Correction: Fitch Lowers AMERCO's Ratings; Remains On Rating Watch Neg.Business Editors NEW YORK--(BUSINESS WIRE)--Oct. 8, 2002 (This is an amended version of a press release dated October 7, 2002. The preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. rating remains outstanding and on Rating Watch Negative as AMERCO has preferred stock outstanding) Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. lowers AMERCO's senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. , preferred stock, and commercial paper ratings to 'BB+', 'BB-', and 'B' from 'BBB', BBB-', and 'F2', respectively. Senior unsecured debt guaranteed by AMERCO is also lowered to 'BB+' by Fitch. The ratings remain on Rating Watch Negative due to significant level of debt refinancing Refinancing An extension and/or increase in amount of existing debt. requirement over the near term, including a $100 million maturity due Oct. 15, 2002. AMERCO's proposed $275 million senior unsecured debt, due in 2009, is rated 'BB+' by Fitch. Approximately $899 million of debt is covered by Fitch's actions. The rating actions were based on a combination of weaker operating performance in AMERCO's consolidated businesses, which has caused leverage to rise, heighten refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. risk introduced through terms of its new bank revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility, the and managerial issues, including concerns regarding corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. . AMERCO's rating strengths center on its leading market position in North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. consumer truck and trailer rental business, good cash flow, and success operating through several business cycles. Inconsistency has been the hallmark of AMERCO's last two fiscal years. AMERCO's earnings declined sharply from the levels reported in 2000 due to issues at the company's Republic Western Insurance Co. (RepWest) unit. Aside from the operating issues facing AMERCO, changes in financial statement reporting, weaknesses cited in internal controls, lukewarm luke·warm adj. 1. Mildly warm; tepid. 2. Lacking conviction or enthusiasm; indifferent: gave only lukewarm support to the incumbent candidate. response by the banking community to AMERCO's effort to refinance its revolver, and the firing of its long time auditors contributed to the inconsistency. While it appears that most of the changes are completed, management will need to put together a string of good clean quarters to help restore market confidence. Beginning in the quarterly period ending Dec. 31, 2001, AMERCO's former independent auditor Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. , PricewaterhouseCoopers (PwC), required that a related entity, Storage Acquisition Corp. (SAC), be consolidated into AMERCO's financial statements. This reversed PwC's previous treatment of SAC, a position held since 1994, and resulted in a delay in AMERCO's financial statement filing for the periods ending Dec. 31, 2001 and March 31, 2002. SAC's debt is non-recourse to AMERCO and not included in the calculation of the company debt covenants. However, Mark Shoen, who owns 15.6% of AMERCO's common equity, is the sole owner of SAC. Therefore, Fitch believes that AMERCO would provide some level of support in the event SAC encounter some difficulties. Management recently indicated that no significant future transactions are expected between SAC and AMERCO and plans to separate the two companies are being contemplated. The addition of SAC has increased AMERCO's balance sheet footings at March 31, 2002. SAC and its subsidiaries added $558 million of debt and an equity deficit of $20 million to AMERCO's balance sheet at March 31, 2002. As a result, AMERCO's leverage, including off-balance sheet leases and SAC debt, stood at 4.14 times (x) at March 31, 2002. Excluding the SAC debt, leverage was 3.21x at March 31, 2002. Leverage declined under both metrics at June 30, 2002, driven by a combination of reduced debt and increased equity as a result good operating results. Operationally, it appears AMERCO has stemmed the declines. The principal driver behind the improvement has been the business restructuring of AMERCO's property and casualty insurance subsidiary, RepWest. In fiscal year March 31, 2002, AMERCO and its subsidiaries and SAC and its subsidiaries reported net income of $3 million, after RepWest's $44 million after tax loss. The improvement at RepWest has principally been as a result of AMERCO exiting certain business lines deemed unattractive on a risk-adjusted return Risk-Adjusted Return A measure of how much risk a fund or portfolio takes on to earn its returns, usually expressed as a number or a rating. Notes: This is often represented by the Sharpe Ratio. The more return per unit of risk, the better. basis. In the first quarter of fiscal 2003, AMERCO and its subsidiaries and SAC and its subsidiaries reported net income of $41 million, almost a 100% increase from fiscal year 2002's same period net income of $21 million. Based in Reno, NV, AMERCO is a holding company whose principal subsidiaries are U-Haul International, Inc. (U-Haul), Republic Western Insurance Co., Oxford Life Insurance Co., and AMERCO Real Estate Co. U-Haul is the leading consumer truck and trailer rental company in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. and maintains a strong market position in the self-storage market. |
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