|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||215||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
|Subject||You beat me to it|
|Entry||07/24/2003 01:13 PM|
Hi, Sag --
1: What value do you put on the lawsuit against PwC? The company is asking for ~$100/share. PwC hasn't disputed the facts; the only response I've heard from them is that the Amerco is ultimately responsible for the accuracy of their financial statements. I Am Not A Lawyer and I've only seen one side of the story, but:
(A) Helping to set up the SPE seems to me to be a consulting function, not an auditing function. If PwC can't be held responsible for its bad advice, then the whole idea of professional liability is meaningless.
(B) Sure, the company is ultimately responsible for its financial statements. But it's not like they were shipping bricks in boxes labeled "VCR" and booking the revenue. If PwC can't be sued for an obvious mistake like not noticing that Marc Shoen was a family member, then I want to get into auditing, because it doesn't seem that you can be held accountable for anything.
(3) Amerco has some heavy artillery on their side, including very damaging admissions from Amerco's auditor, and the opinion of Douglas Carmichael, now chief auditor for the SEC Public Company Accounting Oversight Board that PwC :
"made inexcusable and incomprehensible" errors, "violated each and every duty owed to Amerco, its lenders, governmental agencies and the public .... improperly placed its own interests ahead of its client's in violation of the industry's ethical and professional principles."
Amerco's filing can be found at:
I don't know about $2.5B, but the suit seems to me to have some merit.
2: Could you flesh out how you value the rental center real estate assets?
3: There could be considerable excess value in the self-storage assets.
(A) If you go to their web site, you'll see that they have 65 or so self-storage centers for sale. The average asking price is $1.65MM. OK, that's the ask, but the list doesn't include many centers in major metropolitan areas; they're not disposing of the crown jewels. The company claims to have "1,023 owned, managed or equity participating self-storage".
(B) The company claims 34.5MM square feet of self-storage. It looks to me like PSA trades at something like an EV/square foot ratio of $70; Shurgard is at about $57.
It's unclear what Amerco's economic interest in the self-storage centers is, because of "managed" part, and the opacity of SACH. But a little multiplication produces some surprisingly large numbers, which we are then free to discount as we like.
I'd agree that company looks very, very solvent, if you think the financials are vaguely reliable. (Hee-hee.) But Amerco seems like a company that's just as likely to engage in asset-hiding as asset-overstatement.
|Entry||07/24/2003 06:26 PM|
|This looks like a good one. I think there may be significant real estate value in it. I agree that management are bozos - never could figure out why this company was never able to make good money.|
|Subject||A few questions|
|Entry||07/24/2003 07:56 PM|
|Thanks for the write-up.|
I wonder why they didn't try to resolve their liquidity problem by simply selling assets. Even at a discount, wouldn't it have been cheaper than chap 11.
Was SACH consolidated into AREC? or U-Haul Intl?
I don't like to assume, so can you tell us why AREC is going to file chap 11?
|Entry||07/25/2003 11:11 AM|
|I have no idea about the value of the lawsuit - value of lawsuit is an issue for equity holders, sr. notes & preferred will recieve par plus w/ or w/out PwC suit - a sizable settlement would give the equity real upside, I like businesses/assets, not lawsuits - the complaint is very compelling, but it is a plantif's conplaint - about as objective as a political add|
Rental center is mostly hed in the SPE (SACH) - I just use the note recievable that AMERCO holds from SACH -- the note is subordiante debt, but with the added kicker of CF sweeps on 90% of excess CF -- I've discounted the note - you could argue that the note is worth more than par because of the excess cf sweep & the significant value put on public storage Sqft in the equity REIT market - I tend to doubt the assertion that UHAL storage facilities are worth what general public storage facilities are worth - because - UHAL's facilits are not generally free standing & are not run as a storage business, they are run as an side service for UHAL (truck rental) customers - I don't UHAL facilities as owned by SACH are an apples to apples comparison with publically traded storage facilities - there may be upside in the storage, but again it is value to be captured by the equity, we can use very conservative assumption and be compfortable with a debt or preferred investment -- the major problem with the equity is managemnt, if I had controll of the equity, I would probably be all bulled up about the asset values and potentiall legal assets
Selling assets -- I do not think asset sales is value maximizing -- UHAL has a franchise/business because i can pick up a truck in Racine, WI drive it to NYC & dropp the trck off & store my belongings in SoHo -- UHAL must beable to offer both source & destination locations -- they could sell assets to a franchisee or a partner, but those type of sales would likely take more time & be strategic (not likely to be completed under the gun of refinancing) - the other argument as to why they din't sell assets ( and likely the real reason) - mng ego, you know the old more assets I have, bigger man I am routine - that, I'll bet is the real reason -- that, or no buyers
SACH is consolidated into AMERCO, the holding company
AREC is likely to fill for ch. 11 to provide security to DIP lender Foothill
|Subject||Hi, Sag -- In case you coul|
|Entry||07/25/2003 02:34 PM|
|Hi, Sag --|
In case you couldn't tell from a message titled "You beat me to it" and a bunch of questions centered on why Amerco is worth more than book, I own some common stock (bought at lower prices, demonstrating once again that I'm all the way to the left on the luck/skill spectrum).
