Creditors takeover STG, create new board

UPDATE: An earlier version of this blog stated that STG Group President and Chief Operating Officer Phil Lacombe and Chief Operating Office Charles Cosgrove had resigned from the company. They have not.

But they have resigned from the STG Group Inc., the publicly-traded company that was over top of the operating company STG Group Holdings Inc. and its subsidiary STG Inc.

STG Inc. is the Reston, Va.-based government IT contractor.

Lacombe explained to me that the he remains the president and COO of the operating company STG Holdings Inc. and Cosgrove is still the CFO. So they are still in charge of operations.

It is a bit confusing but here is what has happened.

STG Group Inc. -- the publicly-traded entity -- has struggled for several quarters to meet the conditions of its loans. And this week its creditor, MC Admin Co. LLC exercised its rights and took control of the operating company.

Lacombe said that they have created a new board of directors over the operating company. The board includes Lacombe, Jarlaith A. Johnson and Robert Warhauer. Warhauer is the co-head of Imperial Capital’s restructuring and recapitalization group.

The seriousness of STG’s financial troubles came to light over the summer when the company failed to close a deal to acquire Preferred Systems Solutions for $119.8 million. The deadline to close deal had been extended but STG could not secure the financing and the acquisition fell through in June.

STG’s regulatory filings indicate that the company had been out of compliance with covenants of existing credit facilities for at least three quarters. That made the financing for the PSS deal nearly impossible to secure.

On Monday, MC Admin Co. LLC stepped in to declare STG Group in default and exercised its rights to take over the operating company STG Group Holdings Inc. and the subsidiary STG Inc., according to the filing.

STG Group had been in the process of hiring a financial adviser to either help sell the company or restructure its debt, which stands at $74 million as of Monday.

That process continues, Lacombe said. The company will either find a buyer or restructure the debt.

STG became a publicly-traded entity in 2015 when it was acquired by Global Defense & National Security Systems, a special purpose acquisition company.

Complicating its ability to restructure STG’s debt or even meet the requirements of its current loans has been a steady decline of revenue.

STG’s second quarter filing with the SEC says revenue fallen to $69.5 million for the six months ended June 30, 2017 versus $81.5 million in sales for the same period the year before. Its net loss also ballooned to $26.9 million, compared to $2.8 million for the same six months a year earlier.