AMERCO UHAL
July 24, 2003 - 12:32pm EST by
sag301
2003 2004
Price: 10.40 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 215 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

I recommend buying the AMERCO $25 face preferred at $17 or better & Sr. Notes at 85 or better.

AMERCO is a holding company. Amerco owns UHAL, a Real Estate sub (that primarily owns Uhal related locations), a P&C sub, and a Life insurance subsidiary. --- Amerco also has loans receivable of $388m (+90% of excess Cash Flows) from SACH – SACH is a non owned, consolidated SPV that primarily owns self-storage facilities associated with Uhal. Amerco is controlled by the Shoen family (based on press clippings, people with whom I would not want to do business). On 6/23/03, AMERCO filed bankruptcy. At the time of filing, AMERCO issued a pressrelease stating that the company planed to complete the ch.11 proceeding without diluting prepetition shareholders.

AMERCO’s troubles began in mid 2002. Prior to the 2002 (fy end 3/02) 10-K, AMERCO had not consolidated the SACH entity. The decision not to consolidate was supported/recommended by PwC, AMERCO’s long time auditor. After Enron, PwC decided that AMERCO would have to consolidate SACH. SACH is owned by Mark Shoen, brother of AMERCO’s Chariman/CEO, former officer of AMERCO & 16.3% shareholder of AMERCO. AMERCO does not own SACH nor has AMERCO guaranteed SACH liabilities. PwC then screwed up the consolidation by relying on E&Y’s audit of SACH for the SEC 10-K filing. Though E&Y didn’t refute its audit, it did not give PwC written consent to uses the audit for the 10-K. Because of this mistake, AMERCO did not make timely financial filings in 2002. Eventually PwC had to re-audit the SACH entity. The inability to file timely audited financials prohibited AMERCO from refinancing $100m of debt that came due last fall. (AMERCO remaind out of bankruptcy until 6/03 because management was able to convince bondholders that given audited financials, AMERCO would be able to refinance.) Further – following PwC’s re-audit, AMERCO fired PwC & proposed arbitration to avoid AMERCO suing PwC for professional malpractice. PwC responded by threatening to revoke the audit under the theory that if AMERCO was hostile to PwC, then PwC could no longer be considered independent & therefore could not for SEC purposes act or have acted as AMERCO’s auditor. Under the threat to pull the audit, AMERCO stopped pursing PwC for malpractice & went so far as to send a letter that the initial request for arbitration had been done with out the board’s knowledge & AMERCO would not pursue such claims in the future. AMERCO replaced PwC with BDO Seidman. As part of PwC’s dismissal, PwC noted areas of the general ledger that they had concerns with & expressed concerns with the receivables at the insurance subsidiary. BDO is currently redoing the 2001 & 2000 10-K and I suspect there will be restatements with regard to the insurance operations. AMERCO is currently suing PwC. AMERCO has not filed their 3/31/03 10-K.

Default & Refinancing
AMERCO was forced into ch. 11 because the bondholders we no longer willing to wait for the company to refinance. A refiancing led by Foothill with Abelco (aka Cerberus) providing 2nd lien lending was expected to close in May, but fell apart. Officially this deal fell apart because of the lack of audited financials. I suspect Cerberus had a problem with AMERCO managemnt. As part of the ch.11 filing Foothill agreed to provide a DIP & exit facility.


Businesses (all data from 10-Q & 10-K)
UHAL – leading self moving rental company in the US. EBITDA $200-250 million – Value $800 - $1,100 million.

Real Estate – owns significant Uhal related rental locations. EBITDA $60 - $80 million– Assets $600m – Value $300 - $400 million --- the Real Estate subsidiary guarantees $100m of AMERCO’s debt, so I’ll be using a value of $200-$300 million and using $809 million (instead of the $909 million consolidated number for debt).

P&C – 2 businesses, that related to insuring people renting Uhal trucks (great business, I have over paid for this very product) & general P&C (terrible business) – the Company has stopped writing the no Uhal P&C, but the sins of the past will remain with this sub for a long time. Book value $210 million – value ascribed – ZERO. In 2002 AMERCO pumped $60m into this dog, ZERO might be generous.

Life Insurance – decent business, book value $115 million. Value ascribed $50 million.

SACH – AMERCO does not own the equity & has not guaranteed the liabilities, but SACH owns AMERCO $388 million and AMERCO receives 90% of any excess cash flow. SACH primarily owns self storage facilities. Loan Face $388 million – value ascribed $300 million.