I didn't submit the idea because I'm unable to analyze it. Amerco's filings don't give me the information I want, and I can't do the leg-work on my own. For me, it's speculative. I'd love to hear from you and other club members who have better insights. I'd like to get a discussion going on about the company because I think it's one of the most interesting special situations -- OK, _very_ special situations -- that I've seen. Is there value here, and if so, where should we be in the capital structure?
Is there value here? Maybe. It's speculative, for me anyway. The filings can't be trusted. The company is bankruptcy. All stakeholders are subject to sudden and unpredictable events.
On the other hand --
1: Your very, very conservative sum-of-the-parts valuation indicates that the company is solvent.
2: I'd argue that Amerco is worth more than the sum of the parts. You say:
> I tend to doubt the assertion that UHAL storage facilities are worth what general public storage facilities are worth
I agree with you. I think they're worth more, because they offer a great convenience value to U-Haul customers. Breaking the company apart would be a terrible idea; the rental, P&C and storage businesses fit together very nicely. So I also agree with you when you say, "I do not think asset sales is value maximizing".
I tend to like the common better than the preferred, though, even after the run up. I think both have the same downside -- to zero -- but the possible gains in the common are much greater. The problem with the common (aside from going to zero, of course) is management. Frankly, I'm hoping the creditors get a big slug of equity in return for a modest reduction in debt. That might help to narrow the Shoen discount.
|Entry||07/25/2003 03:52 PM|
|I was also attracted to this do to the ‘super uniqueness’ of the situation. And, I was itching to like the common here, but shied away from it for various reasons:|
1) If you look at the originally filed 10-Ks (before SACH was consolidated), you see a company generating some nice earnings, but not a ton of FCF (in fact, none at all). With its supposed strong competitive position, you would expect the company to generate some strong FCF in its core business. From what I can tell, it is not.
2) From the limited channel checks I have made, I have come to the conclusion that this is a very poorly managed company. Specifically, it sounds like they are not that focused on the day-in-day-out aspects of the business – not taking proper care of the vans/trucks for example. Stronger management and I might find the FCF I am looking for.
3) Regarding the common – the company is in bankruptcy. And, while the restructuring may in fact not change the capital structure at all (as management would have you believe), there is no guarantee. I would expect the current shareholders to have a stake in the post BK company, but I cannot quantify exactly what that stake will be.
4) The insurance businesses scare me. From a valuation perspective, I can put them at 0 and hope that is conservative. However, as said in the original write-up, the P&C business value may in fact be negative. Insurance companies are not my strength by any stretch, so these subsidiaries scare me.
That being said, I liked the idea of buying the preferred rather than the common. Most likely, the preferred comes out whole after all of this, but a 15% IRR may not be sufficient to cover the timeliness/return risks inherent in the security.
I personally am hoping for a debt/preferred for equity swap that will force the family out. Properly managed and I think this company operates much better.
All just my thoughts on the situation. I also would love to hear other thoughts on this from other members.
