Opinion
BK-03-52103-GWZ, BK-03-52790-GWZ, Jointly Administered under BK-03-52103-GWZ.
April 28, 2004
Craig D. Hansen (AZ Bar No. 007405), Sean T. Cork (CA Bar No. 211963), Thomas J. Salerno (AZ Bar No. 007492), SQUIRE, SANDERS DEMPSEY L.L.P., Phoenix, Arizona, Attorneys for Reorganized AMERCO and Reorganized AREC.
Bruce T. Beesley (NV Bar No. 1164), Bridget P. Peck (NV Bar No. 3143), BEESLEY, PECK MATTEONI, LTD, Reno, Nevada, Co-Counsel for Reorganizaed AMERCO and Reorganized AREC.
Upon the motion dated March 31, 2004 (the "Motion"), of the above-captioned reorganized debtors and reorganized debtors-in-possession (the "Reorganized Debtors"), for entry of an order, under sections 105 and 1142 of the United States Bankruptcy Code, 11 U.S.C. § 101-1330 (the "Bankruptcy Code") authorizing the Reorganized Debtors to close a transaction for the sale of certain real property by AREC and U-Haul International, Inc. ( "U-Haul", and, collectively with AREC, the "Sellers") to UH Storage (DE) Limited Partnership, as purchaser (the "Purchaser"). The Reorganized Debtors are seeking authorization to close this transaction to aid in the implementation of the confirmed First Amended Joint Plan of Reorganization (the "Plan").
The material terms of the Carey Sale Transaction are contained in the: (i) Purchase and Sale Agreement dated as of February 20, 2004, between the Sellers and the Purchaser (the "Agreement"), which is attached to the Motion as Exhibit "A"; (ii) the Lease Agreement by and between UH Storage (DE) Limited Partnership as Landlord and U-Haul Moving Partners, Inc. as Tenant (the "U-Haul Lease"), which is attached to the Motion as Exhibit "B"; (iii) the Lease Agreement by and between UH Storage (DE) Limited Partnership as Landlord and Mercury Partners Limited Partnership as Tenant (the "Mercury Lease"), which is attached to the Motion as Exhibit "C"; (iv) the Property Management Agreement by and between Mercury Partners LP, Mercury 99 LLC and U-Haul Self-Storage Management (WPC), Inc. (the "Management Agreement"), which is attached to the Motion as Exhibit "D"; and (v) the Guaranty and Suretyship Agreement by and between U-Haul International, Inc. as Guarantor and UH Storage (DE) Limited Partnership as Landlord (the "Guaranty"), which is attached to the Motion as Exhibit "E". The Documents attached to the Motion as Exhibits A through E shall hereinafter be identified as the "Transaction Documents."
On April 28, 2004, the Court held a hearing (the "Hearing") to consider approval of the Motion. In preparation for the Hearing, the Court reviewed: (a) the Motion; (b) all of the Transaction Documents attached to the Motion as Exhibits; (c) theDeclaration of Robert Peterson, Assistant Treasurer of Reorganized Debtors, in Support of Carey Sale Transaction (the "Peterson Declaration"), which is attached to the Motion as Exhibit "F"; and (d) the Declaration of Richard M. Williamson, Regional Managing Director of Alvarez Marsal, Inc., in Support of Carey Sale Transaction (the "Williamson Declaration"), which is attached to the Motion as Exhibit "G". Based upon the Court's review of the above-described documents, and upon the arguments of counsel made at the Hearing, THE COURT FINDS AND CONCLUDES THAT:
A. Jurisdiction and Venue. The Court has jurisdiction over the matters raised in the Motion under 28 U.S.C. § 157 and 1334, and under the retention of jurisdiction provisions of Article XIII of the Plan, as amended by Paragraph 52 of the Confirmation Order (as defined below). Venue of this matter is proper pursuant to 28 U.S.C. § 1408 and 1409.
