How Vanco, Global EPP, Thornycroft and Howley have knocked back
the European leasing industry.
The impact of the credit crunch continues to hit lessors hard,
with revelations last month that as many as 38 lessors are facing
losses arising from the troubles at telecoms company Vanco Plc.
Go deeper with GlobalData
This comes amidst a flurry of insolvencies that are expected to
mean significant financial losses for European lessors in lost
equipment and unpaid rentals.
Besides Vanco, it also emerged last month that Caterpillar
Financial Services Ireland is owed €5.5m, and AIB Finance and
Leasing is owed €3m by Cork-based Howley Civil Engineering Ltd.
Last month the High Court in Ireland appointed an interim
examiner to Howley, which employs 430 people. At the hearing the
judge was told the company was insolvent and unable to pay its
debts due to several factors, including the slowdown in the
construction sector and additional costs on motorway and retail
projects.
Howley
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCaterpillar FS initiated proceedings against Howley some weeks
before the appointment of the examiner. The lessor was seeking to
recover 17 machines, each with an estimated value of €200,000,
which were leased to Howley. But the judge was told that Howley
directors believe the firm has very good trading prospects.
Following the appointment of the interim examiner, the firm agreed
a schedule of staff payments.
Caterpillar Financial Services’ current problems follow hard on
the heels of its victory in the Thornycroft 1862 matter in which,
it is understood, it has recovered most of its losses and also
gained compensation.
Thornycroft, a well known plant hire company based in
Cambridgeshire, entered administration last year owing considerable
sums to a wide range of lessors, including Bank of Ireland Asset
Finance – whose London arm recently closed to new business – ING
Lease UK,De Lage Landen, and Tokyo Leasing. Meanwhile, the
administration of Global EPP, a construction company, rumbles on
with the future remaining bleak for its 51 creditors, who are
collectively owed a total of £70m.
The sale of Global EPP’s assets is expected to only bring in
£2.5m.This will effectively just cover the costs incurred by
Venture Finance, the lessor which has a floating charge over the
assets. Venture has been the first of the creditors to receive
distributions totalling £1.3m, based on its book debt realizations,
out of its total debt of £5.5m, according to the administrator’s
report.
The worst hit has been Bank of Ireland, which is owed £6.7m by
Global EPP – also known as Nylacast – and Landsbanki Commercial
Finance is the second highest creditor with debts totalling
£6.4m.
It has also emerged that lessors could possibly lose
threequarters of the £40m they had lent to troubled telecoms group
Vanco Plc.
Administrator Simon Granger, a senior managing director of FTI
Consulting Ltd, said that as many as 38 lessors have been exposed
to Vanco through the financing of computing software, fixed assets
and intellectual property rights.
Among the names staking a claim on the proceeds are KBC and
Syscap, believed to be some of the biggest lessors to Vanco.
Last month, FTI Consulting Ltd announced the sale of Vanco and
all of its subsidiaries, except the US parts of its business, to
India’s Reliance Globalcom for £40m.At its height, the market had
valued Vanco at close to £400m.
It is unclear how much more the US business will add to the
proceeds, although its disposal is not expected to raise the pool
by a substantial amount.
How much lessors could potentially recover depends on their
standing among the long list of creditors. They include a group of
secured lenders led by Lloyds TSB, which are owed some £123m.
Agreement
It is understood that the lessors and the lenders had arrived at
a compromise agreement where, in return for not repossessing the
assets on lease, the lessors would have a claim to the final amount
of proceeds from the administration. The question is whether
lessors are ranked pari-passu with the secured lenders, in which
case the amount recovered could be higher.
A spokesman for KBC would not comment on the status of the
compromise agreement when contacted.
Going on the £40m currently available, a pro-rata division of
the proceeds would amount to a paltry £9.8m in recovery. That
equates to a 75 per cent haircut for lessors, and not far from the
15p-to-the-pound ratio bandied about by executives in the asset
finance business.
A pioneer of the virtual network operator business model, Vanco
is an aggregator of communications networks provided by multiple
operators. This enables Vanco to provide telecommunications
services to companies with large inter-national operations.
Vanco, as it is today, became an industry leader 20 years ago
when Allen Timpany bought the languishing business for £1 amidst
the telecoms sector deregulation. Timpany transformed the company
from its core focus of bureaux services towards managed data
networks.
Cracks in the business only became apparent after the release of
its six-month earnings release for the financial year to January 31
2008.Although it was scoring new contracts, the group was operating
under very tight cash flow conditions, prompting downgrades by
analysts and warnings that it might breach covenants on existing
debt facilities.
As at July last year, it was reporting a drain on its free cash
flow of almost £20m – double its predicted burn rate. In the
earnings statement, Timpany noted that collections of upfront cash
from new contracts were lower than expected because of delays in
the signing of deals.
Lessors who passed up potential deals with Vanco claim that the
signs of stress were obvious, although others would disagree.
“I would imagine banks who are saying that are not one of the
lenders to Vanco, and that would prompt me to wonder how they would
come to that conclusion, as it seems unlikely that they would have
access to that sort of information typically available to a
company’s lenders,” the KBC executive said.
