The Wall Street Journal reported Wednesday that Service King has begun talks with creditors about restructuring the company’s debt, with a Chapter 11 bankruptcy filing among the possibilities.

The WSJ cited unnamed “people familiar with the matter” in its report. They told the Journal that lenders in the company’s $775 million term loan have signed nondisclosure agreements with the company to begin negotiations ahead of a debt maturity due in July.

Blackstone, Service King’s majority owner since 2014, declined to comment on the report. Service King did not reply to an email from RDN.

The privately held company projected earnings of around $125 million for 2021 when it refinanced some of its debt last January, but it ended up losing money over that period, the WSJ reported.

In a Jan. 24 announcement of the hiring of airline executive Peter Hunt as its new chief financial officer (CFO), Service King mentioned the “current environment of labor shortages and supply chain disruption” the business is experiencing.

The “vast majority” of Service King’s revenue comes from its agreements with national and major insurance carriers, according to Moody’s Investors Service.

Service King has warned its lenders that it is running out of cash and may not be able to repay debt, endangering its ability to remain in business, Bloomberg News reported on Nov. 17.

Citing unnamed sources familiar with the company’s most recent financial results, Bloomberg reported that the company had $31 million in cash as of the third quarter, after drawing $72 million on its revolving credit facility and hitting its borrowing limit.

On Sept. 27, Moody’s downgraded all ratings of Midas Intermediate Holdco II, LLC (doing business as Service King), to Caa3 from Caa1, which is considered of poor standing and very high risk.

Moody’s cited the company’s “weak liquidity,” and its need to reduce its bonds outstanding to below $135 million to avoid triggering a call on its loan beginning June 1.

A recent ratings review by Moody’s found that Service King’s “credit metrics … remain weak even after considering the impact of COVID-19 related expenses.”

“These risks well outweigh Service King’s solid market position in the highly fragmented collision repair sub-sector, and its mutually-beneficial relationships with national and major insurance carriers which represents the vast majority of revenue,” Moody’s said.

The bond credit rating business said that its review does not announce a ratings change, and is not an indication that a change is likely in the near future.

Service King is working with financial adviser PJT Partners Inc. and law firm Kirkland & Ellis as restructuring advisers, while lenders are advised by law firm Gibson Dunn & Crutcher LLP, the Journal said. Bondholders have engaged Paul Weiss Rifkind Wharton & Garrison LLP and Houlihan Lokey Inc.

Hunt appears to be stepping into a challenging situation. In announcing his hiring, Service King CEO David Cush said in a statement, “Having worked closely alongside Peter for seven years at Virgin America, I’m confident that his extensive experience will drive Service King’s success and give our organization some new tools in its toolbox.”

Hunt’s background “includes developing strategic direction, leading operations and managing financial organizations for publicly traded commercial airlines such as Virgin America and Pinnacle Airlines, where he served as CFO; Alaska Air Group, where he was President and COO of the Virgin America subsidiary, all after getting his start in the Finance organization at Continental Airlines,” Service King said in a statement.

Hunt is responsible for managing all aspects of financial leadership including accounting, tax, financial planning and analysis, and capital structure. He assumed his new role on Feb. 4.

More information

Report: Service King warns lenders it may not be able to pay debt

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Featured image: Service King’s logo. (Provided by Service King)