Scottish Re starts sale/restructuring for Cayman units

Bermuda-based life reinsurance specialist Scottish Re Group has started the implementation of a sale and restructuring plan for its Cayman Islands subsidiary, Scottish Annuity & Life Insurance Company (SALIC), and its US subsidiary, Scottish Holdings (SHI).

The sale and restructuring plan is being implemented through the initiation of US Chapter 11 proceedings in the United States Bankruptcy Court of Delaware for SALIC and SHI on January 28, 2018.

In connection with the SALIC/SHI Chapter 11, Scottish Re announced that a stock purchase agreement (the SPA) has been executed between SALIC and SHI, on the one hand, and an investment fund advised by Hudson Structured Capital Management.

Upon closing of the SPA, Hudson Structured will own 100 percent of the stock of the reorganized SALIC. Hudson Structured executed certain documents associated with the SALIC/SHI Chapter 11 in order to act as plan sponsor of the SALIC/SHI Chapter 11.

Hudson Structured Capital Management invests in reinsurance and insurance-linked assets across all lines of businesses.

The SALIC/SHI Chapter 11 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), and Scottish Re (Dublin), according to the Jan. 29 press release.

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.

SALIC devised and executed a restructuring plan to try and resolve its liquidity issue in a timely fashion and to maximize value to its stakeholders. Among the steps taken by SALIC were the engagement of Keefe, Bruyette & Woods, a Stifel Company, to identify a buyer, and retention of legal counsel in New York, Delaware, Bermuda and the Cayman Islands who are very familiar with Scottish Re and insurance restructuring options.

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