Man With his Back to the Wall
With his Once-proud Empire Crumbling Around him, UCC’s Sam Wyly is Still Hanging on

Forbes
June 1, 1973

What do you do when your company has just lost $81 million of its $143 million in equity capital and you know that during the current year debt repayments will exceed cash flow? You company’s current debt-to-equity ratio of 2 ½-to-1 already violates the covenants of an outstanding loan and the company’s revolving credit agreement. Add to that the fact that Wall Street will not touch you: your stock is around $5 a share compared with $187 a share just five years ago.

Do you slip ignominiously into retirement and let the bankers take over? Not if your name is Sam Wyly and your company is University Computing Co. of Dallas. A devout Christian Scientist, Wyly sincerely believes that will power can conquer all, even overwhelming financial odds.

But I was will power that got Wyly into trouble in the first place. Supremely confident, he tried to do too much with too little. As considerable as UCC’s accomplishments were, Wyly’s commitments were soon out of all proportion to his financial means.

At any rate, money is what Sam Wyly needs now, lots of it. This year alone he needs $40 million; next year, he will need $44 million and by 1975 he will need perhaps another $28 million. His debt is already $150 million.

Where is all the money going? More than $100 million will be needed by Data Transmission Co. (Datran), UCC’s Virginia-based subsidiary, which Wyly believes is the company’s most promising operation.

In April, Datran began construction of a nationwide system of microwave towers that will transmit data – much of it from computers – among 27 American cities in direct competition with American Telephone & Telegraph. At stake is an estimated $5 billion worth of business by 1980. To get even a small slice of that business, Wyly believes Datran must be operational before AT&T’s system is set up and working, currently slated for sometime next year.

Ask Sam Wyly where he is going to get that kind of money and he leads you right into the office of Dean Thornton, UCC’s treasurer for the past three years and the former treasurer at the Boeing Co. Thornton unfortunately doesn’t have any firm answers either. “This is a critical year for us,” he says.“I can get us through 1973, but then we fall off a cliff. We must find a way to accommodate Datran.”

Even getting through 1973 will require a bit of fancy financial footwork. If Thornton’s figures are correct, UCC this year will generate a cash flow of $20 million. But it needs $20 million to service debt, plus $22 million for Datran and another $18 million to pay off the Western-American Bank of London on a note whose terms the company has violated because of UCC’s high debt/equity ratio.
Net of cash flow, UCC needs $40 million. Wyly claims Datran will be able to get the money it needs this year. But how about the other $18 million?

Earlier this year Wyly and Thornton planned to raise $10 million by spinning off UCC’s insurance subsidiary, the Gulf Group. But when the Equity Finding insurance scandal became public knowledge, souring Wall Street on all insurance issues, underwriter Bear, Stearns & Co. and Wyly decided to forget about the offering. In March Thornton did manage to renegotiate the terms of both the $18-million note and the company’s revolving credit agreement of $25 million. This does not eliminate the inevitable, only postpones it. According to Thornton, the banks have given UCC several months to find new sources of money.

Now Thornton is attempting to do what seems impossible: obtain more long-term debt. There are two package deals involved. His plan is to use Gulf’s stock to secure a $35-million loan and increase the loan secured by UCC’s computer leasing portfolio by $10 million.

UCC was established in 1963 on the premise that it could do businessmen’s computer work for them more efficiently and cheaply than they could do it for themselves. It was a good idea and revenues soared: $700,000 in 1964; $7 million in 1966; $60 million in 1968; $125 million in 1971. But Sam Wyly got overambitious and began investing in other businesses, some of which turned out losers. He spent millions trying to build a computer terminal that was better than IBM’s. Last year he sold the operation to Harris-Intertype, writing off $32 million in the process.

He also tried to establish a computer programming school. Losses on that gamble in 1970 and 1971 totaled $9.2 million. With these losses, much of the profits made in the computer operation went back down the drain. Then last year the computer operation soured, and with heavy write-offs UCC lost $83 million.

Smart and charming Sam Wyly, 38, has one last card to play – but it is slightly soiled: Copying from his friend James J. Ling, the Dallas conglomerator Sam Wyly is going to redeploy UCC assets. The procedure calls for dividing the company into various parts and spinning them off to the public, making the whole thing worth more than the sum of the parts.

In a supreme act of will, a kind of challenge to fate, Wyly has renamed UCC Wyly Corp. and divided it into four companies – University Computing Utility Co. (data processing), Computer Leasing Co. (selling and leasing computers), Gulf Insurance Group (insurance) and Datran.

Sometime late this year or early 1974, Wyly will offer stock in one or possibly all of these operations. How much investor interest will they generate? Almost certainly very little – unless the stock market turns around.

Take Gulf Insurance, for example. When Wyly acquired the company in 1968 it had free equity of $52 million and $63 million unrealized capital gains. Today the gains have largely evaporated and most of Gulf’s equity is hostage to UCC’s considerable debt. What’s more, Gulf faces the prospect of having to set aside additional reserves against underwriting losses.

Promises, Promises
The computer utility and leasing companies are no longer very healthy. Last year Wyly wrote off $58.5 million worth of losses in these two companies, either for discontinued operations or additional depreciation of computer equipment. In leasing, Wyly admits that revenues are declining, running around $2 million a month, and that the best market for the company seems to be leasing and selling used computers. Most of the computer losses related to Computer Technology, a company Wyly bought only three years ago for $40 million in cash and notes.

Basically, CT was the in-house data processing unit for LTV, still Wyly’s biggest single customer. This year Wyly expects this business to have revenues of $85 million and pretax profits of $5 million. If so, it will be the computer operations’ first hard profit in three years.

As for Datran, it offers only the distant promise of big profits. How much is that promise worth? Last summer Wyly attempted to privately sell an interest in the company to various Wall Street investment bankers. No takers. Given the state of Wall Street and of UCC, it’s hardly surprising.

Regardless, Wyly sits in his opulent, oversized 15th floor offices and continues to show much of the same brash confidence he displayed when he had a paper fortune – now almost entirely vanished – of $108 million. Perhaps, if nothing else can, this self-confidence will save him.