B. Core Proceeding. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
C. Confirmation of Plan. On February 20, 2004, the Court entered an order (the "Confirmation Order") (Docket No. 796) confirming the Plan. The Plan became effective on March 15, 2004 (the "Effective Date").
D. Secured Claims of Citibank and BMO. The confirmed Plan separately classifies the claims of Citibank, N.A. ( "Citibank") and Bank of Montreal ( "BMO") arising in connection with certain synthetic lease facilities (the "Synthetic Leases"). The Synthetic Leases are arrangements in which AREC and (in one instance) U-Haul lease real property from independent third parties (the "Lessors") for use in the operation of self-storage facilities. Due to certain provisions in the underlying agreements governing the Synthetic Leases, the claims of Citibank and BMO against AREC were treated as secured claims for the purposes of the Chapter 11 cases.
E. Synthetic Leases. Citibank serves as agent for a group of lenders to the Lessors under the first Synthetic Lease (the "Citibank Synthetic Lease"), and BMO serves as administrative agent for a group of lenders to the Lessors under the second Synthetic Lease (the "BMO Synthetic Lease"). AREC is the sole lessee under the Citibank Synthetic Lease. AREC and U-Haul are joint lessees under the BMO Synthetic Lease.
F. Synthetic Lease Properties. AREC leases approximately 30 properties under the Citibank Synthetic Lease (collectively, the "Citibank Properties"), which are operated as U-Haul self-storage centers under a management agreement between AREC and U-Haul. AREC and U-Haul jointly lease approximately 47 properties under the BMO Synthetic Lease (collectively, the "BMO Properties", and, together with the Citibank Properties, the "Properties"), which are also operated as U-Haul self-storage centers. AMERCO has guaranteed the obligations of AREC and U-Haul under the Synthetic Leases.
G. Plan Treatment of Secured Claims of Citibank and BMO. The Plan, as amended by the Confirmation Order, provides two alternative treatments for satisfying the claims of Citibank and BMO in connection with the Synthetic Leases. The two treatments were: (i) closing a transaction arranged by W.P. Carey Co., LLC ( "W.P. Carey") for the Purchaser to purchase the Properties with the proceeds used by the Debtors to pay the claims of Citibank and BMO in full (the "Carey Sale Transaction"); and (ii) execution of restated master lease agreements with Citibank and BMO to extend the term of the Synthetic Leases by seven years. The Confirmation Order also provides that the claims of Citibank and BMO may be satisfied under the second alternative identified above. In that regard, the Confirmation Order also provides that the Court retains jurisdiction to approve the Carey Sale Transaction following the Effective Date, as part of the further implementation of the Plan.
H. Stipulations as to Value of Properties. The Reorganized Debtors, Citibank and BMO have previously stipulated, for the purposes of confirmation of the Plan, to the value of the Properties, and such stipulated values have been approved by the Court. In the "Stipulation as to the Value of the Citibank Collateral" (the "Citibank Stipulation") (Docket No. 766), the Debtors and Citibank stipulated that the value of the Citibank Properties is $116,000,000. In the "Stipulation as to the Value of the BMO Properties (the "BMO Stipulation") (Docket No. 767), the Debtors and BMO stipulated that the value of the BMO Properties is $169,177,750. Thus, the combined, stipulated value of the Properties is $285,177,750.
