Sunday, June 5, 2011

Evergreen International Aviation sells Evergreen Maintenance Center

Laboring under a difficult debt load, landing it on a national credit watch list, McMinnville-based Evergreen International Aviation has liquidated a major asset for the second time in recent months.

The diversified aviation company announced Tuesday the sale of the Evergreen Maintenance Center, which covers 200 million square feet of Southern Arizona desert, to Relativity Capital, a private equity firm with more than $200 million under active management. Terms were not disclosed.

The move follows Evergreen’s September divestiture of its UAV, or unmanned aerial vehicle business, to the VT Group, a division of the multibillion-dollar British firm Babcock International Group PLC. Terms of that transaction also went undisclosed.

The center, located near the Pinal County community of Marana, specializes in the maintenance, repair, renovation and storage of commercial cargo and passenger aircraft. It is capable of housing up to 400 planes at a time for commercial airlines, cargo carriers, leasing companies and government agencies, making it the largest such facility in the world.

The site began life in the early stages of World War II as an Army Air Corps base. Later, during the Vietnam War, it served as home base for CIA aviation operations around the world.

The facilities include the Pinal Air Park, which features three hangars and a runway substantial enough to accommodate the largest, heaviest Boeing 747 in current service. Evergreen — which provides air cargo, ground support, aerial firefighting and helicopter services through its various divisions — took over in 1975.

Evergreen, which operates a multimillion-dollar fleet of 747 cargo carriers, has struggled with debt load off and on for years.

Standard & Poor’s, one of the two leading national credit rating services, downgraded the company’s bond rating to B in early 2008 and placed it under a credit watch.

In the interim, Evergreen’s financial situation has worsened to the point where Standard & Poor’s renewed its warning on Dec. 9, 2010. In the process, the agency dropped Evergreen’s credit rating to CCC, just a notch above the bottom rating of D on a scale peaking at AAA.

S&P promised an increase to B- if the company succeeded in efforts to negotiate a $320 million loan and $10 million revolving credit agreement to pay off bank debt and provide liquidity. But it issued a cautionary credit watch report last month, saying Evergreen had still not succeeded in closing a deal and suggesting prospective terms might not be as promising as it had hoped in December.

Evergreen officials did not return calls seeking comment.

When S&P first placed the company on its credit watch list, Chief Financial Officer John Irwin, a 20-year company veteran, dismissed it out of hand.

“We are not in any way concerned about it,” he said. “We are not concerned about the future of the company.”

But the Chicago-based Boeing Co. dealt company prospects a severe blow in April 2010 when it shifted its lucrative Dreamlifter jumbo freighter contract from Evergreen to archrival Atlas Air. Evergreen had held the contract for five years and had made investments based on the expectation of a series of five-year renewals.

Evergreen responded by filing a suit alleging the action would cost it $175 million in profit. It accused Atlas and Boeing of colluding, with future aircraft purchases serving as the incentive.

Shortly after selling off its drone business last fall, Evergreen hired the investment banking giant Goldman Sachs to help it refinance outstanding debt and purchase new aircraft for its fleet. When that still hadn’t happened in December, Standard & Poor’s downgraded Evergreen’s credit and termed any investment in the company “extremely speculative.”

In an April 18 update, S&P said, “The company has not yet completed the refinancing and is still negotiating with lenders.” It warned, “We believe that the structure and terms of the proposed refinancing are in flux and may differ from the proposal we reviewed in December 2010.”

But none of that was reflected in the company press release announcing the sale.

In the release, company founder and chairman Del Smith was quoted as praising the crew at Marana for the quality of its work and promising Evergreen would continue having its maintenance work done there.

Joyce Johnson-Miller, co-founder and senior managing director of Relativity Capital, joined in lauding the operation. She also pledged the private equity firm’s continued support to Evergreen “through its long-term growth.”

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