Scottish Re sells off subsidiaries as it restructures
Scottish Re Group has devised a sale and restructuring plan for its Cayman Islands subsidiary, Scottish Annuity & Life Insurance Company Cayman (SALIC), and SALIC’s US subsidiary, Scottish Holdings (SHI).
The company said that the sale and restructuring plan is being implemented through the commencement by SALIC and SHI of US Chapter 11 proceedings in the US Bankruptcy Court of Delaware.
Scottish Re announced that a stock purchase agreement (SPA) has been executed between SALIC and SHI, on the one hand, and an investment fund advised by Hudson Structured Capital Management on the other. Upon closing of the SPA, Hudson Structured will own 100 percent of the stock of the reorganized SALIC.
According to the company the SALIC/SHI Chapter 11 process is a ‘critical step’ in Scottish Re’s sale and restructuring plan, which in addition to the sale of SALIC and SHI, also includes the sale to Hudson Structured of certain of SALIC’s subsidiaries, including Scottish Re US, (SRUS) and Scottish Re Dublin (SRD). The restructuring process was announced in May 2017, when Scottish Re commenced voluntary provisional winding up proceedings in Bermuda with ancillary proceedings in the Cayman Islands. The company placed its reinsurance business in run-off in 2008.
Certain Scottish Re subsidiaries, such as SRUS, SRD, and Scottish Re Life Bermuda (SRLB) and together with SRUS and SRD, are not debtors in the SALIC/SHI Chapter 11 and as such, contracts and relationships between the non-debtors and their reinsurance and other counterparties, vendors, and employees are largely unaffected by the SALIC/SHI Chapter 11 filing.
The company said that SALIC faces acute liquidity issues in the first quarter of 2018 as a result of the historically adverse performance of Scottish Re’s legacy book of yearly renewable term reinsurance business, and the growing strain created by the upcoming payments due on 20 quarters of accrued and deferred interest on trust preferred securities guaranteed by SALIC.
Two of SALIC’s wholly-owned subsidiaries, SHI and Scottish Financial Luxembourg (SFL), entered into a series of capital markets transactions from 2002 to 2004 in which those entities sold bonds to various trusts. Those trusts in turn issued trust preferred securities to the market (TRUPS). SALIC guaranteed the payment and other obligations of SHI and SFL in connection with the TRUPS transactions. Currently, $86 million of aggregate principal amount of TRUPS obligations, net of an additional $43 million of TRUPS owned by SALIC’s parent, Scottish Re, remain outstanding.
As permitted under the terms of the TRUPS, SHI and SFL began deferring interest payments on the TRUPS commencing in the first quarter of 2013. Interest may only be deferred on the TRUPS for a maximum of twenty consecutive quarters, and, as a result, accrued and deferred interest in an amount of approximately $20 million (net of an additional approximately $11 million of deferred interest amounts owing to Scottish Re in respect of the TRUPS held by Scottish Re) must be paid in the first quarter of 2018. SHI and SFL lack the resources to make this payment, and SALIC is unable to pay the TRUPS deferred interest and still meet its other obligations, including reinsurance obligations to third-party ceding companies, as well as to SRUS, in 2018.
According to Scottish Re SALIC devised and executed a restructuring plan to try and resolve its liquidity issue in a timely fashion and to maximise value to its stakeholders.
