Tunstall’s unhappy lenders and the consequences of debt service

A ‘slipped under the radar’ story (in this Editor’s judgement, based on the lack of news references) is Bloomberg News’ exclusive on last week’s (12 May) meetings between Tunstall Group Ltd and its creditors over the company’s recent performance. According to Bloomberg’s sources, the meeting was called “after income plunged and management changed following a refinancing in September.” In a statement from Charterhouse that cleverly tap-danced past the reason for the meeting, “Tunstall continues to be a successful, profitable, cash-generating business and comparable to many other organizations, experiences short-term fluctuations in performance.” and “The group has been impacted by a number of factors including specific market factors and the continued strength of sterling against the major-trading currencies.” The business has also been hurt by delays in awarding major contracts, according to the statement.

From the Bloomberg article:

As Tunstall’s profits have declined, its ratio of debt to earnings before interest, taxes, depreciation and amortization increased to 5.6 times as of March, from 4.7 times in September, the people said. The loan terms in the March test dictated that the leverage ratio shouldn’t exceed 6.3 times, they said.

Lenders are expecting the company to give a new profit forecast today for the 12 months to September 2014, according to the people. The company didn’t comment on earnings targets or leverage in its statement.

AND: Its 350 million pounds ($590 million) of loans dropped to as little as 77 pence on the pound, according to broker quotes, from 99 pence in September. (Ed. note: these loans are publicly traded and a lowered value is highly significant as to the debt quality.)

The outcome of the meeting is not yet known.

As our readers know, private equity firm Charterhouse Capital Partners LLP acquired Tunstall Group in 2008 from Bridgepoint Capital  for £514 million (US$ 1 billion), funded in part with over £242 million in debt and with Bridgepoint and management retaining small shares (FT.com). The September 2013 refinancing was for £350 million ($590 million). This paints a picture of a highly leveraged company beholden to many beyond its owners and its contractors in local authorities and housing associations. Tunstall and Charterhouse also received negative publicity when the Guardian did an exposé on their use of the (wholly legal) ‘Quoted Eurobond Exemption’, where they pay loan interest at high rates to their parent companies through a mechanism via the Channel Islands Stock Exchange.

Management changes over the past six months have also rocked the top layers of the company. In November, Paul Stobart succeeded Gil Baldwin as Group CEO after a relatively short three-year tenure. In February, the Group CFO changed. In March, there was the stealthy replacement of Tunstall Americas CEO Bradley Waugh by industry veteran Casey Pittock. Tunstall Americas has, after a scaling back and relocation of many services out of NY to cost-advantaged Rhode Island, failed to expand the acquired company’s (AMAC) market share and establish the Tunstall brand; in fact their PERS kit retains the AMAC branding over two years later. They were nowhere to be found at this week’s ATA 2014 despite their development of innovative platforms like ‘my world’ and mHealth Assist. (Many other companies, such as AT&T’s ForHealth unit, previewed new technology not yet in market.)

And it is not over. Our reliable sources have informed this Editor over the past few weeks of more shoes dropping on both sides of the Atlantic. Confirmed is a major change at Tunstall Americas, where Ryan Packard, former Lifeline and BLOXR sales VP, is now EVP Sales, replacing Bradley Waugh appointee Peter Gladding. (Since CEO Casey Pittock is also a Lifeline veteran, we may see more changes like this–and as rumored, even their corporate locations may be in play.) Not yet public are many changes, at multiple levels, in the Group and UK operations not only in staff, but in lines of business support. All of which lends an air of turmoil and uncertainty.

The last shoe on the accelerator pedal is, in this Editor’s estimation, the long-rumored desire by Charterhouse to sell Tunstall and exit after what may be for their investors six long years. The key date may be Tunstall Group’s 12-month performance as of September 2014, which our readers will note above has received a new profit forecast. What will happen with lenders if key performance indicators are not met?

Charterhouse may be singing, ‘will you love me much more in September than you did in May?”

We welcome comments from Tunstall spokespersons and our readers.

Previously in TTA: Tunstall Americas’ change at the top, Changes at the top at TunstallIs this Tunstall’s ‘taxgate’? Maybe not.Tunstall completes acquisition of AMAC (US), Tunstall welcomes you to ‘my world’Tunstall, CATCH, HMA Digital developing mobile platform

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Comments

  1. Leonard Anderson

    I hope that Tunstall do not cut out innovation. There’s a whole new market for passive, Internet of Things, sensors they could offer their customers.

  2. Donna Cusano

    @Leonard: When an organization is threatened financially, sometimes they innovate as a last-ditch move (e.g. when Studebaker in the US at the very end of its life in the mid-1960s brought out the Avanti and the Gran Turismo Hawk, but didn’t survive except in the hearts of car collectors; GM under (genius) Bob Lutz designed itself out of 1990s oblivion so there was something to save; Apple)–but usually the reaction is cut costs to the bone, cut people and hunker down. Innovation gets ground under. Another outcome that is favored is to merge with another company for the investors to rid themselves of an albatross with a spin of success.

    There needs to be a genius–maybe a few geniuses and acolytes–on the roster for Tunstall to reorganize, manage its existing business, and become much leaner and innovative. In other words, to put on their big boy pants and lead. I don’t know if those people are there on either side of the Atlantic. And that will have consequences both in care and with the people who work for them.

    The sad thing is that at least in the US, Tunstall has meant well in one public interest in building up its Pawtucket, Rhode Island call center — an economically hard-hit area: Tunstall Americas Receives Innovation Award from Rhode Island Governor’s Workforce Board
    However, to do this, they closed a center in New Mexico and did not expand its presence in New York City, at a time when organizations like NYCEDC and Partnership Fund for NY were practically throwing funds at healthcare tech organizations to stay, grow and innovate. Tunstall missed the boat on joining a burgeoning health tech hub and join with innovative companies, right under their collective nose. You have to wonder what certain leadership people were thinking.

    Tunstall Group is starting to turn into a b-school case history. Unfortunately the scenario has played out at least twice in my own career, and for the participants not at the top or with equity it often ends in regrets, tears and plenty of ‘what ifs’. I’d like to see it NOT end that way for once.

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