USAuto Holdings

USAuto Holdings, Inc. was a privately held, Delaware-incorporated holding company for USAuto Insurance Company — a Tennessee-based retailer, servicer, and underwriter of non-standard automobile insurance, the market segment covering drivers standard carriers reject or price out. Liberté Investors, Inc. (NYSE: LBI) agreed to acquire it for $76 million in cash plus stock on December 15, 2003, and the merger closed April 30, 2004, creating First Acceptance Corporation.

The company

USAuto’s underwriting arm, USAuto Insurance Company, was organized in Tennessee in 1995, co-founded by Stephen J. Harrison. By the time of the 2003 deal the business traded through company-owned retail agencies under the “Acceptance” brand. The voting agreement tied to the merger identifies USAuto Holdings, Inc. as a Delaware corporation headquartered at 3813 Green Hills Village Drive, Nashville, Tennessee.

The business: retail, servicing, and underwriting

The prospectus’s “Business of USAuto” section describes a vertically integrated operation: USAuto acted as the agency, servicer, and underwriter of non-standard personal automobile insurance, selling exclusively through 114 company-owned retail offices in six states, staffed by employee-agents connected over a proprietary intranet — rather than through independent agents. Customers could start coverage with a down payment equal to one month’s premium, policies were issued at the point of sale, about 85% of customers paid at the offices, and the estimated policy renewal rate was about 30% — below the standard-carrier average. A single “Product Template” governed rates, rules, and forms across states.

USAuto began as an independent retail agency and took its current shape in October 1995, when it organized and capitalized USAuto Insurance Company, Inc. in Tennessee to underwrite for the 12 company-owned agencies then trading as “Harrison Brothers.” Its first move outside Tennessee came in November 1998, buying the “Acceptance Insurance” agencies based in Marietta, Georgia — 25 retail locations then, 53 by 2003, all new policies exclusively underwritten by USAuto subsidiaries. Under the Acceptance name it opened new locations in Alabama (September 2000), Mississippi (February 2001), Missouri (December 2001), and Ohio (June 2002); by September 30, 2003, it was transacting business as Acceptance in six states with 114 locations and 406 employees.

The typical customer, per the prospectus, sought non-standard coverage mainly from failure to maintain continuous coverage or the need for affordable monthly payments — “rather than for poor driving records.” The average six-month premium on policies in force was $750. The non-standard segment itself was about $30 billion as of December 31, 2002 — roughly 20% of the U.S. personal auto market — with the ten largest insurance groups accounting for about 70% of it.

Funding the deal

The $76 million cash portion was to be funded by a rights offering of about 12.5 million shares at $4.00 per share — roughly $50 million in aggregate proceeds — plus existing cash. Hunter’s Glen/Ford, Ltd. (Gerald J. Ford’s affiliate) agreed to subscribe its full pro rata amount and backstop the offering, buying any unsold shares at the same $4.00 price. The prospectus also confirms Thomas M. Harrison, Jr. (age 53) as USAuto’s Vice President and Secretary — the role the 2008 proxy repeats — rather than COO.

The 2003–2004 Liberté merger

On December 15, 2003, Liberté Investors announced a definitive merger agreement: it would acquire 100% of USAuto’s stock for $76 million in cash and 13.25 million newly issued Liberté shares, with up to 750,000 more shares payable if USAuto hit 2004 operating performance criteria. The cash was to be funded from a new equity issuance plus existing cash. Liberté chairman Gerald J. Ford (then a 45% stockholder) agreed to vote his shares in favor, and Morgan Joseph & Co. served as financial advisor, rendering a fairness opinion to Liberté’s board.

On closing — April 30, 2004 — Liberté changed its name to First Acceptance Corporation and moved its headquarters from Dallas to Nashville. The changing of the guard was wholesale: Stephen J. Harrison (USAuto’s CEO) replaced Donald J. Edwards as CEO; Thomas M. Harrison (USAuto’s COO) became Executive Vice President; Ford remained Chairman; and Edwards stayed a director with a four-year advisory relationship.

FAQ

Is USAuto Holdings the same as the bankrupt Iowa “Acceptance Insurance” company? No. USAuto Holdings was the Nashville, Tennessee holding company acquired by Liberté in 2004, forming First Acceptance Corporation. Acceptance Insurance Companies Inc. of Council Bluffs, Iowa is a different SEC registrant that filed Chapter 11 in 2005. The shared “Acceptance” branding is a naming coincidence worth flagging, not a corporate relationship.

Is this USAA or “USA Auto Insurance”? No. It is not USAA, not the modern low-down-payment “USA Auto Insurance,” not United Automobile Insurance Company (UAIC), and not The General.

How big was the deal? $76 million in cash plus 13.25 million shares of Liberté, with up to 750,000 additional earn-out shares — a cash-and-stock merger, not a distressed sale.

What this profile does not claim

• It does not state the earn-out’s recipients or triggering targets beyond the 2004 operating-performance criteria.
• It does not name the pre-1998 owners of the Marietta “Acceptance Insurance” agencies.
• Post-2004 history is the First Acceptance Corporation story, covered in the separate profile at /organizations/acceptance-insurance/.