Expiring loan payment deferrals put operators in uncharted territory — again

With sales of new and used motorcoaches virtually nonexistent and many operators unable to make their bus payments, it is unclear whether lenders will continue deferring loan payments into 2021 or start repossessing more coaches.

Amid the uncertainty, at least two lenders — Key Equipment Finance and TIAA Bank — have stopped making motorcoach loans, and it is possible others will follow.

One major lender, Wells Fargo Equipment Finance, has established a network of vendors and storage facilities across the country and plans to sell buses through those vendors and through its own direct sales and financing once the market improves.

Direct result of COVID-19

Changes in bus sales and financing are the direct result of the coronavirus pandemic that caused the motorcoach industry to all but shut down in March. And while some operators are seeing an uptick in business, others are being forced to close.

Matt Hotchkiss
Matt Hotchkiss

“The length of the pandemic and the economic toll it may take on banks will likely determine when and how lenders move forward in the motorcoach industry,” said Matt Hotchkiss, Senior Vice President and Bus Division Sales Manager for Wells Fargo Equipment Finance’s Commercial Vehicle Group.  

Hotchkiss said liquidity in the market would be a challenge. “COVID will have to be under control with no risk of future outbreaks, demand (revenue) will have to stabilize, and the operators will need to return to financial health,” he said. “Banks may also have to get their portfolio healthy again, which may include working out of inventory they may have.”

Halted loan financing

Key Equipment Finance and TIAA Bank have decided not to wait out the pandemic and instead have halted motorcoach financing.

“Businesses everywhere are making adjustments to address the impact of the coronavirus pandemic,” said Shawn Arnone, Senior Vice President, Commercial Vendor Group, at Key Equipment Finance. “For Key Equipment Finance, this includes making some changes to the commercial vendor business. Among those changes was the decision to no longer provide bus and motorcoach vendor financing.”

Arnone said Key hasn’t taken enough buses back to formulate a long-term strategy for reselling them. “We try to place motorcoaches with the originating vendor or brokers on consignment but will also consider other sources.”

Helping existing loan clients

TIAA Bank spokeswoman Jessica Scott said the lender has ceased originating new motorcoach financing and instead is focusing on “helping our existing motorcoach clients navigate the difficult market environment. Our focus will be to continue to work with these clients to help them meet the many challenges they’re facing.”

For the past nine months, lenders have been helping motorcoach operators by deferring their bus payments with the understanding that they will repay the loans when business improves. But as the pandemic drags on, there is concern that some lenders could halt deferrals in January.

“Repossessions are going to start by the end of the year as banks clear their books,” said John Spellings, President of busforsale.com, which sells motorcoaches and other commercial vehicles for lenders and operators. “When those deferrals expire, operators will have to come up with money or turn in their buses.”

Spellings said when banks and charter operators ask him to sell their buses, “I say no, unless you want to pay me to store them. There are no buyers. I haven’t sold a seated motorcoach since March.”

Advice from vendor

He said his advice to banks is to let operators keep their buses and maintain them, then resume their loan payments when they can. 

“Buses are going to sit, either on lots where they are taken care of or on lots where they deteriorate,” Spellings said. “Let the poor guys keep their buses. Some deserve to go under, and it isn’t a bad idea to flush out the bad guys. Unfortunately, the old guys, the third-generation operators, are going under.”

He advises operators who are in good enough shape to survive the downturn to give their buses back to their lenders, or sell them cheap. “Then wait it out, keep your name out there in your market, then buy the inventory back for 30 or 40 cents on the dollar.”

Not everyone agrees

Operators have successfully done that in past downturns, but this time it probably wouldn’t be a good idea, said Eric Coolbaugh, an industry veteran who has started Advantage Remarketing Solutions to manage, remarket and resell motorcoaches and other specialty vehicles for banks and lending companies.

Eric Coolbaugh

“Credit is going to be extremely tight, and most operators are going to need financing to repurchase buses,” Coolbaugh said. “Not too many people are going to want to give you financing if you already gave buses back to another bank.”

His advice to operators is to communicate with their lenders and to avoid putting their life savings into their business if they can’t survive a prolonged downturn.

“It’s not their fault,” Coolbaugh said. “It’s a catastrophic time. If you can’t put 56 people on a bus, it doesn’t work.”

His advice to lenders is to wait and see if the industry receives CERTS funding from Congress. “I strongly advise that if an operator was strong financially before COVID and has some business and is making some payments, stick with him.”

Case-by-case loan decisions

Hotchkiss, of Wells Fargo, said when it comes to extending payment deferrals or taking back buses, the bank deals with its clients on a case-by-case basis.

“Each deferral decision is made on a customer-by-customer basis and takes into consideration many factors, including liquidity, performance, security of the asset (including insurance), communication and information, and the ability to make some form of payment,” he said. “Other factors may also be considered.”

Hotchkiss said Wells Fargo has the ability to store repossessed buses and plans to resume selling them once the pandemic is in check and the motorcoach industry and the market for buses starts improving.

“Wells Fargo Equipment Finance has a network of vendors and storage facilities across the country that we will partner with on our inventory,” he said. “We will rely on these vendors, as well as our own direct sales and finance efforts, to redeploy the assets in the market as soon as demand and collateral values stabilize.”

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