Open Items Call: SuperCo M&A Update & Insurance Renewal Planning

JD, shall we wait for James and Katie?

Yeah, let's give them a minute. I think they are planning on jumping on.

Okay, sounds good.

Sorry, I'm the only one that can be punctual to these meetings, but what are you gonna do?

The clients can be late. You guys can do whatever you want. Hi, Katie. Hi. And it looks like we have James now.

Awesome.

Hello.

Look at that.

Hello. In exchange for you joining our open items call, we have a very short list for today on our side, at least.

Terrific.

Are you ready to jump in?

Ready.

Is Katie on?

Yes.

Hi, Katie.

Hello.

Hi.

All right, so number 1, M&A activity, how is it going with SuperCo?

Moving along. Um, we are more or less just dancing around valuation concepts, um, but we hope to bring this to a head kind of in the next week, week and a half or so. At least that's what we kind of spoke about last Friday.

Okay. When, uh, do you— as part of that process, do you think in the coming week we'll start seeing more of the due diligence type of requests or information that we requested, or what does that mean to you?

You know, even hearing myself say that timeline out loud I just, I think a most likely timeline is in the next week, week and a half, we kick off like the really final valuation fight in earnest. And then with that coming to a close, I would say there's a substantive conversation around diligence that forms in parallel, at which point we would plan to grab document request lists and get those moving. So I would say probably by the next phone call, the next open item call, if before then we should be in some form of like diligence. JD, do you think otherwise?

Yeah, I think that I was going to say a week timeline is a bit aggressive, but hopefully in a month we'll have, yeah, more direction.

Hey, I caught myself at least this time.

And JD, are you still comfortable with the extremely raw estimates that we pulled together?

Oh yeah, that's been very helpful in just giving us the color on the insurance savings. So thank you again for that.

Okay, cool.

The last time we had chatted too, I think you guys were still up in the air if you'd be bringing in a capital partner on this. Has anything changed there?

Not at this time.

The—

I'm possibly flying out to L.A. next week to go meet with an investment bank, but it would be less from a capital markets perspective and more from like just a make this thing go faster perspective. But on the insurance side, we took the kind of range and adjusted it down. So I think just in the interest of being as conservative as possible on this, we went with like a $750,000 or $800,000 range of savings, like $800,000 to $1.2 million.

Yeah.

So that we're not committing to a hard and fast number, not knowing what we don't know. In all of this.

Okay, awesome. Well, standing by. I personally love going through diligence on the insurance side, so I'm happy to dig in when more is available. And fingers crossed for you all.

Thank you.

I'm going to ask just to make sure, but are there any other deals in the pipeline right now?

Not at this time.

Okay, cool.

But you make me feel like I'm doing a bad job when you ask that question. So just for that, I'm going to go find one and cram it down.

Well, knowing you, I don't know. Supercode, to be fair, is like doing—

You make me feel boring when you ask that question.

Look at it that way. No, you're basically acquiring 3 different companies all at the same time, right? You can look at it that way. Yeah, it's massive.

Yeah.

All right. Past due invoices. We only have 2 in our system right now and they balance out at $145. So I'm looking into what is going on there. So I think we're in good shape. Thank you so much, JD.

$145.

All right.

That's pretty good. Yeah, I have the work—

but they will be terminating services if we don't have that.

Subtle by the end of the day. At the end of the day, no. For the work comp review, if this is still something you wanted to talk about, we're happy to, otherwise I can take it off the list.

We should do it.

Yeah.

Hey, can y'all pull their Xmod?

I'm not sure because they're outside of California. Well, where are they based? They would have separate ones for California versus the other states.

The California piece is going to be the most substantive because they've got like 4 employees, maybe 2 employees in New York and maybe 5 or 6 in Georgia. So the remaining 280 would be here.

I think there's a way to check on— do you know which entity they use for employment in California?

Would it roll up to a consolidating entity if it was all com— a known ownership?

If they're doing it super clean, then yes, but if not, it might be under just the employing entity.

You can track their publicly traded company with a ton of risk, like with a giant risk department, and they speak to doing things very cleanly. So JD, can you pull up that org chart? I think one of them is maybe Hudson Pacific Services.

Pull it up right now.

And then the other one would be what, Coyote Holdings LLC?

Yeah, I'll poke around and see if I can find those.

Here it is right here. Sorry. James, which one are we looking at?

