Delving Further Into Uhaul Investors Club–Corrected and Reposted.

RetiredBroker asked a great question earlier about the Uhaul Investors Club collateral and I wanted to get a note out to make sure we are clear on some important details.

The important detail – whether it is a small detail or a larger detail just depends on you the investor-is that the notes that Uhaul (Amerco) sells ARE guaranteed by the parent holding company Amerco (Uhaul)

It is noted that the notes ARE NOT guaranteed by the wholly owned subsidiary Uhaul.

Since Amerco holds 100% of Uhaul I am not certain that the lack of guarantee by subsidiary Uhaul makes any difference as long as the parent backs the notes.

So what you have is the secured property as collateral for the notes–and further backing the collateral is the holding company Amerco guarantee.

So this all means one should review the quarterly and annual reports of Amerco (Uhaul) if you are a holder of any of their notes.

We have a page devoted to the Uhaul Investors Club where we will add our information.

Thanks to RetiredBroker for asking the initial question on this topic thus stimulating a little deeper dive into the details.

Also to others who caught my errors and got things pointed in the right direction–Max and others.

22 thoughts on “Delving Further Into Uhaul Investors Club–Corrected and Reposted.”

  1. With today’s new listing of notes UIC has dropped the interest rate on the 5 year notes to 3.25% from 3.75%.

    1. Gary A–Just like everything else they are going to force us into more risk (longer maturities)–I guess I can’t blame them, but I don’t like it.

      1. Agreed Tim. I just couldn’t quite bring myself to jump into the 5 year note this week at 3.25%. I may feel different in a few days. So, this weeks investment I put into the 2 year note albeit at 2.5%.

        Just now looking at a beautiful sunrise here in the great Northwest. (No rain, ha)

    2. So far even wit this pandemic they have been paying right on time with no delay that I can see on what they owe me. Right now 4% on a 8 year note down along with everything else.

    3. Just wanted to inform so far Uhaul interest, has been payed exactly on time. The Covid-19 does not have seemed to effect the 3 month pay outs. Nothing has been late or delayed so far.

  2. Thanks for the update Tim, I’ve been investing with UIC since Andrew Bary mentioned them in a Barron’s article back in 2016. Just a couple of comments:
    1) Gridbird posted a great link to an article last year in Barron’s and the Shoen family does own about 20% of the notes. Thanks for posting this for readers new to this investment idea.
    2) The investment is not very liquid and you have to hold the note until maturity, but payments of principle and interest are made on a quarterly basis – so it is not like a corporate bond. However, the company has an option to redeem at the notes at ANY time.
    3) As for me, I generally hold notes in their real estate investments. While this is a much longer term investment, rates are much higher. PLUS, the real estate notes are backed by a first lien on the property AND a corporate guarantee. So, I consider the real estate notes pretty secure and I normally do an online property search before investing.
    4) For older investors, a 20 year note (or longer) may not be appropriate. However, I’m 50 years old and consider the notes kind of like an “annuity.”

    At the present time, I have well over 100k with their real estate notes, earning interest at a rate of about 7%. Much of this is in my IRA account. It should be noted they are reducing interest rates now due to market conditions. My older purchases were paying 6.95% on 20 year real estate loans and the current rate on their new 20 year note is only 6%.

    Hope this additional information is helpful to new investors.

    1. “However, the company has an option to redeem at the notes at ANY time…My older purchases were paying 6.95% on 20 year real estate loans and the current rate on their new 20 year note is only 6%.”

      How often do they call notes? Are they calling the 6.95% notes?

      Even 6% is very good for what I’m assuming is equivalent to like a BBB+ credit or better.

      1. Landlord Investor – in my almost 4 years with the program, I only recall them calling one of the notes – but I cannot remember the specific note or the reason for the call. None of my notes have been called in the past. It could have been a sale of one of their properties, as they sometimes like to upgrade locations. However, this has been one of my best investments in a past couple of years with stable values, great earnings and basically a first-lien mortgage on the properties with also a corporate guarantee. It does not get much better than that for me.

        1. Thanks. What’s the typical loan to value ratio on the real estate backed notes?

          Also, in an event of default how easy would it be to sell the note to someone who can foreclose on the property or are you stuck trying to do that yourself?

