Providence Equity’s Altegrity files bankruptcy after ‘state-sponsored’ breach

NEW YORK – Altegrity Inc., the security firm that vetted National Security Agency contractor Edward Snowden for the U.S., filed for bankruptcy after state-sponsored hackers cost it two government contracts.

The company went into bankruptcy court in Delaware with a $700 million debt-cutting plan already approved by most of its secured lenders and a promise of new money from funds such as Third Avenue Management LLC. The deal, along with asset sales, might knock out 40 percent of its loans, according to court papers filed Sunday.

The restructuring came in response to the government’s “unforeseen” decision to end “substantial” contracts last year after a hacking attack that Chief Financial Officer Jeffrey Campbell described in a court filing as a “state-sponsored data intrusion.” The vetting jobs had brought in $304 million in the latest 12 months, or 22 percent of revenue, he said.

The U.S. move was “an extraordinary measure in the context of other cyber-attacks or data breaches associated with government vendors,” he said. The company “had previously identified, self-reported and remediated” the attack, he added.

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Altegrity plans to give second-tier lenders stock in the refinanced company. Among them, funds managed by Third Avenue, Litespeed Management LLC and Mudrick Capital Management LP would become the new majority owners in exchange for supporting the business during bankruptcy with $90 million of new money, the Falls Church, Va.-based firm has said.

Biggest owner

Providence Equity Partners Inc. is Altegrity’s biggest current owner.

Carlyle Group LP, an original investor in Altegrity’s U.S. vetting unit, sold it in 2007 to Providence for about $1.5 billion. The acquiring private-equity firm expanded the business partly by adding Kroll Inc., the corporate private-eye firm founded by Jules Kroll.

Kroll and Altegrity’s HireRight unit will keep operating during the restructuring, the company said in a statement. Secured debt stands at $1.4 billion. Around $100 million of loans are unsecured.

Altegrity has had a rough year. Its background-checking unit, once part of the federal government, was sued by the U.S. for doing at least 665,000 unsatisfactory checks. The same unit acknowledged a data breach in August before it lost contracts with its biggest customer, the U.S. Office of Personnel Management.

Personal information

The computer break-in exposed personal information of workers at the Department of Homeland Security’s headquarters as well as U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection branches, Reuters reported, citing two officials familiar with the case.

Altegrity traces its roots to the Federal Investigations Division of the Office of Personnel Management. The unit was privatized as part of then-Vice President Al Gore’s effort in the 1990s to cut the size of the civil service, according to a 2011 report by the Congressional Research Service.

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