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May 1, 2008updated 12 Apr 2017 4:43pm

Lessors hit by new wave of administrations

Lessors hit by new wave of administrations 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.

By Maryann Tan

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.

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

Caterpillar 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. 

Caterpillar FS: sought recovery of 17 machines

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