USi Files Bankruptcy, Sells Equity

Application service provider USinternetworking, Inc. plans to file for Chapter 11 bankruptcy reorganization Monday while at the same time announcing an investment of up to $106 million in the company by USi Holdings, an investment affiliate of Bain Capital Partners, LLC. When completed, Bain will own all of the equity in USi.

The investment is subject to court confirmation of a pre-agreed reorganization plan as well as other normal closing conditions. Nasdaq, meanwhile, has suspended trading in USinternetworking stock pending additional information about the bankruptcy filing. Trading was halted 8:01 a.m. at a last sale price of 22 cents per share.

Under terms of the investment agreement, an affiliate of Bain Capital Partners will initially invest $81 million in USi, with an additional $25 million to be invested upon the achievement of certain business milestones. Bain Capital Partners is the private equity affiliate of Boston-based Bain Capital, LLC.

“During the restructuring period, USi’s operations will proceed as usual and the company will continue to provide the high-quality service that our customers have come to expect. USi’s cash on hand should be more than adequate to fund operations during this time,” said Andrew A. Stern, chief executive officer of USi.

USi said the investment would significantly strengthen the Company’s balance sheet, allowing USi to successfully execute its business plan and meet its growth targets.

“Over the past year, we have made excellent progress in improving and strengthening the operational side of the business,” added Stern. “We have a strong business model, a large base of satisfied customers, and a team of committed employees. And I believe that USi will emerge from the reorganization plan a much stronger company.”

USi’s iMAP portfolio of service offerings includes software from Ariba, BroadVision, Lawson, Microsoft, Oracle, PeopleSoft, and Siebel as a continuously supported, flat-rate monthly service. Additionally, USi’s AppHost managed application hosting services provide solutions for enterprises, software companies, marketplaces, public sector clients and system integrators.

“We are excited by the prospect of investing in the leader of the emerging ASP market to support its growth and operational plans,” said Andrew Balson, managing director at Bain Capital Partners. “We have been extremely impressed by USi’s talented management team and its work to create a restructuring plan to restore financial stability and create an appropriate capital structure to fund the Company’s growth. With the support USi has obtained from creditors, Chapter 11 should provide the quickest and most reliable route to implement the restructuring.”

Through its seven funds, Bain Capital Partners has made private equity investments and add-on acquisitions in over 225 companies in a variety of industries, including technology and communications, healthcare, consumer goods and industrial products.

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