Dawn of Reckoning

The buyout market is at the beginning of its first writeoff cycle in years, as portfolio companies are suffering from the dual dangers of overleveraged balance sheets and recessionary macro trends.

The latest dead pool jumper is Silver State Helicopters, a Las Vegas-based flight training school that filed for Chapter 7 bankruptcy protection just five months after selling a 60% stake to Eos Partners for around $30 million. Seems Citibank decided to stop providing loans to Silver State students, which triggered a total shutdown. Three hundred-fifty people out of work, 2,700 flight students without trainers (although they do still have loans) and a total washout for Eos.

Today we also have word that moving van operator SIRVA has filed for Chapter 11, in order to refinance its debt. That means the end of an era for Clayton Dubilier & Rice, which originally formed SIRVA, took it public in 2003 and still held a 24% stake. On the upside, CD&R did make an overall profit on the deal, since it sold most of its shares when SIRVA was on the big board trading between $20 and $30 per share — rather than its more recent spot on the pink sheets at less than 50 cents per share.

Other notable failings from just the past week:

* PRC LLC, a Plantation, Fla.-based provider of outsourced customer management, filed for Chapter 11 bankruptcy protection. The move came just 14 months after Diamond Castle Holdings acquired PRC from IAC/Interactive Corp. for $286.5 million (including $130m of equity). Under terms of the proposed restructuring, PRC creditors will provide up to $30 million in DIP financing, plus reorganization financing if/when PRC emerges from bankruptcy protection.

* American LaFrance, a Ladson, S.C.-based maker of fire engines, filed for Chapter 11 bankruptcy protection. The company blamed problems implementing a new accounting/inventory/payroll system. It had been acquired by Patriarch Partners in 2005.

* Wickes Furniture, a furniture retailer acquired by Sun Capital Partners in 2004, filed for Chapter 11 bankruptcy protection. It lists $190 million in assets and $208 million in liabilities, and has reached a $30 million DIP financing arrangement with Wells Fargo Retail Finance.