NY petition for approval to transfer control of Inmate Calling Solutions, LLC d/b/a ICSolutions to Securus Technologies, Inc., 2018
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BEFORE THE NEW YORK PUBLIC SERVICE COMMISSION Joint Petition of TKC Holdings, Inc., Inmate Calling Solutions, LLC d/b/a ICSolutions Matter/Case No. - - - - - and Securus Technologies, Inc. for Approval to Transfer Control of Inmate Calling Solutions, LLC d/b/a ICSolutions to Securus Technologies, Inc. JOINT PETITION TKC Holdings, Inc. ("Transferor" or 'TKC"), Inmate Calling Solutions, LLC d/b/a ICSolutions ("JCS") and Securus Technologies, Inc. ("Transferee" or "Securus") (collectively, "Petitioners"), by their undersigned counsel and pursuant to New York Public Service Law §§ 99 and 100, and the regulations of the New Yark Public Service Commission ("Commission"), request the Commission's approval, to the extent required, to transfer control of JCS to Transferee. 1 In support of this Joint Petition ("Petition"), Petitioners provide the following information: I. THE PETITIONERS A. Inmate Calling Solutions, LLC d/b/a ICSolutions JCS is a California limited liability company with its principal place of business at 2200 Danbury Street, San Antonio, Texas 78217. JCS is a wholly-owned direct subsidiary of Keefe 1 A Joint Petition seeking approval for JCS to participate in certain financing arrangements concurrently with or following completion of the Transaction is being filed concmTently with this Petition. Group, LLC ("Keefe"), a Missouri limited liability company with its principal place of business at 1260 Andes Boulevard, St. Louis, Missouri 63132. Keefe, in tum, is a wholly-owned direct subsidiary of TKC. ICS is an institutional service provider certificated, registered or otherwise authorized to provide services in all states except Alaska, Delaware, New Jersey, and Vermont, and the District of Columbia. ICS currently contracts with a number of confinement and correctional facilities to provide service in the State of New York and 38 other states. In New York, res is authorized to operate as a reseller of telephone service, without authority to provide local exchange service pursuant to a Certificate of Public Convenience and Necessity issued by the Commission in Case No. 03-C-1411 on January 29, 2004. res is also authorized by the FCC to provide domestic and international telecommunications services. Additional information concerning rCS's legal, technical, managerial and financial qualifications has been submitted to the Commission with its filings for certification and various transactions and is therefore already a matter of public record. 2 ICS requests that the Commission take official notice of these existing descriptions of rCS's qualifications and incorporate them by reference herein. B. TKC Holdings, Inc. Transferor, which indirectly holds all of the outstanding membership interests of res, is a Delaware corporation and holding company, with its principal business office at 1450 Brickell Ave., 31'' Floor, Miami, Florida 33131. TKC is indirectly controlled by an affiliate of H.I.G. Capital, L.L.C., a private equity investment firm headquartered in Miami, Florida. 3 2 See e.g., Case Nos. 03-C-1411 and 16-C-0388. 3 The Commission approved the indirect transfer of control of JCS to TKC in 2016 in Case No. 16-C0388. 2 Through its subsidiaries, TKC's principal business includes the provision of commissary management services, correctional food service management, packaging and distribution of food products, personal care products, electronics, clothing, technology, telecommunications and software solutions to the correctional markets, and serving as a holding company of businesses providing such products and services to the correctional markets, as well as the provision of single serve coffee machines, coffee, and hotel supplies to the hospitality and lodging market. C. Securus Technologies, Inc. Securus is a Delaware corporation with its principal place of business at 4000 International Parkway, Carrollton, Texas 75007. Securus provides inmate calling services to a number of confinement and correctional facilities in the District of Columbia and approximately 46 other states, including in the State of New York. Securus is an indirect wholly-owned subsidiary of SCRS Acquisition Corporation ("SCRS") and in tum its parent, SCRS Holding Corporation ("SCRS Parent"), both Delaware corporations. 