Is Amerco's Bankruptcy a Blueprint for General Growth Properties?

Includes: GGP, UHAL
by: Todd Sullivan

The similarities between General Growth Properties (NYSE:GGP) and Amerco (NASDAQ:UHAL) are striking... Bill Ackman talks about it in the video at the end of the article.

Why did Amerco file for bankruptcy?

Amerco took the action in 2003 to restructure its debt, officials said, adding that since its assets are greater than its debt, it intends to repay its creditors in full pursuant to a full-value plan of reorganization. Amerco obtained a commitment from Wells Fargo Foothill (NYSE:WFC) for a $300 million debtor-in-possession facility, officials said, and for a $650 million bankruptcy emergence facility.

On Oct. 15, 2002, Amerco defaulted on a $100 million principal payment owed to holders of 1997 asset-backed notes. That default triggered defaults on other debt outstanding. Until the filing, the company had been in negotiations with creditors about restructuring its debt.

"Business fundamentals at the company remain strong," said Joe Shoen, Amerco's chairman at the time. "Amerco has taken a positive step in choosing Chapter 11 to facilitate the restructuring of its debt. We are getting our financial house in order."

Amerco's Joint Plan of reorganization filed Oct. 2003.

Debtors disclosure statement under the Joint plan.

Here is the part is this bankruptcy that GGP shareholders need pay attention to

Specifically, the Debtors believe that their businesses and assets have significant going concern value that would not be realized in a liquidation, either in whole or in substantial part. According to the valuation analysis and the liquidation analysis prepared by management with the assistance of the Debtors' restructuring advisors, Alvarez & Marsal, Inc. ("A&M"), and the other analyses prepared by the Debtors with the assistance of A&M, the Debtors believe that the value of the Estates of the Debtors is significantly greater in the proposed reorganization than in a liquidation.

So, as debtholders were made whole, through restructuring of the debt, this is what was proposed for the common and preferred stock:

Existing Common Stock means shares of common stock, par value $0.25 per
share, of AMERCO that are authorized, issued and outstanding prior to the Effective Date. Other Interests means the preferred share purchase rights issued by AMERCO pursuant to that certain stock-holder rights plan adopted by the Board of Directors of AMERCO in July 1998, with each such right entitling its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participation Preferred Stock (Series C), no par value per share of AMERCO, at a price of one one-hundredth (1/100th) of a share of Series C, subject to adjustment. The Plan does not alter or otherwise impair the Allowed Existing Common Stock and Other Interests.

Here was the thought process behind the debtors plan:

Shortly after filing for relief under Chapter 11 of the Bankruptcy Code, the Debtors focused on the formulation of a plan of reorganization that would allow them to quickly emerge from Chapter 11 and preserve their value as a going concern. The Debtors recognize that in the competitive arena in which they operate, a lengthy and uncertain Chapter 11 case may detrimentally affect the confidence in the Debtors by their respective vendors and employees, impair their financial condition, and negatively impact the prospects for a successful reorganization. The terms of the Plan are based upon, among other things, the Debtors' assessment of their ability to successfully restructure their capitalization, make the distributions contemplated under the Plan, and pay their continuing obligations in the ordinary course of the Reorganized Debtors' business.

Also, like GGP, Amerco had a very higher percentage of insider ownership of the common stock.

Well, you ask, what happened?

From 2003:

AMERCO today announced that all of its creditor classes have approved the Company's Plan of Reorganization. Creditors under the Plan will receive a combination of cash and new notes in AMERCO.

"Now that we have a 100 percent consensual agreement with all creditor groups, we are poised to emerge from Chapter 11," stated Joe Shoen, chairman of AMERCO. "We are gratified that our creditors have recognized that our Plan is in the best interest of all of the company's constituencies."

According to Richard Williamson, Regional Managing Director at Alvarez & Marsal, Inc., "AMERCO is positioned to accomplish one the most successful restructurings in recent history. On the effective date of the Company's Plan of Reorganization, AMERCO will have restructured, on a consensual basis, over $1.2 billion in debt and lease obligations with no dilution to equity holders." Alvarez and Marsal, Inc. has served as the exclusive financial advisor to AMERCO since May 2003, with respect to its negotiations with creditors and in the raising of exit financing and its capital restructuring.

A Confirmation Hearing is scheduled to be held by the U.S. Bankruptcy Court in Reno, Nevada beginning on February 2, 2004. Subject to confirmation by the Court and the completion of all necessary documentation, the Plan should become effective and be funded shortly thereafter.

The plans were approved and common shareholders were let whole.

This is part of the blueprint Ackman is looking at in my opinion. Were it not for the credit markets, GGP would have refinanced the debt and because of its strong operations, the company itself would be functioning. Because of the similarities to Amerco, GGP can make the same arguments for the debt restructuring and the survival of the equity.

Now, a warning. I know people have been following into this investment. If you do, you must be prepared to lose all of it. There is no guarantee of the above outcome. Buying this stock now is essentially buying a call option on the company's survival. If it hits, you win big, very big. If not, what you invested is worth nothing. I believe the above scenario will play out, I am also not going to be broke should it not.

Disclosure: Long GGP

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