United Site Services: A Royal Equity Flush

Welcome to the 187th Pari Passu newsletter.

Today, we will look into the long story that unfolded around United Site Services (USS). To begin with, the business is quite unglamorous; USS is the largest provider and servicer of portable bathrooms and other sanitation services in the United States. The company was founded in 2000 and grew at an exponential pace through a roll-up strategy until Platinum Equity saw the opportunity and acquired it for $1.2bn in 2017.

The investment was successful, as the company continued pursuing add-on acquisitions and tripled its EBITDA in just four years. Platinum explored a sale in 2021, but it decided to place USS in a continuation vehicle, believing there would be substantial post-COVID growth that USS could capture. This is where the story begins, as the continuation vehicle transaction valued the company at $3.75bn and levered it up to 7.5x EBITDA, up from 4x before the transaction. At the time, the sponsor thought the company would handle the debt load due to the low interest rate environment and a proven performance track record. 

However, things turned out very differently. A perfect storm of rising interest rates, inflation, and end-market contraction hit the company and destroyed its profitability. We will analyze a very well-rounded liability management exercise the company conducted in 2024 to raise liquidity, capture a discount on its debt, and extend its maturities. While the LME gave the company another chance to survive, market pressure persisted, and the company was forced to file for Chapter 11 in 2025.

With that said, let’s dive in!

United Site Services (USS) is the largest provider of portable sanitation systems and other sanitation services in the United States. Operating across more than 140 local branch facilities nationwide, the company owns and provides portable restrooms, temporary fences, crowd-control barricades, hand-hygiene stations, and roll-off dumpsters (large containers for construction-site waste disposal) to various clients, ranging from festivals to construction companies. USS owns approximately 350,000 portable bathrooms, spanning basic plastic single-user units to luxury mobile trailers equipped with running water, electricity, and air conditioning [1]. Below is an illustration that outlines USS’s broader category offerings. 

Additionally, the company provides waste disposal services, including pumping and transporting large volumes of liquid waste from commercial settings, such as grease traps in restaurants, underground water from construction sites, and leachate from landfills [1]. 

In simple terms, USS is a national chain with local branches that delivers and services sanitation systems and equipment for clients. The company’s primary business is route-based sanitation (RBS), which includes delivering sanitation equipment to customer sites on a recurring basis and providing ongoing cleaning, waste disposal, servicing, and restocking at each site at least twice a week. This segment accounted for ~70% of the company’s total revenue. The majority of RBS revenue is generated from the construction market, specifically, the many construction sites that each have 1 to 50+ portable restroom units and other sanitation systems. These projects can range from a few weeks to multiple years, providing USS with a good portion of recurring revenue [2]. 

Then, USS generates the rest (30%) of the revenue by providing portable restrooms and hand hygiene systems for special events such as festivals, fairs, concerts, and sporting events. USS also provides other products, such as temporary fencing, crowd-control barriers, and roll-off dumpsters. 

For each client, USS charges a one-time fee covering transportation, installation, and final removal. It includes a base charge plus a per-unit charge for each unit installed or removed. After the systems are installed, USS charges a rental fee for each unit for as long as the equipment remains at the customer's location. For context, this fee is usually around $100 to $200 per portable toilet per week. The rates vary depending on how long the customer is expected to use the equipment. Additionally, USS charges a separate recurring service fee that covers the full cleaning process, waste removal, restocking supplies, and environmentally conscious waste disposal, which is usually $50 to $100 per clean-up of each unit. Customers can choose from three service tiers that vary in maintenance frequency: Standard (2x per week), Standard+ (3x per week), and Daily (5x per week).

