By Peg Brickley

Modular Space Corp. has filed for protection from creditors in the U.S. and Canada, to implement a plan to rework its $1 billion load of long-term debt.

Business will continue as usual during what is expected to be a brief bankruptcy stay for ModSpace, which makes, leases and sells office trailers, mobile offices, temporary classrooms, modular office complexes and portable storage units.

A restructuring that will cut into the debt load by swapping out about $400 million worth of debt for equity was negotiated in advance of the bankruptcy filing in the U.S. and the initiation of Canadian restructuring proceedings in Toronto.

ModSpace launched workout talks after a $1.75 billion merger with WilliamsScotsman International Inc. fell through in August, after some backers dropped out to cope with the effects of Britain's exit from the European union, court papers say.

The Williams Scotsman merger had been designed to allow for synergies and some $500 million in new capital, which would have improved ModSpace's financial picture. Instead, the company weighed some other offers, and decided to work things out with existing lenders.

The slowdown in the oil-and-gas sector and mining hurt ModSpace's sales, according to papers filed in the U.S. Bankruptcy Court in Wilmington, Del. With nonresidential construction numbers falling sharply, ModSpace was up against lowered demand and pricing pressures that ate into its margins, court papers say.

The company negotiated restructuring options with an ad hoc group of eight noteholders that own, in the aggregate, 72% of its $410 million in secured notes.

Senior lenders agreed to support a stand-alone restructuring of the company, a plan that gives them a major stake in a reorganized business, which can be increased if they participate in a $90 million capital-raising effort.

ModSpace's current equity owners, including funds managed by Calera Capital Advisors LP will hold on to a smaller stake in the revamped business, along with warrants entitling them to share in a resurgence if Modular Space does well coming out of bankruptcy.

Senior lenders will remain at the top of the capital structure, ensuring that ModSpace has nearly $720 million in top-ranking loans in place to fund its exit from bankruptcy, court papers say.

ModSpace has two operating segments in the U.S., which accounts for most of its business, and Canada, with 82 branch and service centers and approximately 639 employees in total.

Zolfo Cooper David Orlofsky is serving as financial adviser to Modular Space, which is represented also by Cleary Gottlieb Steen & Hamilton LLP, Lazard Frères & Co. LLC, and Young Conaway Stargatt & Taylor LLP. Bondholders are being advised by Moelis & Company as financial adviser and the Dechert LLP law firm.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

December 21, 2016 09:46 ET (14:46 GMT)

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