11.03.2009

Manitou/Gehl breaches covenants

French based telehandler and access manufacturer Manitou is predicting a fall in revenues this year of 40 percent and is in negotiations with its lenders as its US affiliate, Gehl, breaches its loan covenants.

In a statement the company said: “For caution’s sake, Manitou has already drawn down a significant proportion of its credit lines in order to boost available cash and to avoid being exposed to a liquidity risk over the medium term.”

“The particularly sharp deterioration in activity in the United States has meant that Gehl was unable to comply with certain bank covenants and has opened negotiations with its local bankers regarding the syndicated credit lines to avoid the banks pressing for their early repayment, which they would be entitled to do.”

“In addition, Gehl is examining with its banks options to address the company’s financing requirements on a long-term basis, as it will not be possible in the future to raise cash through the securitisation of trade receivables. The Group is monitoring with the utmost attention the evolution in the situation of its Gehl subsidiary.”

At the same time Manitou has opened negotiations with its own banking pool to modify the terms and conditions of the syndicated loan it arranged on 4th September 2008, for the purpose of acquiring Gehl. It is looking to amend the covenants relating to financial ratios. So far the group has drawn down €317 million of the €357 million credit line.

Manitou says that negotiations concerning Gehl’s finances
are “being conducted in an independent manner and are contained in United States. Possible because it is a recent acquisition and its integration into the group is not yet effective at either the operating or financial levels.”

The company also says that it will be particularly vigilant in preserving its corporate interest so as not to increase its exposure to the downturn in the North American market and that no option has been ruled out at this point.

It adds that it “envisages providing support to Gehl to overcome the current crisis only if conditions in terms of risk mitigation and visibility are satisfactory, so too commitments by North American banks.”

Vertikal Comment

Manitou paid a high price for Gehl, with a focus on the long term, in the full knowledge that the price it was paying was excessive in comparison to the share price at the time.

What it did not foresee was how steep the market would decline and how battered the financial sector would be. The situation will not sit well with Manitou which is used to running the business along more financially conservative lines.

It is clearly preparing for the doomsday scenario that in the case that it cannot reach a satisfactory agreement with its bankers, it will be prepared to let Gehl go in order to preserve the main business.

In all likelihood its negotiations will succeed, both Terex and Oshkosh have already been successful at renegotiating their loan covenants, indicating that the banker sector is open to such amendments. They will of course be looking to extract large fees and higher interest charges for the pleasure.

Manitou has the option with this one to let Gehl file for Chapter 11 in order to gain protection against its creditors. However there is both a financial and a commercial impact of doing so, making it better for all concerned to relax the loan covenants over the next 18 months.