USS owns most of the equipment it provides, so the 350,000 portable restrooms are all on the company’s balance sheet. This factor made the business quite capital-intensive, and in 2021, USS had around $100mm in annual capex (10% of revenue) [4]. To deliver the systems to customers’ sites, USS uses a fleet of hundreds of leased trucks. Leasing allows USS to avoid the high upfront costs of purchasing trucks; however, these leases add to the company’s fixed costs, as most agreements are long-term. The company employed more than 3,000 workers, including service technicians who drove trucks, delivered and serviced sanitation systems, and local branch managers who oversaw branch operations. As we can already tell, it is also a hands-on business where labor is central to service delivery. With 70,000 customers spread across 47 states, fuel and labor were the company’s two largest cost drivers, as every site required regular truck visits to deliver, service, and restock equipment.

Let’s go back in time and understand the story behind the business. USS was founded in 2000 after the acquisition of a single service provider in Foxborough, Massachusetts. The company then employed a roll-up strategy, which involved acquiring and integrating existing local sanitation providers. By 2010, the company had completed 80 acquisitions, which together added new offerings, including fencing, roll-off dumpsters, restroom trailers, and waste disposal services. 

Platinum Equity Acquisition

By 2017, USS had completed approximately 134 acquisitions and grown into one of the largest sanitation services companies in the US. That same year, Platinum Equity acquired USS for approximately $1,150mm at a 10.7x adjusted EBITDA multiple, implying the business generated ~$108mm in adjusted EBITDA [3]. To finance the deal, USS borrowed a $475mm 1L term loan and a $280mm 2L term loan, resulting in a 65% LTV.  Platinum’s plan was to consolidate and improve operations in more than 80 locations while continuing to grow the business through strategic acquisitions. 

In fact, the investment proved highly successful: over the next four years, USS acquired 36 businesses and expanded its operations across the United States. In 2021, news articles reported that the business was generating ~$350mm in EBITDA, more than 3x of what it was in 2017. In 2021, Platinum was considering selling the company; however, in November 2021, Platinum decided to place USS into a continuation fund, crystallizing the price at $3.75bn, which implied a 10.7x adjusted EBITDA multiple (same as entry) [12]. As a result, the existing equity holders were paid out ~$2.6bn in the deal, and the old debt was repaid [13]. The continuation vehicle was backed by a group of funds, including Fortress Investment Group, Landmark Partners, and Blackstone Strategic Partners. 

The economics of this initial deal were rather impressive: Platinum achieved a 6.5x multiple on invested capital (MOIC) in just four years, yielding a 59% IRR. However, the majority of the existing equity, around $1.3bn, rolled into the new equity, meaning these returns were realized for less than half of Platinum’s stake. As a note, this analysis also assumes that Platinum did not contribute any additional equity during the initial holding period, which would’ve suppressed returns.

There are a few possible reasons why Platinum decided to put USS in a continuation vehicle. Looking at news reports from the time, we believe it was a combination of Platinum's inability to find a buyer willing to pay the desired price and the belief that USS could capture some post-COVID market growth, as festivals and other events were expected to return and boost the company’s non-core revenue.  

And this is where the story begins: as part of the transaction, Platinum paid out the existing debt and levered the company up to ~7x adjusted EBITDA once again. To finance the new transaction, USS issued a new $2bn 1L Term Loan (SOFR + 4.25%), $550mm Senior Unsecured Notes (8% fixed rate), and entered into a $200mm ABL revolver (SOFR + 2.00%) as well as a $100mm 1L cash flow revolver (SOFR + 2.00%), which were initially undrawn. In total, the company took on $2.6bn of funded debt, resulting in 65% LTV (same as the original LBO). This was a huge increase in debt from ~$1.2bn just a few months before the recapitalization [4]. 

The leverage in the CV transaction was very similar to the original LBO, and Platinum was certainly confident after seeing the company’s success over the past four years. At that point, USS was the biggest and the only sanitation services provider capable of serving national accounts in the United States [4]. Additionally, the low interest rates at the time allowed Platinum to believe that the company could easily handle the leverage. The resulting capital structure looked as follows.

