A defense firm that provides security services to the U.S. embassy in Iraq and that traces its roots to controversial military contractor Blackwater is nearing bankruptcy, according to a new report from credit ratings firm Moody's.
Moody's said the contractor, Constellis Holdings, could enter court supervision by early February, although a bankruptcy isn't assured. The company, which has piled on debt over the past decade and now has liabilities of more than $1 billion, missed a debt payment on December 31, putting it in default, according to both Moody's and credit rater Standard & Poor's.
Constellis also faces slowing growth. Its revenue was weaker than expected in the second half of the year, resulting in a "sudden and material" drop in cash in the fourth quarter, Moody's reported. The company recently took out another $110 million loan from some of its existing lenders in order to bolster its finances.
On Friday, Moody's cut the company's credit rating and said the risk of a bankruptcy was growing. Standard & Poor's also warned last week that Constellis's problems could push the company into bankruptcy.
The company is negotiating with its creditors and still hopes to reach a settlement with lenders that won't require it to declare bankruptcy, according to a source close to the company.
"Constellis plans to continue to operate our business, execute our business strategy and meet our obligations to our stakeholders," a company spokesperson said in a statement to CBS MoneyWatch.
Iran tensions boost defense companies
Although Constellis doesn't guard the U.S. embassy facility in Baghdad, it does provide security for diplomats and others entering and exiting the building. The status of its contract with the embassy in Iraq hasn't changed, according to a person close to the company. Constellis offers similar protection services in 30 countries around the world to governments and private businesses.
Last week, anti-American protestors tried to storm the. The U.S. blamed the protests on Iran, which has enflamed tensions between Washington and Tehran.
Constellis's financial problems come as investors are growing more optimistic about the prospects of defense contractors amid mounting tensions with Iran. Shares of Northrop Grumman and Lockheed Martin are up 8% and 5%, respectively, in the last week, buoyed by a U.S. airstrike on Friday that killed Iranian general Qassem Soleimani.
Past ties to Blackwater
In 2007, contractors for a corporate predecessor to Constellis, Blackwater, were involved in a shooting that killed dozens of unarmed Iraqis in Baghdad. Four Blackwater contractors were found guilty of murder for the shootings, but three were later acquitted of the charges.
Following the shooting, Blackwater founder Erik Prince, who is the brother of current U.S. Education Secretary Betsy DeVos, was forced to sell the company. It was renamed and purchased by a private equity firm run by Erik Prince's former investment manager, Jason DeYonker. Another private equity firm, Apollo Global Management, bought Constellis in 2016. DeYonker, who had been CEO, departed in 2018.
A Constellis spokesperson said the company no longer has any ties to Prince or Blackwater.