Despite a surprisingly high proportion of U-Haul exposure in some high profile CMBS transactions outstanding, Salomon Smith Barney researchers see only headline risk in the triple-A classes of deals backed by loans made to falling angel parent, AMERCO, in the event that it files for Chapter 11 bankruptcy protection. In fact, Salomon views any widening in triple-As as a buying opportunity in any of the 10 trades with loans to AMERCO units U-Haul and SAC Holdings.

The reason for this belief is that the U-HAUL fleet, which makes up 76% of AMERCO revenues, is "unencumbered, and thus, there is likely value in the corporate entity," notes researcher Darrell Wheeler. Although AMERCO was unable to restructure its debt outstanding with a $275 million unsecured bond offering it has no availability on a $205 million credit facility, Wheeler sees the event of a bankruptcy as unlikely, at least in the near term.

The previously strong credit ratings of AMERCO - Baa1/BBB- at the time of issue - led to many CMBS transactions with high concentrations of U-HAUL exposure. Most of the transactions were sold in 2000, 2001 and 2002. Deals with exposure include some of the benchmark issuers in the market, notably LBUBS (01-C3, 02-C4), FUNB (00-C1, 00-C2, 01-C3, 01-C2) and MLMT (00-CA4, 02-MW1). Also with exposure is the DLJCM 1999-CG2, BACMS 00-WF2 and TIAA 02-4 CMBS trades.

As for the down-in-credit tranches of the transactions, there is some downgrade risk, but the full impact will not be clear unless (or if) a bankruptcy plan is presented and loan liquidation scenarios can be calculated. As has been proven by following the Budget Group Inc. bankruptcy saga, the real estate should retain its value, Salomon notes.

"Whether AMERCO or others own the real estate is unlikely to play a large role in causing a loan default or any potential overall value recovery. We expect that the property network would have significant value to a well-capitalized operator. Thus, we expect that many of these self-storage locations would continue to make debt service payments through any bankruptcy of U-Haul."

There is still one more hurdle for AMERCO and U-Haul to clear, $150 million of maturing debt due in March 2003. As this payment approaches, Salomon theorizes further widening should arise across the credit curve, presenting the buy opportunity to CMBS investors.

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