The Eos-SSH connection

[fry]

Here's the thing...and this should really piss you off...the assets of SSH were primarily, if not entirely, paid for with the students' advanced loan monies. The aircraft, buildings, etc were the collateral that should have been backstopping what SSH had, in effect, borrowed from the students. (This would, I believe, include the corporate headquarters property that was transferred to a corporation owned by SSH's CEO and CFO shortly before the Eos deal and then leased back to SSH.)

 

Eos came in and arranged $40 million in borrowing from Orix Financial secured by those assets. Now $33 million of that borrowing is gone (where is not clear); Orix is looking to sell the assets to recoup its loan; and, the students are left with nothing to show for the money they advanced to SSH.

 

If Eos and Orix had never gotten involved SSH would probably have run out of cash (due to the mismanagement and corruption of it leadership) and gone bankrupt. The assets would have been sold and the proceeds distributed to the unsecured creditors...including the students.

 

Should Eos and Orix be held partly accountable for the students' losses? In my personal opinion, I think so.

 

Eos came into SSH and gambled with someone else's money...the students'...that they could turn this company around. They apparently knew nothing about the helicopter industry (they do not appear to ever have invested in an aviation related company) and, it does not appear that they did sufficient due dilligence to understand SSH's financial situation (the company went broke six months later). They say they had no involvement in the day-to-day operation but I suspect the Chief Account Officer hired shorting after the deal closed was their guy.

 

What I think Eos-Orix saw in SSH were paid-for assets against which they could get financing and, if a turnaround did not work out, those assets could be sold to repay the financing. No risk and no cost to Eos or Orix. (Yes, I know Eos says they invested $30 million for 60% of SSH but I personally do not believe it.)

 

Vendors who advance trade credit to a company know the risk they are taking and they generally limit how much they are willing to let the customer become extended. Were the students aware of the risk they were at in being unsecured creditors? Probably not. But the principals at Eos and Orix are sophisticated financial managers and they knew.

 

My feeling is that Eos and Orix were reckless and irresponsible in risking the collateral that the students had paid for and they should be held accountable.

[Goldy]

Taking the emotion out of it, this is a simple lease back loan. Very common in business to put up assets as collateral and take money out against it. I did it many times in the 80's to finance expansion of my business ( ps..its WASNT a flight school!).

 

The loan company didnt do anything wrong...SSH did. Without this influx of cash, yes they would have been gone 6 months ago..but they would have had even more debt to deal with.

 

Just my nickel, keep the blame where it belongs..his name is Jerry.

[mountainchopper]

Fry,

 

I know you get a lot of crap for your "negtivity", but to me it seems like you are a relatively smart guy, and it baffles me where you dig up all this info on the intricacies of the SHH/EOS deal. Maybe it is just a google away; I don't know. But a lot of the things said do make sense, people get into helicopters with a dream and while that works for some I liken a CPL to a BA in management: not worth a whole lot at face value.

 

Just because you kept the right seat warm for 150 hrs or went to undergrad for four years doesn't mean a much: unless you have connections. People looking for pilots or managers don't want a new greenie, they want someone who knows their field, and that experience doesn't come without a lot of hard knocks. Either way, if you do obtain your goals in the long run you will have sacrificed a lot more to get there than anyone can originally anticipate, be it money, family, friends, lifestyle, or whatever. Just my two Abe Lincolns, but I'd rather hear it how it is than how I'd like it to be.

 

Flying isn't a dream, just like everything else that happens when you are awake, it's a reality: and like all realities, comes with consequences. On that note I hope all of you affected by SHH get what is rightfully owed to you and can continue with your lives, things like this shouldn't happen to anyone.

Edited February 22, 2008 by mountainchopper

[fry]

Taking the emotion out of it, this is a simple lease back loan. Very common in business to put up assets as collateral and take money out against it. I did it many times in the 80's to finance expansion of my business ( ps..its WASNT a flight school!).

 

The loan company didnt do anything wrong...SSH did. Without this influx of cash, yes they would have been gone 6 months ago..but they would have had even more debt to deal with.

 

Just my nickel, keep the blame where it belongs..his name is Jerry.

 

The point is...who paid for those assets in the first place? The capital for a business comes from three sources; equity (the owners put in cash), the earnings of the business and debt. Did Jerry put any of his own money into SSH? Did the business have enough earnings to buy $50 million in assets? Or, did all the cash to buy the aircraft, hummers, jetskis and custom motorcycles come from the students' advanced loan monies? I'd bet the latter.

 

And no, "without this influx of cash" SSH would not have had "even more debt to deal with". That's the point; without financing secured by the assets SSH would have run out of cash. The students could have filed an involuntary bankruptcy petition (this happened at ATA in Florida) and the assets would have been available to satisfy their unsecured creditor positions.

 

It would have been messier of course but the point is, SSH's fate was foreseeable last August when Eos and Orix got involved. It could not continue to open locations fast enough to offset the spending related to already open locations. Rising interest rates or, as it turned out, lenders unwilling to lend would slow or stop the inflow of new student money and what would happen is what did happen...SSH ran out of cash. If Eos and Orix had done sufficient due dilligence they would have seen this. They did not do that due dilligence because they knew there was sufficient assets to recoup any money they put into SSH (and there were fees on the front end for arranging and making the loan).

 

But the key question is, and I hope the bankruptcy trustee looks closely at this, what happened to the $33 million SSH used of the Orix line of credit? Was SSH in the hole when Eos and Orix came on the scene? That would make it clear that the should have been able to foresee SSH's collapse last August. Or did SSH have a cash burn of $5 million a month plus another $2 million or so of student loan draws? Again, it should have been clear with that level of expenses that SSH could not be saved. Or, did the $33 million go somewhere else?