As operators head into their third round of payment modifications since the global pandemic began, finance companies are getting anxious about the lack of revenue.
“You have to show them you’re out there hustling,” said Mike Denny, Vice President of MCI’s financial services arm.
He and David Scoular, Prevost’s Director of Finance, recently joined United Motorcoach Association Town Hall to discuss payment modifications and strategies operators can use for negotiating with their lenders to avoid having their vehicles repossessed.
“A number of our funding partners are very reluctant to do another round of zero-payment modifications,” Denny explained. “They’re looking at it from the purely financial perspective that they’ve now had, essentially, six months worth of negative amortization or negative debt service on these loans and so, rightfully, they’re getting nervous.”
The two equipment finance pros offered insight into what the lenders are thinking and tips on how to negotiate, with suggestions on what to emphasize and reiterate. Here’s a roundup of their advice:
- Be patient with lenders. They are trying to find their own way through this process. This was uncharted territory. “Remember, these banks are important to us, not just now, but in the future, as we go forward. We need them healthy,” Scoular said.
- Help them make the right decisions. Banks are going to play a significant role in how the industry comes out of the crisis. “The onus is on all of us to help them get to the right decisions and get to the right place, where they’re supporting the industry and not potentially disrupting it. We believe the right thing to do is to stay the course and remain patient with the operators and the industry,” Denny said.
David Scoular - Be prepared to work with different people. Some of the loans are being redistributed in banks to either loan resolution groups or workout groups. “You may not be talking to the same people you’ve been working with through the first two rounds of modifications. I wouldn’t view that as something negative. Embrace it as an opportunity to have a fresh person that you can now sell your business to,” Denny said.
- Explain your short-term efforts. Show how you are finding new streams of revenue, whether using your garage to repair RVs or something else. Thinking creatively is going to give your finance partner the impression you are determined to make it through the crisis. “You have to show them you’re out there hustling because they’ll feel much better about somebody who’s out there, burning up the phone and trying to come up with new ideas and new ways to generate revenue,” Denny said.
- Projections are more important than ever. Be honest, but also show you have faith. “Start putting together your cash positions for these lenders because cash is obviously king. They just want to see what’s going on with your cash. How much do you have? How far can you go? They would like to have interest payments moving forward. If you can do an interest payment, it only helps you, because it’ll keep your payments lower, keeps the value of the coaches in line,” Scoular said.
- Use your numbers to tell your story. Don’t stop doing financial statements, even though you might not have revenues. You still have expenses. The finance/credit people need to see the numbers. “Some of it is file filler and following federal regulations, but you’ve got to tell your story, and the numbers are part of it,” said Scoular. “Tell your story to your lenders. No matter what the numbers look like, what you’re doing, where you’re going. Stories are important, especially looking at 2021.”
- Don’t do your 2021 forecast in a vacuum. Work with your customers. “Talk with your customers,” Denny said. “Use it as an opportunity to touch base with your customers and put together your business plan.”
- Detail how you are taking care of the equipment. It’s extremely important lenders know their investment is being protected. “Use this as an opportunity to reinforce you’re taking care of the equipment. Even be so bold as to say, ‘It’s in better hands with me than sitting at some lot somewhere stacked up with 20 other buses waiting to be sold,’” Denny said.
Both Denny and Socular emphasized that banks don’t want to repo the vehicles and have to try to sell them.
“That’s the last thing the industry needs is to have a fire sale of motorcoaches, and the values just plummet because, then, it becomes kind of a self-fulfillment of all the things the banks worry about, and that is losing value in their portfolio,” Denny said. “It’s very, very important you’re having these conversations. Make sure you’re stressing you know what you’re doing with the collateral.”
