Is Neverblue Going Out of Business?


Earlier we reported that the Velo Holdings Inc, that owns among other things owns Neverblue had filed for Chapter 11 Bankruptcy Protection. This means, for those who don’t know, that the company cannot pay off its debts and thus needs protection to restructure the company. They file for Chapter 11 protection during the restructuring in order to try to save the company.

The question remains, what does this mean for Neverblue and are they going out of business?

The simple answer is: No.
I can’t predict the future, but this does not mean their company is shutting down.

The Good News
Neverblue, from all accounts, is a highly profitable company in itself and has a strong business model. As they pointed out in their response, the company itself is not included in the bankruptcy protection, so they are able to pay all their affiliates on time. That’s the good news, which means that for the time being, you are going to be paid.

The company has been a strong company for many years and continues to be a great part of the industry, service their affiliates, and most importantly has always paid on time.

The Bad News
However, despite this, things are not so simple. Even though they are not  “included” in the Bankruptcy, there are a ton of issues that will come up that will affect the future of the company.  The idea that Neverblue is not going to be affected by it’s parent company’s issues is incorrect. They are owned by that company, and are subject as an asset of the company.

Since Velo Holdings owns Vertrue, which in turn owns Neverblue, the future of the company is in the air and may be for sometime.  This means that anything could happen to the company, including it being sold in order to pay the debts of the parent company. We will not know for a long time what will happen to Neverblue, but more than likely they will be sold in the future, depending on how their parent company restructures. If Velo is not able to restructure this could mean additional issues. It will be up to the courts to determine this.

The Really Bad News

Vertrue, which bought Neverblue in 2007, for all accounts, has not had good year. They seem to be in serious financial trouble and has their credit rating changed to a “D”. According to a report by Bloomberg:

 Vertrue was “at risk of breaching financial covenants early in 2012,” according to the S&P report. “We believe the company may have the capacity to make the $10 million interest payment, but doing so absent a financial restructuring would likely make it difficult to operate the business given prevailing conditions.”

They also suffered a $33M judgement from the Iowa Attorney General last year.

The last bad news is that Neverblue is being sued by Patent Troll Esssociate. This is very unfortunate because it means that Neverblue as an asset may be very hard to sell, even if they are profitable. Very few people want to buy companies that are currently engaged in major intellectual property litigation that could affect the long-term health of the company.

Again, this doesn’t mean that Neverblue is shutting their doors tomorrow, or they will not pay their affiliates.

Update: According to what I am told, “Velo Holdings is the private equity ownership vehicle for Vertrue.”

What's your opinion?