BUFFALO GROVE, Ill.--(BUSINESS WIRE)--Essex Rental Corp. ("Essex" or the “Company”) today provided several updates on its business, financial condition and other matters.
Essex Crane Forbearance
On June 23, 2016, the Company's subsidiary, Essex Crane Rental Corp. (“Essex Crane”), entered into a Sixth Forbearance Agreement (the "Forbearance Agreement") with the revolving lenders under its Fourth Amended and Restated Credit Agreement (the “Essex Crane Revolving Credit Facility”), including Wells Fargo Capital Finance LLC, as Administrative Agent (the “Agent”) and a lender. Under the terms of the Forbearance Agreement, through the July 15, 2016 term of the Forbearance Agreement, and if extended, Essex Crane will fund operating expenses using cash collections and no new revolving loans will be requested by or advanced to Essex Crane. Additionally, Essex Crane agreed to cooperate with the lenders with respect to the lenders’ plan to conduct and consummate a transfer under Article 9 of the Illinois Uniform Commercial Code with regard to some or all of the collateral, and on July 1, 2016, the Agent provided Essex Crane notice that the Agent intends to offer for sale in a public auction all of the rights, title, and interests of Essex Crane in, under and to substantially all of Essex Crane’s personal property, including, without limitation, all of Essex Crane’s accounts, inventory, machinery, equipment, investment property, and general intangibles. The Agent and lenders have reserved their right to withdraw or add all or any portion of the collateral from or to the sale and may cancel the sale at any time for any reason, and have otherwise reserved all of their respective rights and remedies.
Nick Matthews, President and CEO of Essex stated, “Over the past year, Essex Crane has been operating under forbearance agreements and working with its lenders to identify the way to best maximize value for all of its stakeholders. Throughout this process, we have explored several options including the sale of Essex Crane as a going concern, selling equipment assets in auctions and by other means and restructuring around a smaller level of debt. At this point, Essex Crane’s lenders have chosen to offer Essex Crane's assets in a public auction in an effort to increase the value received in exchange for those assets. It is unclear if the public auction will provide more value than the other strategies already pursued or what other alternatives the lenders may choose to pursue if the auction does not result in the sale of all or a portion of Essex Crane’s assets.”
Coast Crane Default
On April 5, 2016, the Company's subsidiary, Coast Crane Company, received a notice of default and reservation of rights letter from Wells Fargo Capital Finance, LLC, the lead lender and agent under the Coast Crane Second Amended and Restated Credit Agreement (the "Coast Crane Credit Facility"), as a result of non-compliance with certain delivery and financial reporting requirements contained within the Coast Crane Credit Facility due to the delay in delivering the audited financial statements for the fiscal year ended December 31, 2015 and failure to record a valuation allowance related to net operating losses being carried forward in prior year financial statements. Due to the existence of the event of default, the agent has elected that all obligations shall bear interest at a per annum rate equal to two percentage points above the per annum rate otherwise applicable under the Agreement, and all other rights of the lenders have been reserved.
The event of default described may also trigger a default under the cross-default provisions contained within the Company's unsecured promissory notes, unless waived by the holders of those notes.
Despite the default, Coast Crane has continued to operate in excess of its performance-related covenants. The Company has been and expects that it will be able to continue to use the Coast Crane Revolving Credit Facility to fund operations.
Other Strategic Alternatives
The Company has been working with Stifel, Nicolaus & Company, Incorporated (“Stifel”) over the past several months in an effort to evaluate strategic alternatives, specifically related to the sale or refinancing of Coast Crane. The results of the sale process were encouraging and indicated value, net of debt, in excess of the current market capitalization, however, values were not at a level that garnered support of the Board of Directors of the Company. After reviewing market feedback assembled by Stifel, the Board of Directors has elected not to continue to pursue a sale of Coast Crane at this time. Simultaneous to marketing the business for sale, the Company has focused on refinancing the Coast Crane Revolving Credit Facility, and continues to do so while also maintaining an ongoing dialogue with Stifel regarding potential future opportunities for Coast Crane.
Business Update
Throughout the first half of 2016, the transportation end market continued to display year over year increases in activity driven by bridge work in the Midwest and Southeast regions. General building remains strong, resulting in increased tower crane utilization and average rental rates year over year. However, the retail and rental equipment sales market remains soft and the challenges in the energy sector have continued. Petrochemical activity in the Pacific Northwest decreased year over year and impacted heavy rough terrain cranes. While overall rough terrain crane utilization has been consistent year over year, the mix has shifted toward the lighter lifting capacities. The Gulf Coast has shown a decline in industrial/marine and petrochemical activity, which has impacted hydraulic crawler crane utilization as compared to the strong first half of 2015.
While Essex Crane’s results of operations have been significantly negatively impacted by the ongoing forbearance issues, Coast Crane continues to generate significant free cash flow and we are excited about expanding these assets within our portfolio, continuing to pay down debt and creating value for our shareholders.
We expect to begin providing regular financial updates to the market beginning with the reporting of second quarter results in August 2016.
About Essex Rental Corp.
Essex, through its subsidiaries, is one of North America's largest providers of rental and distribution for mobile cranes (including lattice-boom crawler cranes, truck cranes and rough terrain cranes), self-erecting cranes, stationary tower cranes, elevators and hoists, and other lifting equipment used in a wide array of construction projects. In addition, the Company provides product support including installation, maintenance, repair, and parts and services for equipment provided and other equipment used by its construction industry customers. With a large fleet, consisting primarily of cranes, as well as other construction equipment and unparalleled customer service and support, Essex supplies a wide variety of innovative lifting solutions for construction projects related to power generation, petro-chemical, refineries, water treatment and purification, bridges, highways, hospitals, shipbuilding, offshore oil fabrication and industrial plants, and commercial and residential construction.
Some of the statements in this press release and other written and oral statements made from time to time by Essex and its representatives are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements regarding the intent and belief or current expectations of Essex and its management team, the expected process and/or outcome of the sale of Essex Crane Rental Corp. assets, the possibility of a sale of Coast Crane, potential additional events of default, the expected changes in the end market demand for our products, and the ability of the Company to provide regular financial updates to the market. Such statements may be identified by the use of words like "anticipate", "believe", "estimate", "expect", "intend", "may", "plan", "will", "should", "seek", the negative of these terms or other comparable terminology. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ materially from Essex's expectations include, without limitation, an unexpected development in our industry, new developments in the sale of assets of Coast Crane, actions of our lenders, changes in industry demand for our products, the continued ability of Essex to successfully execute its business plan, as well as other relevant risks detailed on our website, www.essexrentalcorp.com. The factors listed here are not exhaustive. Many of these uncertainties and risks are difficult to predict and beyond management's control. Forward-looking statements are not guarantees of future performance, results or events. Essex assumes no obligation to update or supplement forward-looking information in this press release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results or financial conditions, or otherwise.