Sources reported that USS generated around $1bn in revenue, indicating that the business had a ~35% adjusted EBITDA margin in 2021.

We also have enough data to approximate the company’s cash flow at the time of recapitalization. We know the interest expense was $130mm, term loan amortization (1%) was $20mm, and, based on the ratings reports, capital expenditures were likely around $100mm. By plugging those numbers in, we see that the capital structure resulted in the business generating ~$100mm cash flow. The leverage profile worked with existing working capital needs and a low interest rate environment, but it was already a thin margin, especially considering the very elevated growth the company had experienced.

After the recapitalization, the company had around $400mm in liquidity. Everything looked good on paper: the company was projected to de-lever over time and bring a second round of returns to Platinum and its investors. 

Things soon took a turn after the recapitalization as USS found itself in a perfect storm that increased its cost base, inflated interest expense, and reduced demand in its end markets, putting significant pressure on cash flow. 

Inflation and Rising Input Costs

2022 brought USS a few new year's surprises. First, the Russia-Ukraine conflict, which began in February, immediately sent fear through oil markets, spiking fuel prices by 40% from February to June. In February, the average price per gallon of gas was $3.6, and in June, the price reached a record $5, after which it began to fall slowly. 

As noted, the company’s business relies on hundreds of trucks to deliver and service tens of thousands of portable restrooms and other systems, making fuel costs one of the company's main expenses. 

Additionally, COVID-induced spending and stimulus checks heated up the economy, resulting in a four-decade record inflation rate of 7% in June 2022. Inflation increased prices across the board, including gas, maintenance, labor, and sanitizing equipment used to service and clean the portable restrooms. 

Despite rising operating costs, USS’s revenue grew roughly by 15% to an estimated $1,150mm in 2022, driven by acquisitions [16][18][19]. Based on S&P’s reports, in Q2 2022, the company’s leverage rose above 9x, which, with $2,630mm of debt outstanding, implied adjusted EBITDA of around $290mm, a significant decrease from $350mm three quarters ago [5]. The reports stated that the company had been hit by high fuel and labor costs and was attempting to pass these costs to customers by implementing fuel and payroll surcharges; however, these attempts were unsuccessful. As a result, the adjusted EBITDA margin decreased to ~25% from ~35%, and S&P reported negative cash flow for 2022 due to the combination of higher working capital outflows, growth capex, and acquisitions [5].

Rising Interest Rates

As if rising labor and fuel costs weren't enough, the rapid increase in interest rates piled further pressure onto an already strained cash flow. With inflation reaching 7% in June 2022, the Federal Reserve began raising interest rates aggressively to bring it under control. By the end of 2022, the effective rate increased to 4.25% from ~0% at the beginning of the year. Elevated operating costs and rising debt costs resulted in the company burning approximately $100mm-$150mm in cash in 2022.

Rate increases continued into 2023, reaching 5.25%. Such a sharp rate increase was not a good combination with the company’s predominantly floating-rate debt. In June 2023, the company had the same capital structure but had drawn $140mm under its ABL and $39mm under its revolver. Below is the capitalization table as of June 2023. 

The main takeaway here is that annual interest expense increased from $130mm at the time of the recapitalization to $245mm in 2023. Even excluding all operational issues that were starting to emerge, SOFR going from 0.05% to 5.31% added $115mm of interest expense and single-handedly turned a $100mm cash-generative business into a cash burner.

Weakening Construction Market

While USS was dealing with the direct impact of interest rates and inflation, the broader construction market experienced a significant slowdown. The slowdown started at the end of 2022 as high interest rates made financing new construction very expensive. Additional factors, such as supply chain disruptions in 2022, rising material costs, and labor shortages, made home building more expensive than before. 

In 2023, signs of a significant slowdown in residential construction activity started to show up as new privately-owned residential building permits dropped 21% year-on-year in the first four months of 2023, while new housing starts declined 15.5% in the first five months of 2023 [6]. 