It would consolidate into Sunset Production Services Holdings up here. Yeah, I guess it could theoretically consolidate above, but no, because that's where all of their What's the entity above that? That's Pacific Services, Inc. It's one of those two, because the one above that is going to be where they stash all of the, like, property management and leasing people, which they would obviously have an XMOD for that as well. But I think, yeah, it would probably consolidate up into that or Sunset Coyote Holdings. And SunTek Holdings. But Rachel, one thing to note, and I feel pretty— I shouldn't say confident— I feel like we should be able to get away with not more or less blending X-Mods here because we will of the 280 people employed, we might only pull, I don't know, maybe less than 25 over, and the likely post-transaction ownership percentage would be, you know, 20% or under. So not an insurable interest and/or not something that could like really demonstrate exerting control over the post-transaction operating entity.

I agree with you at first blush. I don't think that sounds like it'll meet the threshold for their experience to follow.

It's probably Hudson Pacific Properties. Sorry, Hudson Pacific Properties, 11601 Wilshire Boulevard. Would that be it?

That would be one of the parents. I mean, that's where their HQ is. But that's it. They have a Maryland, like, parent. And then they've got, like any private equity firm, kind of like the op co and then the management co and all that stuff, which I think is what this Hudson Pacific Services Inc. is.

Got it. Yeah. 2 mods. I mean, this is pulling New Jersey, but they're both 0.94 and 0.93 the last 2 years. That was when I searched under Kiyoti. I didn't search Sunset.

That tracks.

I'm sure. I'm sure that we could piece it together.

That would be accurate. The New Jersey pieces.

Okay.

Well, it's a good start. 93 and 94.

Yeah, it's better than what the blended Xmod was when we put Avon or Silverco and HDR together. That was a bummer. We were at like 0.69 and they were at like 0.18, and then I think blended we ended at like 1.2 something. Katie, what are we at now?

I'm so sorry, what are we at now? I just, I zoned out.

What is our X mod? What's our X mod now?

I'm logged into whiteboard right now. We are at— give me a second.

All right, JD, you can take this down.

Okay.

We spoke— it sounded like HD—

I think HDR is at 180 and Silverco is at 120, but that could be wrong. That's just in my notes.

Had it been in January, it went down slightly. Just let me pull it up.

That's right, we got penalized for blending, but They are still on separate policies because I think it was AmTrust didn't wanna write to, didn't wanna write, what's it called? HDR. So we ended up in like a worst of both worlds situation. One of your classic worst of both worlds situations.

Is AmTrust the only market that Benchmark works with?

I don't know who Benchmark is, but—

sorry, Whiteward. Sorry.

Oh, no, I think that what AmTrust was the most cost effective. I think they would— I want to say they like Prior to that, Silverco was with State Fund, and the move to AmTrust saved, prior to the HDR merger, something like $10,000. So the company-wide premium was less than $50,000, um, for the year, which was great. And then we merged with HDR, and then the ex-mod doubled. And I want to say there's been some very minor claims since then, one of them frivolous. Um, was there anything we could do about it? Katie, is this accurate?

Yes, currently at 158. That's the projected for the year, but it did go down slightly.

For HDR or the blended?

That's the blended.

God damn it. All right.

And so you have the separate policies, are they still split dates too? So HDR is in August and Silver Coast in June?

To my knowledge, yes, that's correct.

Okay, I'm forwarding this to you guys right now.

Okay, sounds good, thanks.

Okay, so Rachel, was there something that we had not gotten you for This market study.

Yeah, I wanted to see what rates are in there so we can just give you some thoughts around marketing plans and if there's anything we can do to help to supplement what Whitewater is doing, we're happy to. Cool. I'll take a peek at what Katie's sharing. Thank you for that. And then the last thing was returning renewal applications. Katie kindly created a Google Drive with a bunch of stuff that we're downloading and reviewing, so we'll get back to you with any follow-up questions that we foresee from the markets. We are doing a full marketing effort this year, so as part of that, you'll probably see more underwriting Q&A as things heat up with alternatives, but we'll keep that as consolidated as we can over the next couple months. And I think the missing piece in there was the TPA loss run, AKA that Jeff.

Yes, and I did request him. No response yet. I'll follow up if he doesn't respond by, let's say, 2 o'clock today.

Okay. And then who's handling claims in the meantime since Jeff is no longer actively—

So he is back on as of mid-January. So he is back working on those things.

Okay, sweet. That's all we had on our side. Anything else?

Um, I guess just one kind of question around— anyone that needs to drop off can. But it's more a mechanical question of going through this renewal process. We have to go through this renewal process, but conservatively, if we're thinking about a, you know, Q— late Q2, Q3 kind of close on this, what does that look like mechanically? If, like, you put the— you place the policy, you bind all the policies, obviously, But then do you effectively go out and do a rebid? Structurally, we're thinking all new, surprise, structurally we're thinking all new opcos and entities, but trying to kind of clean up the amount of just like disregarded entities scattered around the, Katie, Randy from Burbank is calling me right now. The Burbank landlord, can you give him a shout?

