Broke in Vegas
By Lindsey Anderson19 February 2013
Don Ahern flashes a genuine smile. “Just let me sign this and then I’ll focus all of my attention on you,” he apologizes. Nearly 30 minutes have passed since our scheduled interview was set to take place and Ahern is feverishly working through a stack of papers an inch thick. “Sign here,” says a man who hovers over Ahern and points toward an empty line. “And here.”
Ahern is no stranger to paperwork. He was born into the rental business in 1953 – the same year his father purchased a Signal Oil & Gas Station which would eventually morph into a full-fledged rental company led by Ahern. By 2008, Ahern Rentals was one of the fastest-growing independent rental companies in the U.S. And then the economy busted.
As the Lehman Brothers collapsed, the share markets dove and the world’s banking systems failed, Ahern was about to find himself tangled in a similar web. Months prior, his story had been picture-perfect American lore – a family owned and operated business that became one of North America’s top 10 rental companies. Today, however, Ahern Rentals is in debt – $604 million in debt.
During the glory years before 2008, Ahern Rentals’ revenues did nothing but rise. In ‘07, Ahern reported revenues of approximately $293 million, rising to $329 million in 2008. It was when growth started to slow that Ahern put in place a strategy of opening further locations to provide a broader outlet for its fleet, opening 24 depots during 2009 and 2010.
The ice started to crack, though. The first two months of 2009 saw a 17 percent decline in revenues, year-on-year, and the same period saw rental rates fall 13 percent and a decline in time utilization from 66 percent to 55 percent. It was not a good time to have debts of around $600 million.
It was December 2011 when the news broke. ‘Ahern Rentals files Chapter 11’, the headlines read.
Ahern is now willing to share his side of the story, and did so exclusively with ALH over the course of two hours in mid-December 2012. What emerges is a picture of a man who believes that his company was the victim of economic circumstances, and who feels ill-served by the Chapter 11 process and the banks. Equally, he remains defiant about Ahern Rentals prospects in the coming years and argues that it is now performing “like crazy.”
“What happened was”, he starts, “Well, going back, you have to do this chronologically for it to make any sense.”
Rewind to ‘08
There are three groups of debt-holders for Ahern Rentals; the bank (Bank of America), the term lender (Goldman Sachs) and the bondholders. The majority bondholder is private equity form Platinum Equity, which owns 50.1 percent of the bonds, with the remaining 49.1 percent held by four to five large creditors – “A handful of people,” Ahern says. The bank currently owns $225 million of debt, while Goldman Sachs owns $111 million and bondholders have $268 million.
As the financial world goes, banks are in the first lien position, which is the highest priority debt in the case of default. If a property or other type of collateral is used to back a debt, first lien debt holders are paid before all other debt holders.
“[In 2008], the bank came to us and said, ‘We’re going to go into a tough time. Your business is slowing down and we don’t want you to pay [anything except first lien debt]’”, Ahern says. Ahern had freed up $75 million at the time that could have been used to pay Goldman Sachs and other creditors, he says, but “the evilness and greediness of the banking industry forced us not to pay those people. It’s not like we kept the money. The money went straight to the bank.”
During this payback period – still before the entry into Chapter 11 - Goldman Sachs agreed with Ahern a suspension of repayments during the time Bank of America was collecting. This pushed the Goldman Sachs’ loan from $95 million to $111 million due to accrued interest.
“It was really kind of a bad deal for the bondholders and I feel poorly for them,” Ahern says. “I don’t want anybody to ever lose a dollar on me. I’ve been in business here, my dad and I, for 60 years. We never not paid a bill. Even a buck!”
But emotions and business typically don’t walk hand-in-hand, so in the face of creditor anger, the bondholders started dumping bonds – most at a “75 percent discount,” Ahern says. This practice continued from 2009-2011.
During this, the news resumed: ‘Private equity interest in Ahern Rentals’, headlines read. That private equity interest group was Platinum Equity, a firm known for buying distressed companies. In the last few years it has purchased NESCO Sales and Rentals and Maxim Crane Works. And now it was looking to make a deal with Ahern Rentals.
“Platinum was moving in on us real hard,” Ahern says. “They contacted our banks and started causing problems. The banks said, ‘You better cut a deal with these bondholders or we’re going to gut you.’ We were forced to do business with them [Platinum].”
But according to Ahern, Platinum wanted nothing less than ownership of the company. “The banks left us in a vulnerable position for the sharks to come in,” Ahern says. “About a year ago, we were still fighting with Platinum to come up with a deal. Platinum said, ‘There is no deal to be had. We want ownership, or, you always have the right, Don, to pay us off in full with accrued interest. Write us a check and we’ll be happy to go away.’”
“We begged them for a deal,” he says. “They repeatedly said, ‘No deal. You’ll have to file bankruptcy if you don’t agree to what we want and what we want is 70 percent ownership of your company.’”
So, Don Ahern did what no one expected he would do; he got lawyers and filed bankruptcy.