4 The ultimate majority owner of Securus is Platinum Equity Capital Partners IV, L.P., a Delaware limited partnership ("PECP IV"), which is a private equity investment vehicle of Platinum Equity, LLC. 5 II. DESIGNATED CONTACTS Questions, correspondence or other communications concerning this Petition should be directed to: 4 The Commission approved the indirect transfer of control of Secnrus to SCRS and PECP IV in Case No. l 7-C-0254. 5 The Petition in Case l 7-C-0254 noted that the investment in Securus's ultimate parent would be made by PECP IV together with certain private investment vehicles sponsored by Platinum Equity, noting that PECP IV would be the majority owner of SCRS Parent and hold up to approximately 93% of the equity. The current ownership structure has PECP IV with 68.32% equity and 93% voting interest; Platinum Equity SCRS Co-Investors, LLC with 20.41% equity and 0% voting interest; management with 6.13% equity and 0% voting interest; and Platinum SCRS Principals, LLC with 5.14% equity and 7% voting interest. Platinum Equity SCRS Co-Investors, LLC is simply a passive aggregator of individual investors, none of which or whom own 10% or more of the equity of ICS or Securus, and none of which or whom have any voting rights. 3 For Transferee: and: Keith J. Roland O'Connell and Aronowitz 54 State Street Albany, New York 12207 518-462-5601 (tel) 518-462-2670 (fax) kroland@oalaw.com Paul C. Besozzi Peter M. Bean Squire Patton Boggs (US) LLP 2550 M Street, N.W. Washington, DC 20037 202-457-6000 (tel) 202-457-6315 (fax) paul. besozzi@squirepb. corn peter.bean@squirepb.com With copy for Transferee to: Dennis J. Reinhold Senior Vice President & General Counsel Securus Technologies, Inc. 4000 International Parkway Carrollton, TX 75007 972-277-0318 (tel) 972-277-0681 (fax) dreinhold@securustechnologies.com For Transferor: With copies for Transferor to: Howard M. Liberman Paige K. Fronabarger Wilkinson, Barker and Knauer, LLP 1800 M Street, N.W., Suite SOON Washington, DC 20036 202-783-4141 (tel) 202-783-5851 (fax) hliberrnan@wbklaw.com pfronabarger@wbklaw.com III. Michael Gallagher Principal c/o H.I.G. Capital Management, Inc. 1450 Brickell Avenue, 31st Floor Miami, FL 33131 305-379-2322 (tel) 305-379-2013 (fax) rngallagher@higcapital.com DESCRIPTION OF THE TRANSACTION Pursuant to that certain Unit Purchase Agreement by and among res, TKC, Keefe and Securus, dated as of April 22, 2018 (the "Agreement"), Securns will acquire all the issued and outstanding membership interests of res from Keefe (the "Transaction"). As a result, res will become a wholly owned, direct subsidiary of Securus and, in turn, an indirect subsidiary of SCRS and SCRS Parent. PECP IV will be the ultimate majority owner of ICS. Petitioners 4 intend to consummate the Transaction as promptly as possible after the necessary federal and state regulatory approvals have been received. For the Commission's reference, a chart depicting the pre- and post-Transaction ownership structure ofICS is provided as Exhibit A. IV. PUBLIC INTEREST CONSIDERATIONS Petitioners respectfully submit that the proposed Transaction is in the public interest. The consummation of the Transaction will not result in an interruption, reduction, loss, impairment or disruption ofICS-provided services. The Transaction does not involve a transfer of operating authority, assets or customers in New York or elsewhere. As such, no customer notice is required as a result of the Transaction. While the ownership of ICS will change, the management team will remain substantially the same and ICS's corporate identity, name and operations will remain in place. In other words, post-closing, ICS will remain operational as a separate business. Following the Transaction, ICS will continue to honor its correctional facility customer contracts and in doing so, will continue to provide and support