|Entry||07/25/2003 05:04 PM|
|The Common is not suitable for investment, but it was a great speculation (confession: I sold my common earlier this week) -- why? (particularly why? when I think the assets are worth north of $20 per share) -- as a wise old man once said - management, management, managemnt -- coupled with the the lack of a prepack ch.ll plan, Abelco falling down on the financing (by the way, Cerberus (Abelco) has more money than god & there aren't exactly a lot of opportunities in distressed land right now, sooo there has got to be some kind of problem for them to walk away) -- members of the creditors committee have expressed anger towards the current mng and a desire for equity or a cash out (I have my doubts regarding the spinal integrity of a committee led by AIG, GE & PIMCO, but at least they talk a good game)-- The insurance businesses are trouble (particularly the long tail P&C liabilities) -- if you read the first deal pleading, Amerco requested to use $46m of cash to shore up the P&C operations, why, because the regulators were going to shut it down & UHAL relies on the affiliated P&C business to provide insurance for the UHAL operation (this is actully done throught he holding company by having the holdco send money to the P&C business to cover losses realized from insuring UHAL) - the insurance arrangement can be simplified by thinking of it on a consolidated basis as a self insurance program (which is neither wrong nor imoral, but also doesn't transfer much risk) - the P&C business has stoped writing new policies (except for UHAL renters, which are very profitable), so maybe after they work through the legacy issues the p&C business will be a jewel, but right now it is garbage (note: the company tells people that they have bought policies to cover their pervious underwriting mistakes, but it seems as per the first day request that the bleeding continues) - yes, the common is interesting, but I would wait for some fear or the outline of a reorg plan before buying, I think 10 or 11 per share is artifically high. as for the IRR, 15% is a low case for the bonds assuming a 2 yr case & par pluss accrued at the end. WHen buying the bonds I would favor the 03 because they are past due & technically impaired if they are reinstated or given new bonds, there fore they have a better argument to recieve cash today, while the 05's could be reinstated and made current on interest & would have no means of demanding a near term cash out -- the preferred offers a much better IRR, 39% if you assume a 2yr case & assume par pluss accrued at the end of the case -- either way (equity, preferred or debt) AMERCO is a neat story becasue it offers lots of ways to indulge your personal risk/reward preferences|
|Entry||07/25/2003 05:07 PM|
|Let me shed some light on the insurance subs:|
RepWest is the property and casualty writer. They primarily provide the insurance sold to UHaul customers, but most of their recent headaches have come from a deworsification plan where they started writing non-standard auto, mobilehome and homeowners through personal lines managing general agents (MGA's), which I view on par with used-car salesmen. It looks like they are now cutting their ties with the MGA's and concentrating on the UHaul segments (although they still write excess workers comp and some credit insurance). The poor results of the last few years have drained surplus, and AMERCO had to contribute $55 million in capital, which came in the form of real estate.
Oxford Life sells life and annuities, including group life and disability to Uhaul, as well as claims handling for UHaul's self-funded health and dental care programs. They also went through deworsification by buying a Medicare supplement company that has hurt them. One unknown is the extent of variable annuities. Nothing in AM Best, the 10-K or the company's website indicated they offer variable annuities, although they offer an equity indexed annuity.
They also reinsure a bunch of business.
Another issue is both insurance companies have invested with AMERCO in a company called Private Mini Storage. The health of the insurance investment portfolio is a concern here.
My rather quick and superficial impression is that there are some rather clever financial engineers at AMERCO, and the common deserves to trade at a discount.
|Entry||07/25/2003 07:47 PM|
|getting away from the substance for a second, there are an inordinate amount of typos. you should consider cleaning it up a bit and running it through MS Word.|
|Subject||Re: Some thoughts|
|Entry||07/25/2003 08:10 PM|
Hi, Brian --
> I was itching to like the common here, but shied away from it for various reasons:
I'm not suggesting that anyone buy the common at the current price. It's no longer a real cheap option. I'm holding because I'm tax-sensitive. I'm posting because I'm looking for free advice, and other members with enough resources to get a better idea of fair value might find it a good opportunity. Sag, I'm 100% open to trading out of the common and into the preferred.
> If you look at the originally filed 10-Ks (before SACH was consolidated), you see a company generating some nice earnings, but not a ton of FCF (in fact, none at all).
What do you mean by FCF? The company, other than some teeny buybacks, plowed all the cash back into the business. Since '96, they've doubled the amount of storage space. I'm not claiming that this was prudent or a good use of capital, but it looks to me like they're making money. I bring up the storage business, not because I'm a self-storage fetishist -- more interested in goats, really -- but because the company makes it easy to track, as long as you ignore a bunch of stuff (like SACH). Are you distinguishing between maintanence and expansion cap-ex here?
> I have come to the conclusion that this is a very poorly managed company.
Wouldn't surprise me in the least. I've never been able to get it straight whether we're supposed to prefer a bad business with good managers to a good business with bad managers, but Amerco is certainly the latter.