SUM OF THE PARTS
UHAL $800 - $1,100 million
REAL ESTATE $200 - $300 million
P&C -$100- 0 million
Life 0 - $50 million
SACH Receivable $250 - $388 million

Total Value to AMERCO $1,150 - $1,840 million

Debt** -- $809 million --- ($909 reported - $100m that has already been subtracted from Estate value.)

Preferred $165million ($150 million face plus missed payments – 8.500%)

Based on the values shown above it appears that the bonds & the preferred should recover 100% on the dollar.

** Debt represents prepetion amount - at filing the company also listed sinthetic leases - if the company has to pay these off they will recieve the underlying colateral, wich should result in a close to zero net value gain/loss. Because of the likely mitigageted effect of the leases

I don't recomend the equity because it has recently run up (short squeeze), I have very little confidence in managemnt, and bondholders have expressed an unwillingness to accept new longer dated bonds for their past maturity bonds. The company did not file a prepack, which increaases the probability of a protracted ch.11 proceeding.

Catalyst

Completion of ch.11 proceeding in 2yrs or less -- IRR depends on lenght of ch.11 & value of consideration recieved. Low case IRR is 15%+ (2 year case recieve par pluss accrued at emergence)
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    Description

    I recommend buying the AMERCO $25 face preferred at $17 or better & Sr. Notes at 85 or better.

    AMERCO is a holding company. Amerco owns UHAL, a Real Estate sub (that primarily owns Uhal related locations), a P&C sub, and a Life insurance subsidiary. --- Amerco also has loans receivable of $388m (+90% of excess Cash Flows) from SACH – SACH is a non owned, consolidated SPV that primarily owns self-storage facilities associated with Uhal. Amerco is controlled by the Shoen family (based on press clippings, people with whom I would not want to do business). On 6/23/03, AMERCO filed bankruptcy. At the time of filing, AMERCO issued a pressrelease stating that the company planed to complete the ch.11 proceeding without diluting prepetition shareholders.

    AMERCO’s troubles began in mid 2002. Prior to the 2002 (fy end 3/02) 10-K, AMERCO had not consolidated the SACH entity. The decision not to consolidate was supported/recommended by PwC, AMERCO’s long time auditor. After Enron, PwC decided that AMERCO would have to consolidate SACH. SACH is owned by Mark Shoen, brother of AMERCO’s Chariman/CEO, former officer of AMERCO & 16.3% shareholder of AMERCO. AMERCO does not own SACH nor has AMERCO guaranteed SACH liabilities. PwC then screwed up the consolidation by relying on E&Y’s audit of SACH for the SEC 10-K filing. Though E&Y didn’t refute its audit, it did not give PwC written consent to uses the audit for the 10-K. Because of this mistake, AMERCO did not make timely financial filings in 2002. Eventually PwC had to re-audit the SACH entity. The inability to file timely audited financials prohibited AMERCO from refinancing $100m of debt that came due last fall. (AMERCO remaind out of bankruptcy until 6/03 because management was able to convince bondholders that given audited financials, AMERCO would be able to refinance.) Further – following PwC’s re-audit, AMERCO fired PwC & proposed arbitration to avoid AMERCO suing PwC for professional malpractice. PwC responded by threatening to revoke the audit under the theory that if AMERCO was hostile to PwC, then PwC could no longer be considered independent & therefore could not for SEC purposes act or have acted as AMERCO’s auditor. Under the threat to pull the audit, AMERCO stopped pursing PwC for malpractice & went so far as to send a letter that the initial request for arbitration had been done with out the board’s knowledge & AMERCO would not pursue such claims in the future. AMERCO replaced PwC with BDO Seidman. As part of PwC’s dismissal, PwC noted areas of the general ledger that they had concerns with & expressed concerns with the receivables at the insurance subsidiary. BDO is currently redoing the 2001 & 2000 10-K and I suspect there will be restatements with regard to the insurance operations. AMERCO is currently suing PwC. AMERCO has not filed their 3/31/03 10-K.

    Default & Refinancing
    AMERCO was forced into ch. 11 because the bondholders we no longer willing to wait for the company to refinance. A refiancing led by Foothill with Abelco (aka Cerberus) providing 2nd lien lending was expected to close in May, but fell apart. Officially this deal fell apart because of the lack of audited financials. I suspect Cerberus had a problem with AMERCO managemnt. As part of the ch.11 filing Foothill agreed to provide a DIP & exit facility.


    Businesses (all data from 10-Q & 10-K)
    UHAL – leading self moving rental company in the US. EBITDA $200-250 million – Value $800 - $1,100 million.

