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It is a common sight on construction sites across the world: the diesel-powered electricity generator. For one UK construction services business, there was a commercial opportunity in jettisoning these noisy, dirty machines and providing a sustainable alternative. 

Nixon Hire, based in Newcastle, north-east England, has in the past two years sold its business renting out construction equipment such as diggers and telehandler lifting machines, allowing it to invest in more environmentally friendly products.

The diesel generators have been swapped for batteries or hybrid devices comprising solar panels, a battery and a generator that runs on hydrogenated vegetable oil, a less polluting alternative. The company has also switched from supplying welfare vans (customised vehicles that provide site workers with kitchen or office space) to portable modular buildings.

The shift has been driven by customer demand for lower fuel consumption and carbon emissions, particularly public sector contractors, which are often required to factor in emissions when tendering for business.

The shift was not universally well received, however, with a more conservative portion of the construction marketplace questioning the benefits of renewable energy over the fossil fuel equivalent, according to Brian Cornett, the company’s recently appointed chief executive. 

“We set up sites for sceptical customers to try for free for a week, to break those barriers to entry, the conservative mindset, and fixed ideas about value for money,” says Cornett, who joined the company from rival Speedy Hire. “We’re having to do that much less now, but originally there was such an amount of pushback.” 

In August, Cornett took over from Graham Nixon, the architect of the changes who served as chief executive for 10 years after taking over from his father, John Nixon. Graham Nixon remains the company’s majority shareholder.

“The redesign of the company started with the customer, and we used that to reshape our operational dynamics, spending six months in the boardroom and out within our network,” Cornett says.

Convincing staff was also challenging at times. “The biggest challenge to Nixon Hire’s transformation was changing the company culture itself,” Cornett says. “The reality is that not everyone was on [the same] page. So we wished them well and looked after them [financially].”

Another barrier to reinvention, according to Cornett, was a reactive customer services operation. It was using technology that was unable to capture and analyse customer data in a way that allowed the company to foresee and respond quickly to demand. Last year, therefore, the company invested in a bespoke system that can remotely track and report on every aspect of customer interaction and key metrics associated with using Nixon Hire’s services. 

The information gleaned from this also provides a new service — data on the sustainability of the construction site, which clients can use to help them win contracts for which sustainability and evidence of carbon reduction is a requirement.

Nixon Hire is also focusing on longer-term contracts, of a year or more, to reduce customer churn and gain more insights; these in turn enable the provision of other “wraparound” services such as security or project consultation. 

Turnover rose 8.6 per cent to £108.3mn last year while operating profit rose 6.3 per cent to £7.8mn.

Allan Wilen, economics director at construction market intelligence company Glenigan, says trends in the construction industry are playing to Nixon Hire’s new strengths. There is significant demand for refurbishing or replacing older buildings in order to improve energy efficiency, he adds. 

According to Glenigan data, an estimated £129bn worth of construction plans in the UK were approved but not started in the year immediately before chancellor Rachel Reeves’ Spring Statement in March, when she pledged a total of £113bn in capital spending over this parliament.

“With the extra funding kicking in from April — increased capital funding for health, education, increased investment into the civil engineering side into renewables, upgrading the transmission networks and the water industry spend, it’s a massive increase they’ve been given for the five-year period,” Wilen adds. “It is going to be both politically and environmentally high on the agenda.”

A 2023 parliamentary environmental audit committee report said the built environment was responsible for a quarter of all UK carbon emissions, with construction accounting for about a fifth of that, according to industry body UKGBC. While much of that was due to the carbon-intensive production of materials such as concrete and steel, the emissions on construction sites also play a role and Nixon Hire can claim to have reduced these for its customers in a measurable way. 

“The next generation is already passionate about sustainability and the environment. It’s reshaping the UK, and we want to play our part in that,” says Cornett.

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Martin Mulyadi is a professor of accounting and Yunita Anwar is an assistant professor of accounting, both at Shenandoah University, Winchester, Virginia.

In late September, First Brands Group, a privately held US auto parts company, filed for bankruptcy protection. The petition listed total liabilities of $10-50bn. FBG and related entities carried more than $8bn of secured corporate borrowings and inventory-backed financing. In the wake of the company’s collapse, investigations of its off-balance-sheet financing arrangements have highlighted the limits of what can be learned from public financial records alone.

