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GAM Chief Seeks Debt Accord in September to Save Business

Aug. 10 (Bloomberg) -- General de Alquiler de Maquinaria SA, the Spanish construction-machinery rental company whose stock has plummeted this month, expects to agree with lenders in September on restructuring debt in an effort to survive the building slump.

GAM is in “advanced” talks with eight main creditors, including Banco Bilbao Vizcaya Argentaria SA and Banco Popular Espanol SA, that hold about 75 percent of its debt on extending maturities, Chairman Pedro Fernandez said in a telephone interview. An agreement would be the second debt accord for the company this year.

“We need lenders to give us some respite,” Fernandez said. “We can’t afford to lose all our cash in paying out interest to lenders. We’re optimistic our lenders are willing to restructure our debt and aim to do so in September.”

Fernandez founded the company in 2003 and expanded it with acquisitions of energy- and industrial-equipment suppliers until 2007 while Spain’s real estate bubble also pushed growth. GAM, with executive offices in Madrid and the northern city of Oviedo, hasn’t been profitable since the third quarter of 2009. Its first-half net loss widened to 42.1 million euros ($60.3 million) from 18.1 million euros a year earlier.

GAM sank 9.5 percent to 95 euro cents, extending drops of 19 percent on Aug. 8 and 11 percent yesterday. Spain’s benchmark Ibex 35 Index declined for a ninth consecutive day, losing 5.5 percent.

Revenue Tumbles

GAM’s annual revenue peaked at 365 million euros in 2008 and fell by 35 percent in the next two years. Fernandez, who is also chief executive officer, predicted in March that sales from construction would decline by about 10 percent more this year.

“Things are even worse and revenue will drop further,” Fernandez said yesterday. “That’s why we realize we needed to restructure our debt again to continue operating.”

The company reached an agreement with banks in February to extend repayment of 118 million euros of debt coming due in 2011 and 2012 into the following four years. It has about 470 million euros in debt, he added. Apart from BBVA and Popular, the other lenders are Banco Sabadell SA, Banco Espanol de Credito SA, Banca Civica SA and savings banks Cajastur, BBK and Novacaixagalicia, he said.

“We can’t yet disclose how much we need to refinance, but it will be enough to pay the financial costs of the debt and some capital costs,” Fernandez said.

‘Bad Industry’

GAM has “overcapacity involved in a really bad industry,” Francisco Salvador, a strategist at FGA/MG Valores in Madrid, said by phone today.

“The current situation in the Spanish financial markets will make the negotiations with lenders harder and they may have to study a new strategic plan carefully,” Salvador said.

The talks also involve possible financing terms for GAM’s plans to buy Hune Rental SLU, its main competitor in Spain. Fernandez said GAM aims to pay 1 euro for Hune and take on its debt, with the purchase targeted for completion this year. GAM wants to proceed with the Hune transaction because of the cost savings and cash that the merger will generate, he said.

Part of GAM’s debt includes 50 million euros in convertible bonds due next year at 37.05 euros a share, and “we’re looking for solutions for refinancing those, either with the same bondholders or other private investors,” Fernandez said.

Public Works Decline

GAM doesn’t see any signs of improvement in Spain’s construction market for the rest of the year, the executive said. Public-works output fell 14 percent in inflation-adjusted terms last year, and it may shrink by 19 percent to 22 percent this year, industry group Seopan said on March 3.

“We need to rehabilitate the business in Spain,” Fernandez said. “We’re in a country where the construction industry has suffered a lot.”

General de Alquiler buys construction and engineering machinery from companies including Peoria, Illinois-based Caterpillar Inc. and rents it mainly to construction and engineering companies. Customers in Spain include Actividades de Construccion & Servicios SA, Sacyr Vallehermoso SA, Obrascon Huarte Lain SA and Gamesa Corporacion Tecnologica SA.

To contact the reporter on this story: Manuel Baigorri in Madrid at

To contact the editor responsible for this story: Angela Cullen at

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