Ahern Rentals Inc., a Nevada-based national construction equipment supplier hit hard by the recession, filed a massive Chapter 11 bankruptcy case Thursday in U.S. Bankruptcy Court in Reno.
The company is carrying about $620 million in debt and, with recent financial improvements, hopes to reorganize in a way that none of that debt is compromised or extinguished, Chief Financial Officer Howard Brown said in an interview.
“We hope to grow into our capital structure,” he said, adding that through the bankruptcy process, that could involve replacement of current debt with new debt under improved terms.
The company has headquarters operations in Las Vegas, where it employs 505 people, and in Reno.
In all, Ahern has 74 locations in 22 states and about 1,800 employees. It rents and sells construction equipment like front-end loaders, backhoes and excavators. Its fleet consists of 37,320 rental items, Ahern said in its bankruptcy filing.
Despite recent improvements in its business, the company said it had to file for bankruptcy when it was unable to extend the maturity date of its revolving loan, which is a $350 million credit facility under which Ahern had borrowed $257 million as of Thursday.
One reason the company has had liquidity problems is that it had to make big cash investments for equipment that it rents out, Brown said in a court declaration. Net capital spending on its fleet ran between about $116 million and $111 million per year between 2005 and 2008.
The company said it has obtained a commitment from existing lenders for $50 million in debtor-in-possession (DIP) financing, which it expects will be sufficient to meet its needs through the bankruptcy process.
“We anticipate there being no interruption to our operations. With our DIP Facility (debtor-in-possession loan), we will have sufficient liquidity to meet our commitments to our customers, vendors and employees,” CEO Don Ahern said in a statement.
“We have been experiencing a significant improvement in our business, with a substantial increase in our utilization levels and improved margins,” Ahern said. “The company provides a valuable service for its customers, and we do not expect the bankruptcy filing to affect our ability to continue to offer customers highly reliable and quality equipment and service. It is business as usual, and we anticipate no impact to our customers, vendors and employees.”
In an interview, Ahern said most of the company’s revolving lenders were agreeable to extending the loan but because there were holdouts, he decided to put the company into Chapter 11 to protect jobs and to keep all of Ahern’s stores open.
“The business has already improved a lot. This is something I had to do,” Ahern said.
As the company grew during the boom years of the 2000s, it saw EBITDA increase from $80.2 million in 2005 to $150.1 million in 2008, Ahern Rentals said in a bankruptcy filing.
EBITDA is a profitability measure meaning earnings before interest, taxes, depreciation and amortization
During the recession, EBITDA tumbled to $46.7 million for the 12 months ended June 30, 2010. Since then, it has rebounded by 63.8 percent to $76.5 million for the 12 months ending Nov. 30, Ahern Rentals said.
Revenue for the 12 months ended in November was $329.8 million, up from $292.7 million in 2010, the company said.
The improvements can be attributed to the economy picking up around the United States, though not in Nevada, and to Ahern expanding by opening 24 branches in 2009 and 2010, Brown said.
Those branches were opened so Ahern could redeploy equipment that had been rented to contractors at the massive CityCenter project in Las Vegas, where construction was largely complete by the end of 2009.