials including projections. Above is the overview from page 377
     
    All information in this write-up is publically available via the bankruptcy docket. To facilitate research on the stock I have listed the disclosure statement below. The disclosure statement was filed on 5/16/15, docket # 533.
     
    https://cases.primeclerk.com/Altegrity/Home-
    DocketInfo?DocAttribute=1307&DocAttrName=PLANAMP%3BDISCLOSURESTATEMENT
     
    Further information beyond the disclosure statement can be obtained by contacting the company directly. This write-up only draws from the disclosure statement as well as an old publically available Altegrity prospectus . 
     
     
     
     
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise do not hold a material investment in the issuer's securities.

    Catalyst

    Asset sales, segment monitization, hiring of bankers to sell company, potential listing if the company isn't acquired first. 

    Messages


    SubjectRe: CapEx and Excess FCF
    Entry10/12/2015 12:31 PM
    MemberAkritai

     

    Thanks for the post! I am happy to answer your questions on the name; however please refer to the disclosure as it provides answers to your questions and much much more. 

     

    What is the Company's CapEx (including capitalized software) $ relative to its $78m of D&A? 

    The 2016 forecast capex is $27mn per the Disclosure Statement, Exhibit E, p16. It is low relative to total D&A ($78mn) only due to the amortization of the IP’s tax basis. 

    Management

    Management has changed over the last two years. Now equitized second lien holders control the board, although interest is high, I believe this incentivizes equity to monetize the subsidiary businesses more quickly. 

     

    Projections

    All of CRH’s segments are in growth businesses. 

     

    There are plenty of articles available on Google regarding Kroll Ontrack’s expansion. The Radicati Group forecasted the eDiscovery space by to grow to $3.8 billion in 2018 from $1.6 billion in 2014, a ramp in EBITDA is warranted. This is after Gartner’s estimates of the sector growing 10.4% in 2014.

     

    Kroll competes in the cyber security space and monitoring, which is growing due to concerns with internet security. 

     

    HireRight grows with the recovery in employment, which is improving both domestically and internationally. 

     


    SubjectRe: novice questions
    Entry10/12/2015 12:32 PM
    MemberAkritai

    Yes, you can buy them from the special sit / distressed desks, Baird and Stifel are the most active.

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