    Real Estate – owns significant Uhal related rental locations. EBITDA $60 - $80 million– Assets $600m – Value $300 - $400 million --- the Real Estate subsidiary guarantees $100m of AMERCO’s debt, so I’ll be using a value of $200-$300 million and using $809 million (instead of the $909 million consolidated number for debt).

    P&C – 2 businesses, that related to insuring people renting Uhal trucks (great business, I have over paid for this very product) & general P&C (terrible business) – the Company has stopped writing the no Uhal P&C, but the sins of the past will remain with this sub for a long time. Book value $210 million – value ascribed – ZERO. In 2002 AMERCO pumped $60m into this dog, ZERO might be generous.

    Life Insurance – decent business, book value $115 million. Value ascribed $50 million.

    SACH – AMERCO does not own the equity & has not guaranteed the liabilities, but SACH owns AMERCO $388 million and AMERCO receives 90% of any excess cash flow. SACH primarily owns self storage facilities. Loan Face $388 million – value ascribed $300 million.

    SUM OF THE PARTS
    UHAL $800 - $1,100 million
    REAL ESTATE $200 - $300 million
    P&C -$100- 0 million
    Life 0 - $50 million
    SACH Receivable $250 - $388 million

    Total Value to AMERCO $1,150 - $1,840 million

    Debt** -- $809 million --- ($909 reported - $100m that has already been subtracted from Estate value.)

    Preferred $165million ($150 million face plus missed payments – 8.500%)

    Based on the values shown above it appears that the bonds & the preferred should recover 100% on the dollar.

    ** Debt represents prepetion amount - at filing the company also listed sinthetic leases - if the company has to pay these off they will recieve the underlying colateral, wich should result in a close to zero net value gain/loss. Because of the likely mitigageted effect of the leases

    I don't recomend the equity because it has recently run up (short squeeze), I have very little confidence in managemnt, and bondholders have expressed an unwillingness to accept new longer dated bonds for their past maturity bonds. The company did not file a prepack, which increaases the probability of a protracted ch.11 proceeding.

    Catalyst

    Completion of ch.11 proceeding in 2yrs or less -- IRR depends on lenght of ch.11 & value of consideration recieved. Low case IRR is 15%+ (2 year case recieve par pluss accrued at emergence)

    Messages


    SubjectYou beat me to it
    Entry07/24/2003 01:13 PM
    Memberbowd57

    Hi, Sag --

    Nice write-up.

    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:

    news.findlaw.com/hdocs/docs/pwc/amercopwc42003cmp.pdf

    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.

    Yours,
    Bowd

    Subjectthanks
    Entry07/24/2003 06:26 PM
    Memberduff234
    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.

    SubjectA few questions
    Entry07/24/2003 07:56 PM
    Memberjune78
    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?

    Thx,

    SubjectRE
    Entry07/25/2003 11:11 AM
    Membersag301
    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

    SubjectHi, Sag -- In case you coul
    Entry07/25/2003 02:34 PM
    Memberbowd57
    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.

    Yours,
    Bowd


    Subjectsome thoughts
    Entry07/25/2003 03:52 PM
    Memberbrian755
    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.

    --Brian

    SubjectCommon
    Entry07/25/2003 05:04 PM
    Membersag301
    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

    SubjectInsurance Subs
    Entry07/25/2003 05:07 PM
    Memberdavid101
    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.

    David

    Subjecttypos
    Entry07/25/2003 07:47 PM
    Memberdle413
    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.

    SubjectRe: Some thoughts
    Entry07/25/2003 08:10 PM
    Memberbowd57

    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.

    Me too.

    > I personally am hoping for a debt/preferred for equity swap that will force the family out.

    Me too.

    Yours,
    Bowd

    SubjectRe: Common
    Entry07/25/2003 08:37 PM
    Memberbowd57

    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.

    Yours,
    Bowd

    SubjectReinsurance
    Entry07/26/2003 01:46 PM
    Memberdavid101
    Bowd,

    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.

    David

    SubjectScenarios
    Entry07/26/2003 11:50 PM
    Memberbowd57
    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 HTML directive? Or is this covered in FAQ, and I've been too lazy to look?

    Where did the three main variables come from?

    1 - 50% bond recovery in the event of fraud: Umm, I don't know, nice round number?
    2 - Price of common in good scenario: It's traded there recently. The management issues were well known back then. And remember, this is the "good" scenario -- the company comes out of bankruptcy with cleansed and blessed financials, removing a lot of the analysis risk.
    3 - Chance of fraud: Just an input to make the common PV to zero. Adelphia investors are keenly aware of this risk. I think it's less than 35%, because if I was lying about stuff while other CEOs were going to jail, I wouldn't sue my auditors and put my company under court supervision. But assumptions of rationality are out of place here. I wouldn't even assume animal cunning.

