11.03.2009

Oshkosh agrees credit amendment

Oshkosh, owner of JLG has reached an agreement with its lenders for an amendment to its credit agreement.

The amended $3.1 billion credit facility is effective immediately and includes revised financial covenant ratios through the remaining life of the agreement.

Oshkosh chief executive Robert G. Bohn, said: “We believe the amendment will help provide financial flexibility as we operate our businesses during these difficult recessionary times. We have a strong foundation, a diverse product portfolio, a track record of positive cash flow and a liquidity position reinforced by the amendment. We will continue to concentrate on improving our leading market positions in all the industries in which we compete.”

The amendments which allow a significantly higher leverage ratio, rising until mid 2010, before declining to its current level by mid 2011 also allow for a reduced interest rate coverage ratio.

In return the amendment requires a higher interest rate margin with a variation factor linked to the deviation from the original leverage ration; - limits on capital expenditure and dividend payments; - repayment stipulations in the event of excess cash flow generation and restrictions on acquisitions and other investments.

Fees have also been extracted for the amendment which amount to around $19 million.

Vertikal Comment

With Oshkosh almost certain to have broken its covenants later in the year, it was essential for it to reach some form of agreement sooner rather than later so that the uncertainty could be eliminated allowing it to focus on the tough enough challenge of piloting the business through the next 12 months.

The deal, while costly, appears to give the company plenty of freedom to work through the recession and be ready to benefit from what is increasingly likely to be a strong upturn when rental companies begin buying again.

Management and shareholders will be happy that this negotiation is behind them, as reflected in the immediate upturn in the company’s share price.