Judge balks at Aherns Rentals’ reorganization plan

A bankruptcy judge on Friday placed a potentially formidable obstacle in the path of Don Ahern's attempt to pull Ahern Rentals Inc. out of Chapter 11 proceedings with his dominant ownership position intact.

At a hearing in Reno, U.S. Bankruptcy Court Judge Bruce Beesley said his preliminary understanding of the company's reorganization plan led him to think it could never be approved because it allows Ahern to keep his 97 percent stake while forcing losses on lenders. As a result, he advised an Ahern Rentals attorney to "talk with your clients, very seriously" about revising their position.

However, he deferred until Dec. 7 a decision to allow lenders at loggerheads with Ahern Rentals to submit their own proposals, which would likely greatly dilute or erase Don Ahern's ownership. His brother John Paul Ahern holds the other 3 percent.

The construction equipment leasing company has been family owned for six decades, a span that makes it one of the oldest businesses based in Las Vegas.

The plan, filed on Friday afternoon after the hearing, gives two sets of lenders holding $379.2 million in debt a choice: accepting a discounted lump sum upfront as payment in full or receiving rewritten loans for repayment over a term as long as seven years.

Because of the possibility of full repayment plus interest, Ahern Rentals attorneys set the estimated recovery at 100 percent, which would allow Don Ahern to retain his ownership untouched.

But having seen the terms on a confidential basis on Nov. 21, lenders did not wait the plan's public release to attack it. Laurel Davis, an attorney for one set of lenders, wrote in court papers that the plan would force her clients to choose between "two equally unacceptable options," one of them rewritten loans "on wildly off-market terms"

The current plan, she added, "is so egregious that it does not even offer a reasonable starting point for discussions of a consensual plan" but instead seeks "to bully its secured creditors into accepting less than the are entitled to."

"Some of them (lenders) are saying no way today," said Ahern Rentals attorney William Noall. But he expects that could change over time and through negotiation.

The battle line has formed over what is call the absolute priority rule in Chapter 11, which places a company's owners at the bottom of the repayment ladder. Unless all the other creditors are repaid in full, the owners face the loss of part or all of their stakes.

"I do not believe that a payout over time satisfies the absolute priority rule," Beesley said.

The only way around it, he added, was for the owners to inject a "substantial" amount of fresh cash or its equivalent when the plan is approved. In essence, this would force Don Ahern to buy back the company.

The submission of a plan was stretched out to November in part because Ahern Rentals said it was installing new software designed to deliver much accurate financial projections than the company's current version of Excel. Nevertheless, Noall said, the plan includes data developed by the old system because the new one still has bugs.

"I don't think technology is going to solve the problem here, and you need to tell your clients that," Beesley said.