          1. Landlord – there is no typical loan value as it varies by property, but when a real estate offering is listed, I try to search the county tax records to determine if I can find the assessed value of the property. However, assessed value does not equate to fair market value. In a few states, they do actually list the fair market value of the property (which of course is really just an estimate).

            In regards to a default on the loan, this would basically mean that UHAL had filed for bankruptcy and then it would appear that I would be a secured creditor with a first-lien on one of their real estate properties. While I believe you can try to sell your notes to another investor (if they are not held in a retirement account), I’ve never tried this process.

            These notes are not for all investors and it is my opinion that anyone buying the notes should be prepared to hold them to maturity. Investors that are age 60+ probably will want to avoid some of the longer-term notes.

    2. Kap
      Im 68 so I took a 7 or 10 year note. I prefer 7 at my age I don’t want to die with them holding my money. But as you posted so far so good with them.
      Thanks
      Max

      1. Max – at your age, I certainly understand your decision. It should work out fine for you. I’m just 50 years old, so I have no problem holding the longer term notes. Because the notes are longer term, I try to disclose my age – as I don’t think the longer term notes are appropriate for people age 60+.

        1. kaptain lou, Not clear as to why you feel the notes are not appropriate for 60+. Heck, plenty of 60+ folks buy annuities that are meant cover the same or more time and are just as illiquid. We’ve made res loans before and while I’ve wanted to see them to 5 or 7 year balloon terms, it had more to do with IR risk than liquidity risk. If I could throw our whole equation into say a super-safe 7% bucket, we’d be done. Especially if it were amortizing, meaning we’d be re-investing along the away.

          1. alpha – Guess I am just conservative on the issue of putting money into a 20 year program with people over 60, so it was really just my opinion, but you do make an excellent point. Happy investing and I wish you the best!

  3. Thanks for the update Tim. I have been buying a slice of the 5 year notes each week and now have a very tall 44 rung ladder. Kind of fun!

    1. Gary A–yes the guarantee is not important to me as I stay short–2 and 5 year, but it is to some. I have a very tall ladder also–mostly because of the way I make deposits–500 here, 1000 there, but with new money only it is now in the mid 20,000’s. Have a good weekend

  4. Tim,
    From their web site what does this mean

    “Full-Recourse Obligation” means that AMERCO® (the issuer) is required to repay you the full amount of principal and interest owed. Your recovery is not limited to the value of the collateral securing your U-Note®, as would be the case in a limited-recourse or non-recourse scenario. The collateral provides you with a security interest and lien on the specified asset(s) you select with your investment, and the full recourse nature of the U-Note® means that AMERCO® is required to repay you in full. View our prospectus and prospectus supplements and all terms and conditions for details on the risks of investing with U-Haul Investors Club®.”

    1. Max–I found it. Now we have to reconcile with this statement with that terminology in the actual prospectus.

    2. Max, I was under the same impression. Im not invested in it, but researched it.
      And this Barrons article supports what you are saying. Interestingly did you notice the founding Shoen family actually own a quarter of the Investors Club debt themselves (article was early 2019).
      While Amerco pays a low dividend, it does offer investors the opportunity to buy debt securities backed by a corporate guarantee and specific equipment—including trucks and even utility dollies—through the U-Haul Investors Club. The yields on these U-Haul notes range from 3% on two-year securities to 6.5% on 30-year ones, and the investment minimum is just $100. There is $80 million of this debt outstanding—including more than $20 million from the Shoen family. One negative is a lack of liquidity. Investors should be prepared to hold the debt until maturity.

      https://www.barrons.com/articles/stock-of-u-haul-parent-is-one-of-the-markets-better-kept-secrets-time-to-buy-51568419203

      1. Gridbird,
        Yes Im no attorney or expert but after reading this on the front page of Uhaul Investors, and reading the prospectus . My impression was first you. have a first lien on the equipment you are financing. Second after that Amerco is required to pay the difference. I did not not know the Schoen’s owned a quarter of the U haul investor club. But as you say once you commit there is no selling or trading. But they do reserve the right to call in the notes at anytime. It seems this is a way the can finance without going through the rigors of bank red tape.

        1. I was curious about the Uhaul investing club, so I did a little reading in their documents while I was on a long plane ride with a seatmate who kept staring at my screen, so I couldn’t do real work.

