Key dates
Sept. 12, 2008: Standard Register announces Joseph Morgan Jr. as acting chief executive, as Dennis Rediker retires after serving as president and CEO since 2000.
Aug. 1, 2013: SR buys business rival Workflow One in a deal valued at $218 million, financed by assuming $210 million of long-term debt.
May 2013: In an attempt to counter plummeting stock values, SR executes a reverse stock split. Every five shares of its common and class A stock were converted to a single share, reducing the number of outstanding shares and raising the value of individual shares.
March 4, 2015: Still, SR faces problems with the declining value of its stock (NYSE: SR). Before trading on March 4, its shares were kicked from New York Stock Exchange trading for not meeting minimum share value criteria.
March 12: SR files for chapter 11 bankruptcy protection.
Managers of an East Coast hedge fund have maneuvered to buy one of Dayton’s oldest companies, Standard Register, in part by overseeing an “overwhelming” increase in that company’s debt, a committee of Standard Register’s unsecured creditors charged in court last week.
The committee of unsecured creditors charge that Silver Point Capital L.P. “orchestrated” Standard Register’s 2013 acquisition of crosstown rival Workflow One and its $210 million in debt — debt they say Standard Register could not handle.
Silver Point, with headquarters in Greenwich, Conn., was the primary lienholder of Workflow One when Standard Register acquired the latter company in August 2013. Both Dayton-based companies operate in the business communication markets.
As a result of the Workflow One acquisition, Silver Point controlled 29.6 percent of Standard Register’s common stock.
Within 16 months of the Workflow One acquisition, Standard Register faced declining revenue and “severe liquidity issues,” the committee argued in a motion filed April 6 with in the U.S. Bankruptcy Court in Wilmington, Del.
“Silver Point then advised the debtors (Standard Register) to prepare for chapter 11 with a credit bid in hand from Silver Point,” the unsecured creditors said. “By that time, the debtors had run out of time to market their assets.”
Now Silver Point is in a position to, perhaps, own Standard Register, which filed for bankruptcy protection March 12. Standard Register has a $275 million buyout offer from Silver Point.
For Standard Register — a company struggling against market headwinds — $210 million was a lot of debt. According to The Street.com, Standard Register had $1 million in cash on its balance sheet as of March 31, 2013 and was valued by the market at $60 million.
“This was a concocted deal, right from the outset,” said Tim Webb, a former senior vice president and general manager with Standard Register and a co-chair of the unsecured creditors committee. “You can consider it a loan-to-own strategy, and it’s a classic maneuver.”
In loan-to-own deals, lenders loan money to a business with an eye toward one day buying the business, turning the loan into an ownership stake.
Asked for a response, attorneys for Silver Point referred to a court filing Friday, in which they rejected the idea that its stake in Standard Register was a loan-to-own maneuver, saying its involvement in Workflow One dates back nearly 10 years.
“A ‘loan to own’ plot requiring ten years and two chapter 11 filings to implement is nonsensical,” they wrote.
In bankruptcy proceedings, unsecured creditors are paid what they are owed after secured creditors.
The committee of unsecured creditors is made up of seven members, according to court documents. They are the Pension Benefit Guaranty Corp., Webb, Georgia-Pacific Consumer Products LP, Gary Becker, Mark A. Platt, Veritiv Corporation and the Flesh Co.
In their reply, attorneys for Silver Point dismissed the committee’s objections as a “baroque conspiracy theory.”
“The committee’s objection is rich with innuendo and speculation but short on facts and law,” they wrote.
A spokeswoman for Standard Register said the company has no comment.
Standard Register management will be judged on its performance through the bankruptcy process, said Joseph Geraghty, senior managing director for Conway Mackenzie Inc.’s Dayton office. Conway Mackenzie, a turnaround and restructuring firm, is not involved in Standard Register’s bankruptcy.
Geraghty said he believes Standard Register management wanted to make the acquisition of Workflow One work. That was most likely company leadership’s “plan A,” he said.
“The very close B plan is what’s playing out here,” Geraghty said, referring to Standard Register’s sojourn in bankruptcy and Silver Point’s bid to buy the company.
“One has to wonder how the management and the board of Standard Register got into the position of agreeing to the terms of the quote-unquote (Workflow One) acquisition,” said Dennis Rediker, who served as Standard Register chief executive immediately before current CEO Joseph Morgan. Rediker retired in September 2008.
Geraghty noted that “loan-to-own” deals are not illegal and are increasingly common in merger and acquisition markets. Part of Silver Point’s business model is to position itself to buy distressed companies, to create equity or a ownership stake from debt, he said.
But the bottom line for Dayton is preserving a local employer, no matter who owns it, he added. Standard Register has more than 800 local employees, thanks in part to its Workflow One acquisition in August 2013.
“This drama … all revolves around who will ultimately own Standard Register and control its direction,” Geraghty said.
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