Ahern Rentals Inc., the 58-year-old family-owned equipment rental giant that filed for voluntary Chapter 11 bankruptcy on Dec. 22, prided itself on not selling out. Now, at the U.S. Bankruptcy Court in Reno, Nev., Ahern's Chapter 11 proceedings unfold on the heels of an announced merger between the construction industry's two largest rental companies—United Rentals Inc. and RSC Holdings Inc.—which for more than a decade have been chipping away at independents like Ahern through roll-ups, volume purchasing and price competition.
Ahern is the country's largest privately held construction equipment rental company and the seventh largest among the top 100 firms, according to a ranking by trade publication Rental Equipment Register.
"Ahern was the king of Las Vegas until the market hit the downturn, leaving them with excess equipment," says Michael Roth, RER's editor-in-chief. "They became clearly overleveraged."
Ahern's annual earnings before interest expense, income taxes, depreciation and amortization skyrocketed 87% between 2005 and 2008, reaching $150.1 million. Buoyed by the building boom, Ahern spent $370.2 million on equipment purchases between 2007 and 2008. Last year, however, those investments were worth a negative $5.1 million, court documents say.
"The severity and depth of the downturn in construction," including "often abrupt cancellation of projects," saw Ahern's annual EBITDA earnings fall 64.6% in two years to $53 million in 2010, say bankruptcy filings.
The company reports $620 million in debt, with $2.8 million in unpaid employee wages and salaries. Ahern's three largest unsecured creditors are P-Fleet, a San Diego-based fueling company owed $460,727; North American Battery Systems, Long Beach, Calif. (owed $209,848) and JLG Industries Inc., McConnellsburg, Pa. (owed $169,606). But topping Ahern's debt load is $3.3 million in unpaid sales commissions and employee bonuses.
The Las Vegas-based firm employs 1,800 people across 74 branches in 22 states. Ahern's rental fleet consists of 37,320 equipment pieces, including 20,042 high reach units such as telehandlers and boom lifts. The company is 97% owned by its namesake president, Don F. Ahern. His older brother, John P. Ahern Jr., has a 3% stake.
The company addressed the economic downturn by cutting worker benefits, renegotiating vendor prices, reducing overhead costs and scaling-back senior management bonuses and commissions. Additionally, Ahern employed a risky business strategy by opening 24 new branches between 2009 and 2010—a period of cutbacks in construction spending—in order to put an underutilized fleet to work so it could generate cash.
"The hard cost to open a new branch and get it running is immense," says Guy Ramsey, publisher of Lift and Access, an equipment trade magazine. "It takes a minimum of six to eight months—if you're lucky—to generate any positive cash flow. Ahern didn't have enough time for those branches to mature."
Unsuccessful Debt Restructuring
Ahern used to report its financials regularly to the U.S. Securities and Exchange Commission, even though the family-owned company was not required to do so. But this past February, the filings stopped. Ahern also tried unsuccessfully to restructure its debt for the last year, focusing on a $310-million revolving credit line that matured Aug. 21. Although 90% of the company's lenders approved an extension, holdouts forced the company into bankruptcy since loan changes require unanimous agreement.
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