iQor Holdings has filed for chapter 11 bankruptcy protection, as the US BPO provider finally opts to address the debt load that has long hampered its growth. The company currently has debts in excess of US$1 billion, according to a court filing in the US Bankruptcy Court in Texas.
Despite the filing, the BPO will continue to operate normally, the Florida-based call center operator said in a statement.
iQor, which employs more than 35,000 people in nine countries including Mexico, Panama, Trinidad, India, and the Philippines, said it is expecting to emerge financially stronger within the next 45 days.
Considering news reports, iQor’s BPO operation is progressing well. However, the high debt load has created a liquidity crisis. Several months ago, the call center firm secured US$35 million as a bridge loan in a bid to gain liquidity.
Gary Praznik, CEO of iQor, said that the company’s BPO business is doing well but the high debt load was a problem. “While we have made progress in rapidly expanding our end-to-end customer strategy, our capital structure remains over-levered relative to the current size of our operations.”
Downsizing Business Operations
iQor seems to have reduced its workforce by around 10,000 employees over the past two years, as it shuttered some of its delivery centers. In 2018, its headcount numbered 45,000 employees.
The organization closed its facility in Klamath County, Oregon, in August last year. Earlier in August this year, one of its call centers in the Philippines temporarily closed after two employees tested positive for coronavirus.
As its workforce decreased, so did its revenue. For the fiscal year ending March 31, 2020, the company reported US$940 million in revenue, a decrease of more than US$50 million compared to the 2018 numbers.
Ratings agency Moody’s downgraded the BPO provider earlier in June, saying iQor has a “high probability of default” on its debt repayments.
“The company has an unsustainable capital structure relative to its cash flow prospects with roughly $1 billion of total adjusted debt and over $55 million in annual interest expense,” Moody’s said in a note to investors. “The company is also facing over $630 million of debt maturities through April 2021 in a challenged industry environment.”
The call center industry took a severe blow when the pandemic forced BPO providers to transition their workforce to a remote-working environment. Equipping thousands of employees with remote-work capabilities required additional investment.
“The weaknesses in iQor’s credit profile, including the refinancing risk, elevated leverage and cash flow challenges have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions while remaining vulnerable to the outbreak continuing to spread,” Moody’s added.
In a similar note, S&P Global, another rating agency, also anticipated that iQor might seek bankruptcy protection. Considering S&P’s note, the pandemic only worsened iQor’s financial health.
“Since iQor is a customer support and outsourcing solutions provider, the impact of Covid-19 has exacerbated the company’s profitability, given its meaningful exposure to consumer electronics, retail and original equipment manufacturer business customers, which contribute significantly to total revenues,” S&P said in June.