> the company is in bankruptcy. And, while the restructuring may in fact not change the capital structure at all [...] there is no guarantee.
I think the common would rise in price if dilution led to a loss of control by the Shoen family.
> The insurance businesses scare me.
> I personally am hoping for a debt/preferred for equity swap that will force the family out.
|Entry||07/25/2003 08:37 PM|
Hi, Sag --
Sorry if I'm talking too much; I don't want to hijack the discussion.
> The Common is not suitable for investment,
Definitely not. But I'm not sure why you think the bonds & preferred are. All stakeholders face similar Rigas risks here. Worst case, I think the common could go to zero, the preferred could go to zero, and the debt could recover something.
> management, management, managemnt
I hear that.
> Cerberus (Abelco) has more money than god & there aren't exactly a lot of opportunities in distressed land right now, sooo there has got to be some kind of problem for them to walk away
I'd guess that at least one problem is management, management, management. Maybe there was a fist-fight at a meeting?
> the insurance arrangement can be simplified by thinking of it on a consolidated basis as a self insurance program
I'm not an insurance whiz, or any other kind of whiz for that matter. David101, I appreciate hearing from you on this. How much of the on-going business is re-insured?
Dle413, I read for content, not style. I appreciate the effort and insight that Sag has put into this idea.
|Entry||07/26/2003 01:46 PM|
It is tough to get a clear picture on the reinsurance. If Amerco was just a P&C insurer or a life insurer, the 10-K's would provide more detail. As subsidiaries to a conglomerate, there is less detail. Here's is what I found:
1. RepWest - about 25% of the premium is ASSUMED reinsurance, where they are acting as reinsurer (and have lost money). About 20% are from H-Haul customers. The rest is a mix of U-Haul corporate and third party insurance (primarily personal lines, which they have catastrophic reinsurance for). There are no details on the reinsurers that RepWest is ceding to. On a side note, I am curious as to whether RepWest is covering any of underground storage tank clean up for U-Haul (3,000 tanks and $43 million at last count). There are some interesting dynamics at work here:
- The U-Haul corporate liability is through a retrospective policy, which basically functions as a pay as you go approach. I bring this up because sag had mentioned a potential negative value to RepWest, and it got me thinking as to whther Amerco would just let RepWest die, a la Fremont or PICO. All things considered, Amerco is better off with RepWest alive, so sag's negative valuation is valid here.
- RepWest also needs to insure a significant amount of third parties; otherwise, Amerco's insurance payments will not be tax deductible.
2. Oxford Life cedes over 45% of the business it rides, but assumes a huge chuck of business from others. They mainly write life insurance, and Oxford buys reinsurance so that the max it pays on any single life is $150,000. The assumed business is mainly for diversification. Not sure why they thought senior healthcare would be profitable. Since Oxford also covers the employee benefits for Amerco (health coverage is self-funded by Amerco and Oxford is just the claims handler), they need to sell a certain amount of insurance to third parties in order that Amerco's benefits are tax deductible.
|Entry||07/26/2003 11:50 PM|
|Hi, guys --|
Here's the simple scenario analysis I've been using. It could be enhanced a lot, but given where I'm coming from it's all gargbage in, garbage out anyway. The post-bankruptcy scenarios are:
1: Fraud -- The common and preferred go to zero. The bonds recover 50%
2: Impairment -- The insurance business is worse than it looks, the value of the truck fleet has been overstated, whatever. Common trades to $5, preferreds to $15, the bonds get interest + par.
3: Good -- The balance sheets and cashflows are more or less as presented. The common trades back up to $20, the preferred and bonds get interest + par.
The biggest variables are chance of fraud, price of common in good scenario, and recovery of bonds in event of fraud. I'm ignoring the impact of bankruptcy for reasons that I'll get into in a bit. I'm assuming two years of coupons on the debt & preferred. I'm too lazy to look up the bond's interest, so I'm using 8% -- all numbers are very round. Given the end-points, the probabilities are calibrated so the common's expected value is $10.
Outcome Odds Stock Val Pref. Val Bonds Val
Fraud 35% 0 0 0 0 50 17.5
Impair 20% 5 1 15 3 116 23.2
Good 45% 20 9 29 13.05 116 52.2
Value 10 16.05 92.9
Price 10 17.5 85
% PL 0 -8% 9%
I assume that as usual the table will be unreadable. VicContact, is there any chance of allowing the