I. Sale of Properties. The Carey Sale Transaction, as set forth in the Transaction Documents, contemplates that Reorganized AREC and U-Haul will exercise their rights under the Synthetic Leases to cause Citibank and BMO to convey the Properties to the Purchaser. The Citibank Synthetic Lease is to be terminated and the Citibank Properties subject thereto will be conveyed to the Purchaser pursuant to and in accordance with that certain Master Termination Agreement (the "Citibank Termination Agreement") dated as of March 31, 2004, by and among AREC, AMERCO, BMO Global Capital Solutions, Inc., certain financial institutions party thereto, Citicorp USA, Inc., Charta Corporation, Self/Storage Funding Company, LLC, Citibank, N.A., Citicorp North America, Inc., Bank One, Arizona, N.A. and Lord Securities Corporation. The BMO Synthetic Lease is to be terminated and the BMO Properties subject thereto will be conveyed to the Purchaser pursuant to and in accordance with that certain Master Termination Agreement (the "BMO Termination Agreement", and, together with the Citibank Termination Agreement, the "Termination Agreements") dated as of March 31, 2004, by and among AREC, AMERCO, U-Haul, BMO Global Capital Solutions, Inc., and Bank of Montreal. After acquiring the Properties, the Purchaser shall execute the U-Haul Lease and the Mercury Lease.
J. Property Sold. The Agreement provides that the Purchaser will purchase all right, title and interest in: (a) the land constituting the Properties; (b) buildings and improvements (excluding such items not owned by Sellers); (c) fixtures, furniture and equipment attached to or located on the Properties; (d) warranties, guarantees, indemnities, licenses, permits, certificates of occupancy, plans, drawings, specifications and similar documents that relate to or affect the design, construction, ownership, use, occupancy, leasing, maintenance, service or operation of the land; (e) all right, title and interest of Sellers, BMO and Citibank in any real property appurtenant to the Properties and improvements thereon; and (f) all right, title and interest of the Sellers in and to any purchase options and rights of first refusal to purchase any land and improvements adjacent to the Properties.
K. Purchase Price. Upon the closing of the sale, Purchaser is obligated to pay to Sellers in readily available funds $312,445,024 (the "Purchase Price"). The Purchase Price shall be allocated as follows: (i) $298,385,000 shall be paid to Sellers, which funds shall be used in part to satisfy the outstanding amounts due under the Synthetic Leases in accordance with the Termination Agreements; and (ii) $14,060,024 (the "Acquisition Fee"), shall be paid to W.P. Carey as a fee.
L. U-Haul Lease. Under the Carey Sale Transaction, the U-Haul Lease will be executed by and between the Purchaser and U-Haul Moving Partners, Inc., a wholly-owned subsidiary of U-Haul (the "U-Haul Tenant"). Under the U-Haul Lease, the Purchaser will lease the truck rental and moving portion of the Properties to the U-Haul Tenant (the "U-Haul Leased Premises").
M. Mercury Lease. Under the Carey Sale Transaction, as set forth in the Transaction Documents, the Mercury Lease will be executed by and between the Purchaser and Mercury Partners LP (the "Mercury Tenant"), a special purpose entity controlled by Mark Shoen, who is an insider of the Debtors. Under the Mercury Lease, the Purchaser will lease the self-storage portion of the Properties to the Mercury Tenant (the "Mercury Leased Premises").
N. Purchase Option. The Mercury Lease provides that the Mercury Tenant shall have the option to purchase the Properties, based upon a formula tied to the fair market value of the Properties, at points approximately ten years and twenty years after the Mercury Lease is executed. The U-Haul Tenant does not have a similar purchase option.
O. Management Agreement. The Agreement, the U-Haul Lease and the Mercury Lease contemplate that the Mercury Tenant shall enter into a management agreement (the "Management Agreement") with U-Haul Self-Storage Management (WPC), Inc., a subsidiary of U-Haul (the "U-Haul Manager"), under which U-Haul will earn a market fee to manage the Properties covered by the Mercury Lease as self-storage facilities, at market rates.