That process has not been an easy one, with Ahern getting extensions to the date when it was required to submit its plan, and finally submitting its proposals in November last year.
Ahern and his team came up with two plans – one which negotiated with the banks bond holders on a set interest rate and payment in full. “That’s what the bankruptcy court allows for,” Ahern says. “It says under the absolute priority rule that I can retain ownership – I can retain my equity – but that I have to pay them back 100 percent.”
However, Judge Bruce T. Beesley, says the only way Ahern can retain his equity is to pay everyone off in full at one time.
“What these people are so upset about is that the normal interest rate in the market right now is at a 100-year low,” Ahern says. “We have interviewed four interest-rate experts that all agree 4.25 percent is the going rate right now. If these people don’t want 4.25 percent, we ask them to tell us what they want and they will not tell us what they want.”
The second plan – or ‘plan b’ as Ahern calls it – was for lenders to take a discount. If they wanted cash, Ahern had specific figures for each. Ultimately, as previously stated, Judge Beesley rejected Ahern Rentals’ exclusive opportunity to present a plan.
At the hearing November 30 in Reno, Judge Beesley also said Ahern's plan could not be approved because it allows Ahern to keep his 97 percent stake while lenders would be forced losses over time.
“The judge should have given us time to negotiate,” Ahern says. “The big story here is that our company is rapidly recovering and I think they’re trying to get it from us, because if we continue to recovery, it will be harder and harder for them to win this.”
Days after rejecting Ahern’s plan, Judge Beesley ruled that other parties may submit alternate reorganization plans. Ahern is currently appealing that non-exclusivity ruling, with no clear time frame for a ruling.
“This judge should be dancing,” Ahern says. “This was a remarkable success story. It would have been so much easier to sell everything…Bankruptcy is to give a company an opportunity. We were not given that opportunity. Our recovery has been measureable and phenomenal. We are generating cash like crazy.”
Business on the up
This recovery has been such, says Ahern, that the current company value exceeds its debts. “We just finished the biggest month of our company’s history in October 2012,” Ahern says. “In October 2012, we returned to higher levels of utilization and we’re doing a phenomenal recovery. All of the new stores are contributing cash to the business and the health of the business is radically, radically better.”
Current annual EBITDA levels are around $110 million (the peak in 2008 was $160 million), which, if a 7 or 8 times EBITDA multiplier was used, would place Ahern’s value higher than its debts. He notes that United bought RSC at a multiple of around 8.3.
“As the EBIDITA rises, you get a rise in the value of the business,” Ahern says. “The EBIDITA has been strengthening and now we are valuable and not in the hole. Suddenly, they are up against someone who could fight.”
On top of his judicial issues, Ahern is still in discussions with Platinum Equity. Four months ago Platinum entered into an agreement with Ahern to sell its bonds back, but at a discounted rate of up to one-third less of face value. Negotiations are also ongoing with Goldman Sachs and the company is working to get exit financing, as well.
“The great irony here is that [our] company never received a single written term offer from any of the debt holders that are involved here,” Ahern says. “The only term offers that we put in writing were from the company’s point of view. We made a number of written offers.”
Don Ahern still has the appetite for business, despite being a victim of the economic crisis. “I think I’m a victim of a judicial system that’s broke, as well,” he says. “There’s a lot of dirty tricks out there.”
The bankruptcy system, Ahern says, is “an incestuous and evil process” – but he says he’s learned how much his employees support him and how important the business is to him. To his naysayers, he has a strong message; “If they force me out, I will be back in it before the sun comes up. If somebody else owns Ahern Rentals, I will be Ahern Rentals’ biggest competitor.”
He also remains defiant that his strategy of expanding into new regions when the recession hit was the right one. “If I had to do this again, I’d do it. There’s no other strategy that would work short of just quitting,” he says. “You couldn’t have sold the business or the assets to pay off the debt in 2009."
The lack of capital investment in the fleet in the past three years has not been unduly damaging, he claims. The average age of the fleet is about 70 months, but because it wasn’t at high utilization levels, Ahern believes it to be more equivalent to 50 months. “Our fleet is in great shape and we’ll compete with [the national rental companies] all day long with what we do”, says.
That said, Ahern is buying a “lot of equipment,” including more than 300 JLG scissor lifts just purchased before the new year. “Our CapEx spend is way above last year’s,” he says. “And next year will be even bigger.”
While construction work does continue to struggle a little bit across the U.S., Ahern says utilization is quite strong right now. From 2010-2011, the company saw 22 percent revenue growth and from 2011-2012, it experienced 10 percent revenue growth. While Ahern was tight-lipped about 2013’s projections, he says he does expect it to be a “great year” and that it will exceed 2012.
Long-term, Ahern wants to survive and grow the company, and to anyone who thinks that it would be better if his company was bought by a larger, corporate rental company, or allowed to fail, he has a strong message.
“We are the only independently owned rental company at the top of the 15 or 20 in the world,” he says. “We are outperforming almost everyone in the industry. Every company should aspire to be as successful as us.”