After months of controversy surrounding its accounting practices, Hanover Compressor ( HC) announced Friday that CEO Michael McGhan and Chief Operating Officer Charles Erwin were resigning. Chairman Victor Grijalva will serve as acting CEO until replacements are found. Shares of Houston-based Hanover plunged 15% to $7.16 on the news. The stock has fallen more than 71% since the start of the year. "These are the guys that got the company into trouble," said Mark Roberts, an analyst at Off Wall Street Consulting who has been an outspoken critic of Hanover. In February, the company restated its financial results for 2000 and the first three quarters of 2001 after saying it had improperly recognized revenue on a joint venture called Hampton Roads. That same month Hanover, which makes pumps used in the transportation of natural gas, announced that its chief financial officer was leaving and that the Securities and Exchange Commission had launched an investigation into its books. Questions have continued to swirl since then.
Still, Schreck did say that the loans made to its executives would be repaid "in conjunction with the terms in which they were made." He also noted that the new corporate reform bill signed by President Bush on Tuesday stipulates that companies will no longer be allowed to repay loans on behalf of officers and that, going forward, the firm won't lend money to its executives. "It looks like they're getting the bad eggs out," said Roberts, who neither owns nor shorts Hanover's stock. "But the major issue for Hanover is liquidity." Roberts said Hanover has $1.1 billion in special purpose entities that must either be refinanced or paid back to investors over the next few years. "If investors want to be paid off, where are they going to get the money from?"