P. Deposits. The U-Haul Tenant will post a security deposit with WP Carey in a total aggregate amount of $5,000,000. In addition, the U-Haul Tenant shall deposit $23,250,000, which shall be segregated from the Purchase Price as an earn-out deposit (the "Earnout Deposit") to secure the performance of the U-Haul Tenant under the U-Haul Lease. The U-Haul Lease provides that, so long as no event of default has occurred under the U-Haul Lease, U-Haul shall be entitled to a return of the Earnout Deposit provided that there has been achieved and maintained for the immediately preceding twelve month period a net operating income with respect to all the leased Properties equal to or exceeding 115% of the basic rent payable under both Leases. The Mercury Tenant has no right to receive any portion of the Earnout Deposit
Q. Guaranty. The Agreement provides that U-Haul will guarantee the obligations of the U-Haul Tenant under the U-Haul Lease. Neither U-Haul nor the Reorganized Debtors will guaranty the obligations of the Mercury Tenant under the Mercury Lease.
R. Cash Consideration. As set forth in the Williamson Declaration, the expected net Purchase Price proceeds to be received by Reorganized AMERCO under the Carey Sale Transaction equals $293.2 million. This amount exceeds the stipulated values of the Properties by approximately $8.2 million.
S. Consideration Fair and Reasonable. The consideration provided by the Purchaser for the Properties pursuant to the Agreement: (i) is fair and reasonable; (ii) is the highest and best offer for the Properties; and (iii) constitutes reasonably equivalent value and fair consideration under the Bankruptcy Code and under the laws of the United States, any state, territory or possession thereof, or the District of Columbia. The Agreement was not entered into for the purpose of hindering, delaying or defrauding creditors under the Bankruptcy Code or under the laws of the United States, any state, territory or possession thereof, or the District of Columbia.
T. Other Consideration. In addition to the consideration to be provided to the Reorganized Debtors and U-Haul through the Purchase Price, the Reorganized Debtors will receive additional potential benefits and consideration (the "Other Consideration") as a result of the Carey Sale Transaction. Specifically, as a result of the Carey Sale Transaction, the Reorganized Debtors will potentially receive the following Other Consideration:
a. Continuing ownership and control by U-Haul of non-storage related operations at all 78 Properties;
b. Off-balance sheet accounting treatment for the liability associated with the 78 Properties subject to the Carey Sale Transaction in accordance with GAAP;
c. Continuing participation in the upside of storage operations by U-Haul via a management agreement with performance based compensation escalation provisions (4% — 10% of storage revenue based on property performance); and
d. Reduced risk of refinancing due to the extended term of the Carey Sale Transaction.
e. Improved access to lease markets because this transaction cashes out banks who otherwise prefer to not be in the synthetic lease alternative.
U. Disclosure of Insider Status and Board Approval. The Reorganized Debtors have affirmatively disclosed to the Reorganized Debtors' financial advisor Alvarez Marsal, Inc. ( "AM"), to the Executive Finance Committee (the "EFC") of the Board of Directors of Reorganized AMERCO (the "Board"), to the Board, and to parties in interest that have received notice of the Motion and the relief requested therein, that the Mercury Tenant is controlled by Mark Shoen, who is an insider of the Reorganized Debtors. The Board has unanimously approved the Carey Sale Transaction and such approval constitutes a legitimate and proper exercise of business judgment.
V. Purpose of Insider Involvement. The Reorganized Debtors have also affirmatively disclosed to AM, the EFC, and to all parties in interest that have received notice of the Motion, that the participation of the Mercury Tenant in the Carey Sale Transaction is intended to facilitate obtaining off-balance sheet treatment of the liabilities underlying the Carey Sale Transaction in accordance with generally accepted accounting principles ( "GAAP").
W. Accounting Treatment. BDO Seidman, the Reorganized Debtors' auditor, has advised the Reorganized Debtors that the U-Haul Lease and the Mercury Lease each is entitled to off-balance sheet treatment under GAAP.
X. Insiders Not to Receive Purchase Price Proceeds. The Transaction Documents provide that neither the Mercury Tenant nor Mark Shoen are entitled to receive any portion of the Purchase Price paid to the Reorganized Debtors and U-Haul under the Carey Sale Transaction.
Y. W.P. Carey Not an Insider. None of the Reorganized Debtors, the Mercury Tenant or any of their affiliates are insiders of, or otherwise affiliated with, W.P. Carey.
