Expiration of loan payment deferrals puts operators in uncharted territory – again
With new and used coach sales virtually non-existent and many operators unable to make their bus payments, it is unclear whether lenders will continue to defer loan payments until 2021 or start repossessing. more coaches.
Amid the uncertainty, at least two lenders – Key Equipment Finance and TIAA Bank – have stopped providing coach loans, and it’s possible more will follow.
A major lender, Wells Fargo Equipment Financing, has established a network of suppliers and storage facilities across the country and plans to sell buses through these suppliers and through its own direct sales and financing once the market improves.
Direct result of COVID-19
The changes in bus sales and financing are a direct result of the coronavirus pandemic which virtually shut down the bus industry in March. And while some operators are seeing a resumption of activity, others are being forced to shut down.
“The duration of the pandemic and the economic consequences it could have on banks will likely determine when and how lenders move in the coach industry,” said Matt Hotchkiss, senior vice president and sales manager of the Bus division. of Wells Fargo Equipment Finance Commercial Vehicle Group. .
Hotchkiss said liquidity in the market would be a challenge. “COVID will need to be under control without the risk of future epidemics, demand (income) will need to stabilize and operators will need to regain financial health,” he said. “Banks may also need to get their portfolios back to good health, which can mean running out of stock.”
Stop loan financing
Key Equipment Finance and TIAA Bank decided not to wait for the end of the pandemic and instead halted the financing of coaches.
“Companies around the world are making adjustments to deal with the impact of the coronavirus pandemic,” Shawn Arnone, senior vice president, Commercial Suppliers Group, told Funding of key equipment. “For Key Equipment Finance, this means making changes to the business of commercial suppliers. Among these changes was the decision to no longer provide financing to bus and coach vendors. “
Arnone said Key did not take back enough buses to formulate a long-term strategy to resell them. “We are trying to place coaches with the original seller or brokers on consignment, but we will look at other sources as well.”
Help existing credit customers
TIAA Bank spokeswoman Jessica Scott said the lender has stopped generating new financing for coaches and is instead focusing on “helping our existing coach customers navigate the challenging market environment. . Our goal will be to continue working with these clients to help them overcome the many challenges they face.
Over the past nine months, lenders have been helping bus operators by deferring their bus payments knowing they will pay off the loans when business improves. But as the pandemic continues, there are fears that some lenders may halt postponements in January.
“The takeovers will start by the end of the year as the banks clear their accounts,” said John Spellings, president of busforsale.com, which sells coaches and other commercial vehicles to lenders and operators. . “When these postponements expire, operators will have to find money or return their buses.”
Spellings said that when banks and charter operators asked 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 seated coaches since March. “
He said his advice to the banks was to let the operators keep their buses and service them, then resume their loan payments as soon as they can.
“The buses are going to sit, either on grounds where they are taken care of or on grounds where they are deteriorating,” Spellings said. “May the poor keep their buses. Some deserve to file for bankruptcy, and it’s not a bad idea to flush out the bad guys. Unfortunately, the old ones, the third generation operators, are going bankrupt. “
He advises operators who are in good enough shape to survive the crisis to return their buses to their lenders or sell them at low prices. “So wait, keep your name in your market, then buy back the inventory for 30 or 40 cents on the dollar.”
Not everyone agrees
Operators have done this successfully in past downturns, but this time it probably wouldn’t be a good idea, said Eric Coolbaugh, an industry veteran who started Advantage Remarketing Solutions to manage, market and resell coaches and other specialized vehicles for banks and loans. companies.
“Credit will be extremely tight and most operators will need financing to buy back buses,” Coolbaugh said. “Not many people will want to give you financing if you’ve already returned buses to another bank.”
His advice to traders is to contact their lenders and avoid putting their savings into their businesses 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 financially strong before COVID and has business and makes payments, stick with them.”
Case-by-case loan decisions
Hotchkiss, of Wells Fargo, said when it comes to extending payment deferrals or getting back on buses, the bank deals with its customers on a case-by-case basis.
“Each deferral decision is made on a client-by-client basis and takes into account many factors, including liquidity, performance, security of the asset (including insurance), communication and information, and the possibility of make a form of payment. ” he said. “Other factors may also be taken into account.”
Hotchkiss said Wells Fargo has the capacity to stock the repossessed buses and plans to sell them once the pandemic is brought under control and the coach industry and the bus market begin to improve.
“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 are relying on these vendors, as well as our own direct sales and financing efforts, to redeploy assets into the market as soon as demand and the value of collateral stabilizes.”