As a result of the end-market contraction, USS saw its revenues decline 8% from ~$1,150mm in 2022 to $1,050mm in 2023. Combined with ongoing cost inflation, the decline in topline led to adjusted EBITDA declining to ~$230mm in 2023 from $290mm in 2022 and $350mm in 2021. Specifically, the decline in revenue impacted USS's operating leverage due to lower route density. As we mentioned, USS has many fixed costs (truck leases, fuel, labor, etc.), and the company tries to optimize operations to provide as many services as possible per route, which it refers to as route density. In other words, when a technician plans a route to service multiple sites, the driving distance and time spent will not vary much whether they service 5 or 10 sites, meaning costs mostly stay the same while revenue is smaller, directly decreasing the margin. As a result, operating leverage backfired at USS, with EBITDA margin falling to ~22% in 2023 from ~25% in 2022 and ~35% in 2021.

Now, we can assess how the combined effect of interest rates, inflation, and a slowdown in construction activity affected the company’s cash flow around 2023. Recall that the business was generating ~$100mm in cash flow under good conditions at the time of recapitalization at the end of 2021. 

In less than two years, the macroeconomic pressures resulted in the company burning nearly $150mm cash annually. In fact, in June 2023, the company had only around $107mm in liquidity ($77mm under the revolver and ABL and ~$30mm in cash), meaning it had roughly 3 quarters of liquidity at the current burn rate.  At this rate, the company would soon need to develop a plan to address this serious issue.

As USS entered 2024, the construction market showed no signs of recovery, with revenue continuing to decline quarter over quarter while rates remained fixed at 5.25%. The company was burning cash continuously, and liquidity was set to run out by the end of April, forcing it to seek an immediate cash infusion. Around January 2024, an ad hoc group (AHG) of lenders began forming, eventually comprising 90% of the term loan and 55% of the unsecured notes lenders. 

Around the same time, USS hired advisors PJT Partners and Milbank to explore possible solutions to its impending liquidity crisis. The company was actively negotiating a liability management transaction with the AHG between January and April of 2024; however, it determined that the final terms would not be agreed on before the end of April 2024, by which time the company was set to run out of cash. As an immediate relief, Platinum Equity (the sponsor) provided a $60mm bridge facility on friendly terms to support the company’s operations while it continued to negotiate the transaction. The facility had a four-month term, carried an 11% fixed interest rate, and was secured by a “ring-fenced collateral package consisting of USS's plastic toilet units held in a newly formed subsidiary.” [1]

USS finalized the terms of the LME in August 2024. The transaction incorporated a double-dip structure and a distressed exchange, which, in aggregate, raised $300mm of new money, captured a $201mm discount, and extended maturities to 2030. 

The transaction began with the formation of a new Cayman empty non-guarantor restricted subsidiary (NGRS), called Vortex OpCo, which issued new superpriority debt structured as a double dip. We will describe this structure in a second, after understanding the exchange terms 

Following Vortex OpCo's creation, the company started the debt reshuffle [7]. The existing $200mm ABL and $100mm RCF lenders, who were not part of the AHG, rolled into a new upsized $220mm ABL and a new $100mm RCF at par. Then, the AHG provided $316mm of new money first lien first-out term loan, or $300mm including the original issue discount (OID), which is essentially a fee paid upfront by the borrower in the form of reduced loan proceeds, meaning the company received $300mm in cash but owes $316mm in principal. As the AHG provided new capital, it exchanged its existing debt for new superpriority debt held by Vortex OpCo at favorable terms. Following the AHG exchange, USS opened the exchange for all remaining lenders, but on worse terms. The resulting capital structure included a new $220mm ABL, new $100mm first-out RCF, $447 First-Out term loan (including the new money from the AHG, and the exchanged capital from steps 4 and 6 explained above), $1,795mm Second-Out term loan, and $194mm Third-Out secured notes.

Let’s break down and visualize the exchange terms in detail.