20.05.2010

Neff enters Chapter 11

One of North America’s largest rental companies, Miami based Neff, filed for protection under chapter 11 bankruptcy rules earlier this week.


The company has obtained commitments from all of its existing revolving lenders to provide a $175 million debtor-in-possession and exit financing, and has also secured support from its largest first-lien term loan lenders which agreed to vote in favor of the plan on the basis that they exchange the loans for equity.

The company filed a pre-arranged restructuring plan in order to eliminate around $400 million of debt. Neff employed Kirkland & Ellis last August to help it reduce its debt burden, built up following two private equity buy outs. Bankruptcy court records indicate that Kirkland billed Neff for nearly $2.5 million in fees and expenses in the 90 days leading up to the Chapter 11 filing.

Neff chief executive Graham Hood said: "The filing of the Company's Chapter 11 Plan culminates the process that the company undertook several months ago and puts the Company on sound long term financial footing. The restructuring will provide liquidity for ongoing business needs and allow Neff to make significant investments in its rental equipment fleet."

The company's management team and will continue to run the business throughout the restructuring.

"It is business as usual while we move forward to address our capital structure. During this process the company will continue to deliver high quality equipment and services to its customers as normal. Together with cash flows from operations, the $175 million in committed financing provides stability and ample liquidity to fund daily operations without interruption, including payments to vendors and to meet all customer and employee obligations,” added Hood.

Neff has listed assets in the range of $100 to $500 million and estimated liabilities of between $500 million and $1 billion.

Neff Rental was acquired by Odyssey Investment Partners a New York-based private equity firm in June 2005. Two years later it was sold to Lightyear Capital another private equity operation that provides buyout and growth capital to companies in the financial services industry. In 2009 its revenues dropped by 30 percent to $192million and are expected to fall further this year.

Vertikal Comment

While this restructuring will ensure that that the lenders will come out of this restructuring with a chance of recouping all of their initial investment, along with significant fees, it is hard to imagine that ordinary creditors will do anything like as well.

Although the release from Neff suggests that vendors will be paid etc.. this may refer to being paid going forward. Under most chapter 11 plans, creditors tend to receive a few cents on the dollar if they are lucky, in spite of the best intentions going in. Hopefully as a pre-arranged filing this one will be different.

If not then it simply does not seem right that such a company can dump $400 million of debt so that it is in a better position to compete with those competitors that managed their business' and resources better and did not assume so much debt in the first place.