Essex Rental Corp. provided several updates on its business, financial condition and other matters.
On June 23, 2016, the Company's subsidiary, Essex Crane Rental Corp. (“Essex Crane”), entered into a Sixth Forbearance Agreement (the "Forbearance Agreement") with the revolving lenders under its Fourth Amended and Restated Credit Agreement (the “Essex Crane Revolving Credit Facility”), including Wells Fargo Capital Finance LLC, as Administrative Agent (the “Agent”) and a lender. Under the terms of the Forbearance Agreement, through the July 15, 2016 term of the Forbearance Agreement, and if extended, Essex Crane will fund operating expenses using cash collections and no new revolving loans will be requested by or advanced to Essex Crane. Additionally, Essex Crane agreed to cooperate with the lenders with respect to the lenders’ plan to conduct and consummate a transfer under Article 9 of the Illinois Uniform Commercial Code with regard to some or all of the collateral, and on July 1, 2016, the Agent provided Essex Crane notice that the Agent intends to offer for sale in a public auction all of the rights, title, and interests of Essex Crane in, under and to substantially all of Essex Crane’s personal property, including, without limitation, all of Essex Crane’s accounts, inventory, machinery, equipment, investment property, and general intangibles. The Agent and lenders have reserved their right to withdraw or add all or any portion of the collateral from or to the sale and may cancel the sale at any time for any reason, and have otherwise reserved all of their respective rights and remedies.
Nick Matthews, President and CEO of Essex stated, “Over the past year, Essex Crane has been operating under forbearance agreements and working with its lenders to identify the way to best maximize value for all of its stakeholders. Throughout this process, we have explored several options including the sale of Essex Crane as a going concern, selling equipment assets in auctions and by other means and restructuring around a smaller level of debt. At this point, Essex Crane’s lenders have chosen to offer Essex Crane's assets in a public auction in an effort to increase the value received in exchange for those assets. It is unclear if the public auction will provide more value than the other strategies already pursued or what other alternatives the lenders may choose to pursue if the auction does not result in the sale of all or a portion of Essex Crane’s assets.”
Coast Crane Default
On April 5, 2016, the Company's subsidiary, Coast Crane Company, received a notice of default and reservation of rights letter from Wells Fargo Capital Finance, LLC, the lead lender and agent under the Coast Crane Second Amended and Restated Credit Agreement (the "Coast Crane Credit Facility"), as a result of non-compliance with certain delivery and financial reporting requirements contained within the Coast Crane Credit Facility due to the delay in delivering the audited financial statements for the fiscal year ended December 31, 2015 and failure to record a valuation allowance related to net operating losses being carried forward in prior year financial statements. Due to the existence of the event of default, the agent has elected that all obligations shall bear interest at a per annum rate equal to two percentage points above the per annum rate otherwise applicable under the Agreement, and all other rights of the lenders have been reserved.
The event of default described may also trigger a default under the cross-default provisions contained within the Company's unsecured promissory notes, unless waived by the holders of those notes.
Despite the default, Coast Crane has continued to operate in excess of its performance-related covenants. The Company has been and expects that it will be able to continue to use the Coast Crane Revolving Credit Facility to fund operations.
Business Update
Throughout the first half of 2016, the transportation end market continued to display year over year increases in activity driven by bridge work in the Midwest and Southeast regions. General building remains strong, resulting in increased tower crane utilization and average rental rates year over year. However, the retail and rental equipment sales market remains soft and the challenges in the energy sector have continued. Petrochemical activity in the Pacific Northwest decreased year over year and impacted heavy rough terrain cranes. While overall rough terrain crane utilization has been consistent year over year, the mix has shifted toward the lighter lifting capacities. The Gulf Coast has shown a decline in industrial/marine and petrochemical activity, which has impacted hydraulic crawler crane utilization as compared to the strong first half of 2015.
While Essex Crane’s results of operations have been significantly negatively impacted by the ongoing forbearance issues, Coast Crane continues to generate significant free cash flow and we are excited about expanding these assets within our portfolio, continuing to pay down debt and creating value for our shareholders.
Essex, through its subsidiaries, is one of North America's largest providers of rental and distribution for mobile cranes (including lattice-boom crawler cranes, truck cranes and rough terrain cranes), self-erecting cranes, stationary tower cranes, elevators and hoists, and other lifting equipment used in a wide array of construction projects. In addition, the Company provides product support including installation, maintenance, repair, and parts and services for equipment provided and other equipment used by its construction industry customers.