Here's a question: Can you name a publicly traded company that's gone into bankruptcy protection and come out on the other side with the shareholders owning exactly the same percentage of the company on emergence? No? Well, if AMERCO (NASDAQ:UHALQ), the corporate parent of U-Haul, manages to emerge in the next few weeks with the creditor-approved plan it has in place, it will be the first in memory. I haven't been able to find one instance in more than a decade. Perhaps USG (NYSE:USG) will provide a second example, but its bankruptcy due to asbestos litigation has yet to get to that point.
Are AMERCO's creditors simply nicer than everyone else who's ever had senior positions in bankruptcy? Doubtful. This is just a very strange situation -- so strange that a company that is currently in bankruptcy was able to make a dividend payment to its preferred shares this past week. The situation surrounding AMERCO became even more bizarre when the Securities and Exchange Commission filed a court order in Nevada on Friday to compel AMERCO's compliance with subpoenas of documents and emails issued more than a year ago regarding potential securities law breaches at the company.
Securities laws broken? Bankruptcy with no shareholder dilution? Something doesn't compute here -- something seems way too good to be true.
The SEC investigation stems from a special purpose entity (SPE) called SAC Holdings that the controlling shareholders set up in 1994 upon the recommendation of Pricewaterhouse accountants to move the company's interests in self-storage facilities into an SPE in order to get both the assets and the mortgage debt and depreciation off the company's balance sheets. The trouble is that the SPE's were set up under Mark Schoen, brother of the CEO, board member, and 13% owner of AMERCO's shares.
If we go back to our Enron class, we know that an SPE must be owned by someone independent from the company selling the assets. In other words, AMERCO was dealing with itself, which is a no-no.
When Pricewaterhouse came back in 2002 and recommended that AMERCO's SPEs be consolidated on AMERCO's balance sheet, the effect was a series of restatements and a default on the terms of one of the company's classes of debt. In 2003, AMERCO filed Chapter 11, and its managers have done an incredible job of getting compliance from each class of creditors against the company, with many accepting cash and newly constituted debt.
This makes AMERCO's failure to address every point in the SEC's investigation so puzzling, even troubling. AMERCO has a standing lawsuit against Pricewaterhouse, accusing the accounting firm of negligence and fraudulent and tortuous conduct. If the blame falls squarely on the accountants, one might think that AMERCO would be eager to turn over everything in its possession to get the SEC to focus on Pricewaterhouse, not on AMERCO. A year is a long time for the SEC to wait for a company to turn over documents. Why, when AMERCO is preparing to emerge from bankruptcy in a nearly unprecedented fashion, would it not take extreme care to satisfy the SEC?
In fact, unless there are things in these emails and correspondences that paint an entirely different, less flattering picture of AMERCO's conduct, this is simply baffling.
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Bill Mann has no beneficial interest in any companies mentioned in this story.