In FBG’s case, the central issue was its use of multiple forms of working capital financing, including leasing structures that were not clearly disclosed to other lenders. Rating agencies had already noted an increase in factoring, through which a company sells its unpaid invoices to a third party. Rating agencies said they were including off-balance-sheet factoring and parts of supply-chain finance in their own debt calculations.

This highlighted the fact that much of the company’s working capital finance lay outside reported debt, much of which was based on receivables. Because factoring is usually structured as a sale rather than a loan, this did not add debt to FBG’s balance sheet, even though rating agencies treated them as debt-like when assessing its leverage.

Inventory-backed funding was also used. Utah-based leasing firm Onset Financial, which had originally loaned equipment to FBG, became its largest creditor, asserting a claim of about $1.9bn, and says it is the rightful owner of leased inventory and equipment and told the Financial Times that senior executives and independent inspectors visited facilities as part of diligence.

These arrangements, while economically debt-like, were made through leasing structures that were not clearly disclosed to other lenders, many of whom were unaware of them until the bankruptcy filings. Separately, some prospective inventory-finance providers reported proposals for repo-style monetisation — which involves selling existing inventory to the provider and then buying it back later — at fees in the mid-teen percentages, which were unusual compared with the 5 to 8 per cent typically expected. Providers cited urgency as a concern and several declined to participate.

Several off-balance-sheet financing entities tied to FBG entered bankruptcy shortly before the company itself. These entities raised funds through high-yield, short-term instruments linked to FBG’s inventory and receivables.

An FT Alphaville review indicated coupons of 14 percentage points over the three-month Secured Overnight Financing Rate, the loan market’s commonly used floating-rate benchmark (about 19 per cent) and Level-3 fair-value classifications (where a market price is not used to determine their valuation), signalling both high returns and limited transparency.

After the filing, asset-backed lenders sought to trace cash movements among operating companies, special-purpose entities and segregated accounts. Counsel asked whether receivables and inventory had been pledged more than once or commingled. Such questions went to the core of how the structures operated day-to-day, rather than how totals appeared on a balance sheet.

As a private company, FBG was not required to publish its accounts, so stakeholders relied on confidential lender presentations, rating agency reports and limited borrower-provided information. The type of financing techniques FBG used are generally not included in a company’s debt figures and are sometimes treated as off-balance sheet. Because they are not counted in the “headline debt” total on the balance sheet, simple leverage ratios based on that figure can understate how much financing the company is actually using. This reporting convention helps explain why rating agencies said they adjusted debt to incorporate such programmes.

Until the week of bankruptcy filing, many lenders were also unaware that FBG had billions of dollars in inventory-backed loans via off-balance-sheet special purpose entities. After the filing, one asked how much of the almost $2bn advanced to FBG remained in a supposedly segregated account and was told: “$0”.

FBG’s financing mechanisms raise other questions. For example, some FBG executives invested in Onset-linked leasing deals that charged FBG double-digit rates. Onset said most of its earnings were reinvested in future transactions and in court filings asserted that it was the rightful owner of leased inventory and equipment. Without alleging wrongdoing, such arrangements raise standard audit committee and lender questions about decision-making incentives and disclosures when the operating company is also a borrower to a vehicle in which insiders have interests.

Research has found that when off-balance-sheet items are brought on to the books, overall financial reporting quality tends to improve while greater transparency on use of certain forms of debt financing is helpful to lenders.

Across the filings and reporting, three features stand out:

• Significant use of receivables and inventory funding, some through special purpose entities and leasing vehicles, alongside traditional loans

• A rapid liquidity squeeze, including a seized transfer and queries about segregated accounts showing $0.

• Disclosures in the petition of more than $8bn of secured and inventory-backed obligations, plus a $1.1bn lifeline and a special committee to examine off-balance-sheet arrangements.

Rating-agency adjustments for factoring, the prevalence of Level 3 valuations and high coupons in fund filings and the pause of a $6bn refinancing are signals a diligent reader might have been able to spot. But given the private-company context, classification of supplier finance and contract-level cash controls and collateral-priority questions, only clarified after filings, the accounts could only reveal so much.

Recent FT reporting that a small group of lenders refused credit, exited positions or shorted FBG debt after identifying anomalies in fees, deal structure and reported performance suggests that warning signs were visible. Yet they did so only after field examinations, collateral reviews and direct meetings, pointing to limits in what can be inferred by outsiders from public financial records alone. What, if anything, could have been legible in FBG’s accounts?