the JCS technologies and services enjoyed by its customers. Any future changes in the rates, terms and conditions of service to ICS's correctional facility and end-user customers will be undertaken in conformance with the applicable federal and state law, including notice and tariff requirements and ICS's contractual obligations. As a result, the change in ownership will be entirely transparent to ICS's correctional facility customers and the end-users of ICS's services. However, there will be additional services accessible to such customers as a result of the Transaction. After closing, and where permitted by the goverrunental entities operating the correctional facilities served by ICS, inmates who use the ICS services now will have access to use of inmate tablets that provide controlled internet access, including, as part of that program, 5 access to education (e.g., the ability to obtain a GED), media content and job opportunities upon release (e.g., through Securus's JobView program). 6 Inmate calling can also be permitted from such tablets, further facilitating the ability of inmates to connect with their friends and family. Further, ICS correctional facility customers will gain access to Securus-developed advanced technology, including an expanded set of law enforcement-related services and investigative technologies offered by Securus. According to Securus's information, there are a number of other competing providers of inmate calling services authorized to operate in New York aside from Securus and ICS, including Global Tel*Link Corporation, Pay Tel Communications, Inc., Legacy Long Distance, International, Inc. d/b/a Legacy Inn1ate Communications, and Network Communications International Corp d/b/a NCIC Inmate Communications. Thus, approval of the Petition will not foreclose the opportunity for continued competitive bidding to provide inmate calling services to facilities in the various states in which the two companies currently operate. The Transaction will have no material effect on the operations of ICS, which will remain the licensee, and will be virtually seamless to customers. Again, rates, terms, and conditions of service, which are governed in part by contractual relationships between ICS and governmental agencies (as well as tariffs where required), will not change while such contracts remain in force. V. SUBMISSION OF FINANCIAL INFORMATION The Commission has adopted a policy of dispensing with the submission of detailed financial information regarding transactions by non-dominant carriers such as Securus and ICS: 6 Further information on the JobView program is available at: https://www.businesswire.com/news/home/20I712010055 87 /en/Securus-Acquires-J obview-Released Inmates-Find-Jobs. Securus has also established the Securus Foundation to help "modernize the reentry process [or inmates] to increase successful community reengagement." See The Securus Foundation is Launched to Modernize Reentry and Reduce Recidivism, Business Wire, (Jul. 17, 2017), https://www.businesswire.com/news/home/20170713005624/en/Securus-Foundation-LaunchedModemize-Reentty-Reduce-Recidivism. 6 "The Commission has previously determined that regulations intended to apply to monopoly utilities may be relaxed when a company operates in a competitive environment. Therefore, we shall grant petitioners' request to waive Parts 37 and 39 of the Commission's Rules. The financial and other information called for in Parts 37 and 39 are of little value in the competitive sector where the financial status of the players is of little, if any, interest to the Commission in discharging its regulatory responsibilities." See Case 92-C-1218, Petition ofTeleport Communications Group, et. al. for Authority to Issue and Acquire Shares, and to Issue Evidence of Indebtedness, "Order Approving Petition," issued and effective April 13, 1993. See also Case 90-C-0166, Petition of Alltel Corporation for a Declaratory Ruling that the Commission Lacks Jurisdiction Over the Proposed Change of its State of Incorporation or, in the Alternative for Approval of the Proposed Transaction, "Declaratory Ruing," issued and effective April 23, 1990. Accordingly, the Petitioners respectfully request that the Commission act upon and approve this Petition in accordance with the information contained herein. 