25.02.2011

GAM reschedules debt

General Alquiler de Maquinaria (GAM) the highly indebted Spanish rental company has agreed a debt deferment plan with its banks which transforms its declining schedule of repayments into an escalating schedule.

A statement from the company says that it has reached agreed with 19 financial institutions, representing 86.4 percent of its total banking pool, to defer a total of €118 million of its €277 debt, through significantly lower payments this year and next, followed by higher payments from 2013 onwards. The maturity date in 2016 remains the same.

In addition to the change in the repayment schedule, the banks have also renewed working capital lines and relaxed some of the loan covenants agreed two years ago. GAM says that the agreement requires it to accelerate the international expansion of the business, increase its market share in Spain, reduce overheads and diversify away from construction.

The Company says that so far it has reduced its fixed costs by 35 percent through initiatives such as renegotiation with suppliers, elimination of social benefits to management and reducing headcount.

The company still operates from 65 locations in Spain and a further 30 locations overseas spread over 14 countries - Spain, Portugal, Mexico, Brazil, Colombia, Chile, Panama, Peru, Morocco, Iraq, Saudi Arabia, Poland, Romania and Bulgaria. It says that it has moved 7,500 pieces of equipment, with an acquisition value of €170 million out of Spain and into these overseas locations where it is achieving better prices, faster payment and lower costs.

The repayments have been modified as follows:
2011: Now €48.9 million – was originally €124.8 million
2012: Now €58.6 million – was €99.8 million
2013: Now €79.4 million – was €63.1 million
2014: Now €82.8 million – was €53.6 million
2015: Now €92.8 million – was €62.3 million
2016: Now 44.2 million – was €2.5 million

Vertikal Comment

This pragmatic approach makes a lot of sense for both parties although it does depend on the on-going growth of both GAM and the Spanish market. The banks will not need to write off the debt and will benefit from additional fees and higher interest payments. GAM gains some breathing space and if all goes well will be able to replace this debt with another by 2013.

The real pain here is that inflicted on other rental companies that were not so profligate during the glory days... They may well have hoped that GAM would have been broken up and its equipment exported. Although the export of equipment is proceeding anyway.

In the old days a deal like this would have been even more beneficial in that inflation would have eaten away at it. But then the cost of doing such a deal would probably have cost a good deal more too. Hopefully the more conservative companies are still able to access loans for new equipment when they so wish.

My guess is though that in Spain today this is not the case and if so we are back to the typical situation where those that get very deeply into debt are saved while those who have been more careful are wound-up. If so it is a scandal – but one that goes on every day in times like this.