Yeah.

Thank you.

So sorry, mechanically, how does that work? If we are setting up effectively new entities, we would have a majority We would have the majority, so the insurable interest in it, but the kind of risk of it would look a lot different. So is it an entirely separate marketing process following diligence?

So for the property and casualty side, I'll answer that, and then Elaine will talk about the management side because it may differ. Just to clarify before I start rolling there, would Avon Rental Holdings, our current top co, still be the top co, or is it just we're starting from scratch almost?

Yes, albeit through that daisy chain of drop cos. So if you have Avon Rental Holdings as possibly still— no, no way— possibly still majority interest in the whole thing, but TBD. Yeah, theoretically Avon Rental Holdings would flow, would have an insurable interest through MT, through SuperCo, DropCo.

Okay, so if we're keeping Avon Rental at the top, I'm just getting a visual here for us. Did that pop up on your side? Okay, there we go. If Avon Rental Holdings is still our top co, even if things are changing here, we'll need to talk through what's changing and see if we can get that kind of—

Nothing would change here. It would all change under MT. So everything under MT would get contributed or disregarded into a new drop co.

And would that new drop code be a JV of any kind, or is it still this kind of structure? Maybe it just looks—

it would be another instead of like— it would look almost identical except for Garrett Blutter would be, you know, Sunset Coyote Holdings LLC or whatever, whatever entity they designated to hold their rollover.

Okay, so from a structure standpoint, from what I'm hearing right now, I think we would be able to just update the insured names because our core ownership isn't changing and we'd still have Avon Rental Holdings at the top. We'd still need to report it and go through underwriting questions to make sure it's all fine, but from a structure standpoint, that should be like Ultimately, no worries. But on the other piece of it, with the exposure change that we're talking about, so if we add 800 units or what have you, that is something that I would try to work into our June 1st renewal date. And if we know that we're closing imminently, but we're not going to be done by June 1st, I might try to extend our current policies. By 30 or 60 days so that we can roll everything in together. And I say that for two main reasons: economies of scale with rate with that level of exposure growth, and B, if we renew June 1st, we'll have minimum premiums to consider on the property casualty policies that would inhibit us from just doing like a rebid for the whole group. So cancellation terms.

That makes a lot of sense.

Yeah, there's, there's a few layers to it that we'll work through to optimize what we do for '26 through '27. Does that make sense?

That makes a ton of sense. Yeah.

Elaine, anything different on your end? No, it'd be the same here. Okay. Same for management. Just as long as Avon Rental Holdings stays at the top, it should be fine with the carriers.

That's what I was thinking, is that's the same.

They're just going to be— yeah, they're just going to look at your revenue and your employee count. I would also say that right now, not that I'm trying to dictate your org structure, but just to outline why it's nice right now, having the asset owners and having clear delineations between auto rental versus production rental helps us with our policy structure and keeping things separated, gives underwriters a nice comfort level that they're not accidentally picking up any crossover. So if that's still part of the picture, that's amazing. If not, we might see more exclusions between the separate policies to avoid that crossover.

That's well heard. What I'm trying to achieve is one giant asset co and one op co, but the production rental piece would live in the op co as it does today with Hollywood Depot and the employees, whereas the vehicles and everything else would live in one giant asset co. That's likely not going to be achievable just because of What I would bet on would be tax situations, but the fracturing of that would likely occur only on the asset side. So conceptually, everything— what you're optimizing for is still possible. Um, but I think that it's a good goal that's shared. We would love to get rid of all of these different, like, fixed asset schedules and returns and those types of things where possible.

Got it. Okay. Well, for right now, we're just— we're full speed ahead with status quo, and as the winds change, just let us know and we'll—

Rachel, you make it sound so boring. Like, I hate status quo.

That we are going to go status quo because we took all these separate policies and entities, we got them on one date, with two carriers and now we're—

No, now we need to mix it up. It just sounds boring. Come on guys, let's spice it up.

Before you got on, Rachel was saying ever since you moved to Ohio, you've taken your foot off the gas, so.

It would hurt if it wasn't true. It's just like, laser-focused on elephant hunting this thing, and that will be the ultimate chaos bomb that I can throw at this.

Yeah, I think he's duct taped to the gas pedal, so. Well, cool. Thank you for the heads up. Let's see how it plays out.

For sure. JD, did we get the question answered on the D&O the other day?

Yes, we did. And I sent the form back with the right information.

Okay, cool. All righty, thanks guys.

Thank you.

Thanks, Rachel. Thanks, team.