7 VI. CONCLUSION For all of the foregoing reasons, Petitioners submit that the public interest, convenience and necessity would be furthered by grant of this Petition permitting the Transaction described above. ~~~ Howard M. Liberman Paige K. Fronabarger Wilkinson, Barker and Knauer, LLP 1800 M Street, N.W. Suite 800N Washington, DC 20036 202-783-4141 (tel) 202-783-5851 (fax) hliberman@wbklaw.com pfronabarger@wbklaw.com Paul C. Besozzi Peter M. Bean Squire Patton Boggs (US) LLP 2550 M Street, N.W. Washington, DC 20037 202-457-6000 (tel) 202-457-6315 (fax) paul.besozzi@squirepb.com peter.bean@squirepb.com Counsel for Tramferor and JCS Counsel for Transferee Dated: May 17, 2018 8 EXIDBITA Diagrams of the Pre- and Post-Transaction Ownership Structures Pre-Transaction Ownership Structure of ICS I H.1.G. Middle Market LBO Fund II, L.P.* I H.I.G. Capital Partners, H.I.G. TSG Parent, IV, L.P.** LLC** I I H.I.G. Centric, LLC* ,I TKC Co-Investment, LLC*** 47.45% I H.I.G. Capital Finance, LLC 2.42% H.I.G. TSG, LLC** l I I TKC Investment Holdings, LLC (f/k/a H.I.G. Centric Holdings, LLC) I a6.11% TKC Topco LLC I 99.31 % TKC Holdings, LLC I TKC Intermediate Holdings, LLC I TKC Holdings, Inc. ("Transferor") I Keefe Group, LLC I Inmate Calling Solutions, LLC ("Licensee") Exhibit A - Page 1 Other Investors*** Pre-Transaction Ownership Structure of ICS (continued) Sarni Mnaymneh Anthony Tamer 50% voting 50% equity 50% voting 50% equity H.I.G. - GPII, Inc. (Manager) Sarni Mnaymneh* 100% voting 0% equity Anthony Tamer* 0% voting 50% equity 0% voting 50% equity H.I.G. Middle Market Advisors II, LLC (General Partner) Limited Partners 100% voting 0.0543% equity * A portion of Mr. Mnaymneh's and Mr. Tamer's ownership interests are held through estate planning vehicles, the beneficiaries of which are family members. 0% voting 99.9457% equity H.I.G. Middle Market LBO Fund II, L.P. 100% voting 100% equity H.I.G. Centric, LLC Exhibit A - Page 2 Pre-Transaction Ownership Structure of ICS (continued) Anthony Tamer• Sarni Mnaymneh* 50% voting 50% equity 50% voting 50% equity H.I.G. -GPII, Inc. (Manager) Sarni Mnaymneh* Anthony Tamer• 100% voting 0% equity 0% voting 50% equity 0% voting 50% equity H.I.G. Advisors IV, L.L.C. (General Partner) Limited Partners 100% voting 0% equity Florida Growth Fund, LLC 100% voting 0.1267% equity 0% voting 99.8733% equity 0% voting 100% equity Other Investors 8.24% voting 8.24% equity * A portion of Mr. Mnaymneh's and Mr. Tamer's ownership interests are held through estate planning vehicles, the beneficiaries of which are family members. H.I.G. Capital Partners IV, L.P. 75.23% voting 75.23% equity H.I.G. TSG, LLC Exhibit A - Page 3 H.I.G. TSG Parent, LLC IU.;J.)70 t: UIL Post-Transaction Ownership Structure of ICS* Platinum Equity Capital Partners IV, L.P. ("Fund IV") Platinum SCRS Principals, LLC 2 Management3 93% voting 68.32% equity 0% voting 6.13% equity Platinum Equity SCRS CoInvestors, LLC4 7% voting 5.14% equity SCRS Holding Corporation 0% voting 20.41% equity ("SCRS Parent") 100% SCRS Intermediate Holding Corporation * The entities listed herein only include Connect and its subsidiaries that (1) hold authorization to provide intrastate, interstate, international or wireless telecommunications services or (2) are in the chain of ownership of those entities. 1. All ownership is voting and equity unless indicated otherwise. 100% 2. Platinum SCRS Principals, LLC is a co-investment vehicle SCRS Intermediate Holding II Corporation The chart excludes subsidiaries of Connect that do not hold authorization to provide telecommunications services in the United States. comprised of Platinum employees and their friends and family. 3. Comprised of various management individuals of Securus. 