    I'm ignoring the impact of bankruptcy because my guess is that it PVs to zero across all the asset classes. If things work out, the preferred and bond holders will get their due. Any dilution that shifts control away from the Shoen family is likely to add value to the common. Maybe the creditors' claims are impaired. Maybe the Shoen's value control more than money, and give the store to the creditors. I throw my hands up. Given the other issues, I don't think value shifting through bankruptcy makes that much difference.

    Playing around with this (too simple) model makes me not want to put new money into any of the Amerco securities. I'm holding onto the common for tax reasons. But if I had to put money anywhere here, I think I'd put it into the common because I that think with better management Amerco is worth more than its understated book (brand, complementary product lines, moat from economies of scale -- gee, speaking of managers, where is Jack Welch when you need him?) and because I value the PwC lawsuit at somewhere between zero and a lot. Would any members with legal backgrounds or access to legal talent like to comment on the lawsuit?

    Sag, thanks again for bringing this up, and for pointing out that

    > AMERCO is a neat story becasue it offers lots of ways to indulge your personal risk/reward preferences

    You've got that right. I got into this because I'd been suffering from Positive Alpha Syndrome and figured buying stock in bankrupt companies would be a sure cure.

    Yours,
    Bowd

    SubjectBetter Scenarios
    Entry07/27/2003 02:42 PM
    Memberbowd57

    Hi, guys --

    The scenarios in my last post were defective in two ways:

    1: It'd be nice if I used non-bogus prices.
    2: Why not try to quantify the upside on the common, which after all is one of the points of the exercise?

    I've added a new scenario, "Great" that encompasses things like the law suit having real value, court documents demonstrating the NAV is in the high $40's, the Shoen's getting religion, etc., and arbitrarily assigned a value of $30 to the common should any of these happy events occur.
    Probabilities are weighted to be reasonable sounding and have the three classes price to about the same returns.

    Outcome Odds Stock Val Pref. Val Bonds Val

    Fraud 0.2 0 0 0 0 50 10
    Impair 0.25 5 1.25 15 3.75 116 29
    Good 0.45 20 9 29 13.05 116 52.2
    Great 0.1 30 3 29 2.9 116 11.6
    Value 13.25 19.7 102.8
    Price 10.38 16.45 80
    % PL 28% 20% 28%


    Yours,
    Bowd

    SubjectSchedule of assets/liabilities
    Entry08/08/2003 09:31 AM
    Memberjune78
    Can you provide some insight into the amended schedule of assets and liabilities filed a couple of days ago that no longer includes leases in liabilities?

    Is this treatment reasonable?

    If so, it would appear to strengthen mgnt's claim of solvency, and be very helpful to the common.

    Thx,

    Subjectassats/liabilities
    Entry08/08/2003 06:32 PM
    Membersag301
    check UHAEQ press release of 8/8/03 - it does a good job of describing the asset/liability issue -- the bloomberg story was missleading

    SubjectDIP Hearing 8/14
    Entry08/14/2003 11:26 AM
    Memberjune78
    Has Amerco finally come to agreement with AREC creditors? Do you know what details allowed them to come to terms?

    SubjectSqueeze
    Entry09/12/2003 11:44 AM
    Memberbowd57

    Hi, guys --

    http://finance.yahoo.com/q/bc?s=UHAEQ&t=1d

    Sometimes I really, really really wish I didn't have to worry about short term gains.

    Yours,
    Bowd

    SubjectPlan on 10/6
    Entry10/01/2003 03:54 PM
    Membermatt366
    Is there any reason to be optimistic that the plan is going to have the support of the unsecured creditors? It strikes me as very likely that the unsecureds are going to be given some cash and some new bonds, which carry a significant risk of being worth less than par, to preserve equity value under the argument that the debtor is solvent. There is no way that is going to fly with the unsecureds, and if this becomes a protracted litigation, the preferred is going down from these levels (and indeed, is probably rich even at your $17 price).

    SubjectNo reason to think it will fly
    Entry10/03/2003 10:46 AM
    Membersag301
    No reason to think it will fly - largest bond holders are not disstrest players - AIG, PIMCO & GE - will likely accept a new note at some point --as for preferred, i think there is value south of the perferred it is a matter of time & IRR hurdle
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