Z. U-Haul Lease and Mercury Lease Not Financing Leases. Nothwithstanding anything contained in these Findings of Fact and Conclusions of Law to the contrary, the Court finds that the U-Haul Lease and the Mercury Lease are operating leases, and not capital or financing leases. Nothing contained herein or in the Court's Order approving the Carey Sale Transaction shall be construed as characterizing the U-Haul Lease and Mercury Lease as anything other than operating leases.
AA. Good Faith Negotiations. The Reorganized Debtors, W.P. Carey and the Mercury Tenant have acted in good faith throughout the negotiation, documentation and consummation of the Carey Sale Transaction. The Transaction Documents were negotiated at arms' length and in good faith. The negotiations among the Reorganized Debtors, the Mercury Tenant and W.P. Carey to facilitate the Carey Sale Transaction, particularly the prospect of obtaining off balance sheet treatment of certain liabilities, have been conducted in good faith and at arms' length.
BB. Good Faith Purchaser. The Purchaser is a good faith purchaser under section 363(m) of the Bankruptcy Code and, as such, is entitled to all of the protections afforded thereby. The Purchaser has at all times acted in good faith and will continue to be acting in good faith within the meaning of section 363(m) of the Bankruptcy Code in closing the transactions contemplated by the Agreement and at all times after the entry of this Order.
CC. Implementation of Plan. Approval of the Carey Sale Transaction is necessary for the further implementation of the confirmed Plan under § 1142 of the Bankruptcy Code.
DD. Purchaser Not a Successor-in-Interest. The Purchaser is only a purchaser of the Assets and is not a successor in interest to the Sellers, nor does the Purchaser's purchase of the Assets constitute a de facto merger or consolidation of the Sellers and the Purchaser, or a substantial continuity of the operations of the Seller's business. Accordingly, except as otherwise specifically and expressly provided in the Agreement and other Transaction Documents, transfer of the Assets to the Purchaser will not subject the Purchaser to any liability whatsoever with respect to the operation of the Seller's business before the Closing Date based, entirely or partly, directly or indirectly, on any theory of law or equity including without limitation any theory of antitrust or successor or transferee liability.
EE. Oral Findings Incorporated. All oral findings of fact and conclusions of law entered by the Court at the Confirmation Hearing are incorporated herein by this reference, in accordance with Bankruptcy Rule 7052(a).
FF. Notice. Proper, timely, adequate and sufficient notice of the Motion has been provided in accordance with Section 102(1) of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, 6006, 9014 and 9019, and in accordance with any applicable order of this Court.
GG. Publication of Notice. The Debtors published a notice of filing the Motion, the relief requested therein, and the date and time of the Hearing in the Wall Street Journal, National Edition, on April 5, 2004 and April 6, 2004, 2004, as evidenced by the Affidavit of Publication by the Wall Street Journal (Docket No. 863).
HH. No Further Notice Necessary. Adequate and proper notice of the Motion and the hearing thereon has been given and no other or further notice is necessary.
II. Objections. No objections to the relief requested in the Motion were filed with the Court. Those parties and entities that received timely notice of the Motion and the Hearing thereon that have not filed objections to the Motion are deemed to have waived their right to object to the Motion and the Carey Sale Transaction described therein.
JJ. Immediate Effectiveness of Order. Good and sufficient cause exists for the waiver of the 10 day stay of this Order's effectiveness pursuant to Bankruptcy Rule 6004(g). Time is of the essence in the occurrence of the closing of the Carey Sale Transaction, and the Reorganized Debtors and the Purchaser intend to close the Carey Sale Transaction as soon as practicable.
KK. Cause for Relief Shown. The relief requested in the Motion is in the best interest of the Reorganized Debtors, their estates, their creditors, and other parties-in-interest, and good and sufficient cause exists for the granting of the relief requested in the Motion as set forth herein. Therefore,