100% 4. Platinum Equity SCRS Co-Investors, LLC is a co-investment SCRS Acquisition Corporation aggregator vehicle (the "Aggregator") that contributed coinvestors' capital into SCRS 100% Connect Acquisition, LLC ("Connect") 100% Securus Holdings, LLC 100% Securus Technologies Holdings, LLC 100% 100% Securus Technologies, Inc. ("Securus") 100% Inmate Calling Solutions, LLC ("Licensee") T-NETIX, Inc. ("TNI") 100% 100% Cel1Blox Acquisitions, LLC T-NETlX Telecommunications Services, Inc. ("TNTS") Exhibit A - Page 4 Parent The Aggregator holds no voting shares of SCRS Parent and is a passive investment vehicle for co-investors. None of the co-investors (i.e., members of the Aggregator) own 10% or more of the equity of the licensee on a look~through aggregate basis. The Senior Managing Member of the Aggregator is Platinum Equity Partners IV, L.P. VERIFICATION I, Alexander S.Y. Lee, am the Corporate Secretary of TKC Holdings, Inc. ("TKC") and Inmate Calling Solutions, LLC d//b/a ICSolutions ("ICS"). As such I am authorized to execute this Verification on behalf of TKC and ICS. The portions of the foregoing filing relating to TKC, ICS and the transactions described therein have been prepared pursuant to my direction and control and I have reviewed the contents thereof. I hereby declare that the factual statements and representations made therein by and concerning TKC, ICS and the transactions described therein are true and conect to the best of my knowledge, il~fom1ation and belief Executed thisi (f 1day of May, 2018 Name: Alexander S.Y. Lee Title: Corporate Secretary of TKC Holdings, Inc. and Inmate Calling Solutions, LLC d//b/a ICSolutions Subscribed and sworn to before me this t{/'-aay of May, 2018 Notary Public NY (Toe) VERIFICATION I, Dennis J. Reinhold, am the Senior Vice President and General Counsel of Securus Technologies, Inc. ("Securus"). As such, I am authorized to execute this Verification on behalf of Securus and its subsidiaries. The portions of the foregoing filing relating to Securus and the transactions described therein have been prepared pursuant to my direction and control and I have reviewed the contents thereof. I hereby declare that the factual statements and representations made therein by and concerning Securus and the transactions described therein are true and correct to the best of my knowledge, information and belief. Name: Dennis J. Reinhold Title: Senior Vice President and General Counsel Securus Technologies, Inc. County of ';;;,12." ~"' Stateof,e)«:l s ) ) ,,, 11, 11,11,,1 KATHERINE M. MOODY ,, I'-\\ l,6'1; So"'.*·'"• .. r ... ~ Notary Pub!lc, State of Texas :::J:-: ',("I:: ;;;,.:, /~i ,;,..,,, .. , ,, ~.:: ,//0f~,,," 1111111 '1 comm. Expires 01-12-2022 Notary ID 131408573 . Subscribed and sworn to before me bMmisJ. ~einhold this l ~#\day of ~ l'\vX\Affi Notary Public My Commission Expires: D \ - \ '). - e>.o ~ ':;)., MCI-"\ ,'(Y\ex-,~ () , 2018 ATTORNEYS AT LAW EDWARD J. O'CONNELL 1925-1939 SAMUELE. ARONOWITZ 1925-1973 LEWIS A. ARONOWTTZ May 17, 2018 VIA ELECTRONIC FILING Secretary@dps.ny.gov 1951-1979 CORNELIUS D. MURRAY FRED l3. WANDER STEPHEN R. COFFEY JEFFREY J. SHERRIN THOMAS J. DINOVO PA"tvlELA A. NICHOLS JEFFREY A. SIEGEL JAJ\11 DURANTE ROGOWSKI Hon. Kathleen H. Burgess Secretary New York Public Service Commission Three Empire State Plaza Albany, NY 12223 Re: Joint Petition of TKC Holdings, Inc., Inmate Calling Solutions, LLC and Securus Technologies, Inc., for Transfer of Control Dear Secretary Burgess: Enclosed for filing with the Commission, please find the Joint Petition of TKC Holdings, Inc., Inmate Calling Solutions, LLC and Securus Technologies, Inc. for Approval to Transfer Control ofinrnate Calling Solutions, LLC d/b/a IC Solutions. DAVID R. ROSS KURTE.BRATTEN MlCHAEL P. McDERMOTT KELLY J. 1v!TKUI ,UTZ WILLIAM F. l3ERGLUND ROBERT J, KOSHGARlAN MATTHEW J. DORSEY GEORGE R. SLINGERLAND F. MATTHEW JACKSON SCOTT W. ISEtvl.AN BRITTNAY M. Mc1WION OF COUNSEL Also enclosed is a Method of Service Form. Please address any questions to the undersigned. Respectfully submitted, I RICHARDS. HARROW l\1ERED1TH H. SA VITT PAUL A. FEIGENBAUM KEITH J. ROLAND ARTHUR A. PASQUARlliLLO FLORENCEM. RICHARDSON CRISTINA 0. COMMTSSO AND ARONOWITZ By: ELIZABETH A. CONNOLLY CHAD A. JEROTvfE DANIELLE E. HOTJ,EY KATHLEEN EVERS BROWN lv1.ARY T. CONNOLLY COURTNEY L. ALPERT KELLAN B. POTTS KJR:bab HOLL YE. VEGAS* cc: (D1RHC1'0ll, HHAL'l'HCARE