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)