A Nevada bankruptcy court judge Friday rejected Ahern Rental’s plan of reorganization at a hearing in Reno, saying Ahern’s proposal was in violation of the “absolute priority rule” because it meant paying off noteholders at a reduced rate over time. The company, which filed for Chapter 11 bankruptcy protection Dec. 23 of last year, had been granted extensions of exclusivity in presenting its plan of reorganization, but had yet to do so. The judge said the plan put the interests of the owners ahead of those of the creditors.
Ahern, which has yet to file the completed plan, had presented a confidential draft of the plan to creditors by the court-appointed deadline of Nov. 21. Creditors objected, stating the debtor offered only delayed and discounted payments, while Don Ahern, who owns 97 percent of the company, was essentially unaffected. Ahern has offered two creditors holding $379.2 million in debt a choice between accepting a discounted lump sum upfront as payment in full or agreeing to rewritten loans for repayment over a seven-year period. With creditors being repaid in full Ahern would retain his ownership stake.
“The debtor offers the first and second lien creditors the option of either accepting significant discounted cash payouts or accepting new debt obligations with significantly extended maturities and extraordinarily reduced interest rates, and in some instances, deferred interest,” Judge Bruce Beesley wrote, adding that a “cashout over time does not satisfy the absolute priority rule.” He added that Ahern’s offer had to “have new value and … be cash or cash equivalent,” essentially injecting fresh cash into the business. The judge advised Ahern to reconsider his position and re-negotiate with lenders before the period of exclusivity ends. He extended Ahern’s exclusivity only until Dec. 7.
An attorney for one of the creditors said both options were unacceptable.
Ahern was expected to file its POR and disclosure statement immediately. The judge also ordered Ahern’s attorneys to file a 20-page brief by Dec. 5 explaining how the plan is acceptable under the absolute priority rule.
The Las Vegas Review Journal reported that Beesley said his preliminary understanding of the POR was that it could not be approved because it allows Don Ahern to keep his 97-percent ownership in Ahern Rentals while forcing losses on creditors. Ahern’s brother John Paul Ahern owns a 3-percent stake in the company, North America’s largest family-owned rental company by a large margin. An alternate plan of reorganization presented by creditors would be expected to propose gaining a large stake in the rental company if Ahern is unable to pay in full.
One of the reasons Ahern Rentals has sought to extend exclusivity has been its installation of more sophisticated economic forecasting software to help Ahern determine the pace of economic recovery so it could make a more accurate payment to repay creditors. While the company, which was hard-hit during the recession particularly in the Las Vegas market, has improved its performance significantly during the past two years, it has not produced enough to enable it to pay creditors in full.
The largest debtholder is Platinum Equity, owner of Maxim Cranes and utility aerial rental company Nesco.
Las Vegas-based Ahern Rentals is No. 7 on the RER 100.