Paul C. Besozzi, Esq. Howard M. Liberman, Esq. CONSIJL17NC! G!UJl//j ~NOT A MEMB~R OF THE LEGAL PRACTICE 54 STATE STREET• ALBANY, NY 12207 • (p) 518-462-5601 • (f) 518-462-2670 SERVICE BY FAX NOT ACCEPTED. ·with off,.ces in Albany, Lotharn, l\Jr,-w York City, PluUsburgh ond Sarai:oga Springs. www.oalaw.com {00211077.1) Announcement: Moody's says Securus' ratings unchanged following add-on to term loan 07 May 2018 New York, May 07, 2018 -- Moody's Investors Service (Moody's) said Securus Technologies Holdings, Inc.'s (Securus) B3 corporate family rating (CFR) is unchanged following its anticipated $350 million add-on to its first lien term loan. Proceeds from the debt issuance will be mainly used to fund the acquisition of Inmate Calling Solutions (ICS), a smaller provider of phone and other telecommunication services to correctional facilities. The transaction is strategically positive for Securus as it removes a marginal competitor and improves the company's market share position. While Securus' credit metrics will temporarily weaken as a result of the incremental debt burden, the combination of the complementary businesses will result in significant synergies. Realization of these synergies is expected to be mainly achieved within the first 12 months following deal close, which helps mitigate the short term increase in credit risk. All other ratings including the company's stable outlook are also unchanged. ICS has grown significantly over the past three years by winning new contracts, occasionally from Securus as well other competitors. While a costly purchase, the acquisition eliminates an aggressive competitor in the smaller facility space comprised of local and county jails. Moody's believes this is a prudent defensive tactic which fortifies Securus' recent market share gains and helps preserve the company's solid growth trajectory. ICS will mainly benefit the company through the sizable headcount, call center, and corporate allocation synergies expected to be achieved over a period of 18 months. Securus' B3 CFR reflects its small scale, niche industry focus, aggressive financial policy, and strong competitive pressures in a largely duopolistic and mature end market. The ratings are supported by the company's high growth rate and a stable base of contracted and fairly predictable revenue. Providing communications services to corrections facilities remains a low margin business characterized by competitive bidding on contracts, the majority of which include a legacy industry practice requiring relatively high commission fees to be included in inmate phone charges, which are later passed through to state and county prison operators. In addition, Securus and the industry apply transaction-based fees on the phone account deposits of inmates. While the company responded to FCC interstate rate caps established in 2013 by negotiating the bulk of its contracted commission expense structures with prison operators down to lower levels, the need to be proactive in this manner is eliminated by the June 2017 DC Circuit Court ruling. Moody's could upgrade the ratings if Securus maintains very good liquidity, continues to generate strong positive free cash flow, and grows EBITDA or reduces debt such that leverage (Moody's adjusted) is sustained below 5x. Moody's could downgrade Securus' ratings if leverage exceeds 6.5x (Moody's adjusted) or free cash flow turns negative. Based in Dallas, TX, Securus Technologies Holdings, Inc. is one of the largest providers of inmate telecommunication services to correctional facilities, with a presence in 50 states, Washington DC, and Canada. Securus is owned and controlled by the private equity firm Platinum Equity, LLC, which acquired the company from ABRY Partners in November 2017. Founded in 2002, ICS provides mainly phone and some ancillary telecommunications products and services to the corrections industry. It is operated as a standalone entity within TKC Holdings, a provider of food and personal care products to the corrections industry. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Neil Mack, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A.