Diamond Castle-backed company files for bankruptcy

One of Diamond Castle Holdings’s eight portfolio companies owes between $100 million and $500 million, according to its Chapter 11 filing.

Diamond Castle Holdings portfolio company PRC has filed for Chapter 11 bankruptcy, just over a year after the DLJ spinout acquired the company for an undisclosed sum. According to the filing, PRC owes between $100 million (€68 million) and $500 million.

PRC provides sales, telemarketing and call center services for its clients. Shortly after Diamond Castle bought the company in November 2006, PRC lost a major client and ran into significant liquidity problems, according to rating agency Standard & Poor’s. PRC was unable to keep the company afloat despite several cash injections, and last November the agency downgraded PRC’s debt from B to CCC+.

PRC has retained Houston restructuring firm CXO to manage the bankruptcy process, and has named CXO’s president and chief executive Stephen Dube? chief restructuring officer. PRC has also hired Evercore Group as investment banker and financial advisor to “evaluate strategic and restructuring alternatives”. In addition, PRC’s existing lenders will provide the company with $30 million in debtor-in-possession financing, as well as an unspecified amount of post-restructuring financing.

“We are very pleased…to have the financial support of a group of our existing lenders during and after the reorganisation process,” PRC chief financial officer Philip Goodeve said in a statement. “This demonstrates their belief, shared by the company, in the value of PRC.”

Many private equity professionals have predicted that an overall economic downturn, coupled with stricter lending terms, will soon shake out weak or over-levered portfolio companies, forcing a wave of Chapter 11 filings and operational restructurings.

Diamond Castle closed its first fund on $1.85 billion in December 2006, two years after it was founded by former DLJ Merchant Banking Partners head Lawrence Schloss. PRC is one of eight companies in the firm’s portfolio. The firm’s other acquisitions include the purchase of Bluestone Television for $230 million last May and the management-led buyout of Managed Healthcare Associates last August for an undisclosed amount.