          I apologize in advance (1) for the length of this, and (2) if this sounds overly negative. It isn’t meant to be – just my thoughts from a quick read on a bumpy flight. I don’t claim to have complete info or to have done thorough analysis, so if anyone has a better view of these issues, I would love to hear about it. I really am hoping this will spark some discussion.

          A few things jump out at me:

          1. When a lender buys into a note that is secured by collateral, how does the lender know *which* collateral is associated with that note? In the case of real estate, that may be fairly straight forward (I didn’t look at real estate offerings at all), but for things like moving pads, or dollies, I didn’t see an obligation for AMERCO to mark or track the collateral. Even for trailers (which I would think at least have some kind of serial or license number), I don’t see a list of units that are linked to any particular note. If a lender’s claim for repayment is supposed to be secured by the collateral, I would think the lender would want to be able to identify that collateral.

          2. If there is a default, it’s not clear how a lender would perfect a claim against specific collateral. There doesn’t seem to be any limit on AMERCO moving the collateral all around the country (which is the nature of Uhaul’s business). If the collateral isn’t marked or tracked, how does a lender even know where to find/file against the collateral? In theory, a lender may have claims against collateral in all 50 states – so how does a lender manage that? It might be a very tedious, expensive process to try to recover against a lot of relatively low value items.

          3. It looks like the values for at least some of collateral are pretty arbitrary. It looks like moving pads are valued at about $3 ($2.5M/771K pads). When I looked at a set of trailers for a current financing, all of the trailers (purchased in 2002-2009) are valued at $1200 each, regardless of condition. Not clear to me that 11-18 year old trailers are worth that much, but I haven’t done any further diligence.

          [One other thing seems odd about these trailers– why are they only borrowing against ancient trailers? I have to believe they are constantly buying trailers. Why aren’t the new ones included? Are they financing the new ones using other channels? It makes me wonder whether they only move them into “lenders club” when the trailers are so old that they can no longer be financed through more traditional channels. It is also possible that they are being financed elsewhere or perhaps this is just my suspicious nature. ]

          4. It seems to me that if there were a default, it would take a long time to identify and execute against the collateral, so it could be a long time (years?) until a lender received anything from the sale of the collateral. It has been decades since I was involved in a default of secured debt, but IIRC, the lender first has to recover against the collateral before it can file against the debtor for the rest of the debt (i.e. lender can’t claim for a shortfall until its amount is certain). So, although AMERCO is liable for the value of the note, the lender may not be able to claim against them until the claims against the collateral is exhausted (I may be wrong about this – working from VERY old memory).

          5. AMERCO is clear that if the value of the collateral is not sufficient to cover the amount of the debt to a lender in a default situation, the lender may have a claim against AMERCO for the deficiency, but that claim would only be on par with all other unsecured claims against AMERCO (meaning, it appears, that the lender would be at the “back of the line” for the deficiency). In my experience, such claims rarely recover anything in a default.

          6. With that all in mind, it seems that these “lender club” notes might be best thought of as essentially unsecured notes from AMERCO. So long as AMERCO is operating and paying, things should be OK. Beyond that, the notes are nominally secured by collateral, but if they were to go into a default, I don’t see (practically) how a lender would identify collateral or execute against it (again, leaving real estate aside). Moreover, if the collateral actually could be identified and sold, the ultimate recovery from the value of the collateral would likely not cover the full amount owed, so the shortfall would seem to be only an unsecured claim. So, it may be best to think of the total value of these notes as unsecured, with a very complex system to make a claim if there is a default.

          So, the lending club may still be a good investment, but it appears that the “security” features may not be worth very much.

          This has been an interesting exercise. If the security of the collateral is as weak as it appears to be from my quick read, then it looks like AMERCO has a great thing going. They have created a way to borrow at rates (2.5% for 2 years, up to 4.5% for 8 years – close to CD rates) they would not be able to get for debt that had to be marketed as “unsecured” (with their credit ratings, I suspect they would be paying multiples of those rates). To get those rates, all they gave up was collateral interests in items that appear to me to be of questionable value (very old trailers) or against which a lender would have little practical hope of ever recovering in a default (moving pads and dollies).
          Quite an elegant solution for a marginal borrower!
          They would likely have never have been able to get a traditional lender to go for these kinds of rates with that kind of collateral, but they have successfully gotten individuals to go along with it.

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