Without Wall Street Cash would “Tom” (survive) Exist?

Where does the cash come from to pay for “Tom”? Well, we know that most contracts generated by dealers, such as VMS Alarms and Maximum Security Alarm, are purchased by a monitoring company. These two dealers sell their contracts to Monitronics, which is wholly owned by Ascent Capital Group (ASCMA). Ascent acquired Monitronics in December 2010, spinning off their other media related businesses to focus on the (recently) cash flow negative Monitronics. Ascent just closed a new financing package:

ENGLEWOOD, Colo., Mar 26, 2012 (BUSINESS WIRE) — Ascent Capital Group, Inc (“Ascent” or the “Company”) ASCMA +0.12% announced today that its wholly-owned subsidiary, Monitronics International, Inc. (“Monitronics”), has closed its previously announced offering of $410 million of 9.125% senior notes due 2020. Concurrent with the closing of the notes offering, Monitronics entered into a floating rate senior secured credit facility providing for term loans of $550 million and a revolving credit facility of up to $150 million. The Term Loan matures in six years and was coupled with an interest rate swap arrangement resulting in an effectively fixed interest rate of 6.3%. The Revolving Facility matures in five years and was undrawn at closing. The proceeds of the note offering and the term loans, together with cash on hand, were used to retire all of Monitronics’ previously outstanding debt and settle all related derivatives.

So Wall Street finds the model compelling and is willing to place a $1 Billion wager on this company through the purchase of notes and a credit facility.

Without access to this cash would Monitronics have the ability to purchase these contracts?

Without the cash from Monitronics would these dealers survive for long?

We simply don’t know. It’s estimated that these monitoring companies pay around $1400 per contract (36 times the monthly monitoring fee), and last year Monitronics bought 114,691 contracts. We can estimate that ASCMA needed about $160 million in cash to buy these contracts and they had $183 million in cash on hand as of Dec 31st, 2011. Without a revolving credit facility it’s quite possible that they would run out of cash and not be able to buy new contracts from dealers. Since they lose one of nine monitoring customers every year (about 11%) , they simply must buy thousands of new contracts from their dealers every year.

I’ve thought for some time that the phone calls would not stop without serious intervention by law enforcement, regulators, or investors. There is an unyielding need to add customers in order to support the stock price. A 10% drop in new customers could virtually eliminate any earnings, and the stock price would just crater. Think about that for a minute. They simply have no choice but to rely on their dealers to generate new contracts any way they can.

Others in the industry backed by “Wall Street”  financing to include private equity:

ADT is part of TYCO, Protect America is owned by Rockbridge Growth Equity (which also owns the Cleveland Cavaliers NBA team and Quicken Loans), and Security Networks is owned by Oak Hill Capital Partners.

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3 Responses to Without Wall Street Cash would “Tom” (survive) Exist?

  1. Bob Marley says:

    It would appear that Ascent Capital Group is at the top of the food chain here – wouldn’t it make sense to engage the senior management/CEO of that company regarding the illegal activities? Here is a listing of the officers of the company: http://www.ascentmedia.com/Management-Team.aspx

    • StopTom says:

      Bob,
      My phone call to ASCMA Executive Offices was returned by an Attorney for Monitronics who offered to take my number and place it on their DNC.I asked how would they get my number to an entity they claim to not know? Hmm?

      She said it was unlikely that Monitronics would even ask the dealer, in this Maximum Security Alarm, to identify the alleged third party caller. I never received a return call and my additional attempts were unanswered too. FYI: I was unaware at the time of the ongoing Mey vs. Monitronics, VMS Alarm class action lawsuit.

      Oh, and she told me to stop calling ASCMA and/or Monitronics. But it’s apparently OK for their dealers to continue to call me?

      • Bob Marley says:

        How about we forward all of the calls we receive from Tom to Ascent’s corporate number at 720-875-5622 or Monitronics customer service line at 1-800-447-9239 so they can make sure to tell them in person?

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