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Insurers' impairments predated bankruptcy of Greg Lindberg-linked utility

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Insurers' impairments predated bankruptcy of Greg Lindberg-linked utility

A Global Bankers Insurance Group LLC subsidiary ranks among the largest unsecured creditors of a group of retail energy suppliers that sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on Oct. 4, but it is another life and health insurer that may hold the insurance industry's largest current investment exposure to the debtors.

Agera Holdings LLC, Agera Energy LLC and various subsidiaries and affiliates filed their petitions after, among other things, they defaulted on "a number" of renewable energy certificate trades that triggered obligations of more than $72 million and spawned regulatory enforcement actions by several state public utilities commissions, COO Todd Sandford said in a bankruptcy court declaration.

The group reported $124.2 million in assets and $207.8 million in liabilities, the latter of which includes $35 million in notes payable to Colorado Bankers Life Insurance Co., a Global Bankers subsidiary.

Global Bankers' ultimate controlling person, Greg Lindberg, is deemed to hold a 50% economic interest and an 89% total voting interest in AGH Parent LLC, the entity that owns 95% of Agera Holdings. Colorado Bankers issued a $35 million revolving line of credit to Agera Energy in 2018, which it has since written off after the North Carolina Department of Insurance in June entered a consent order of rehabilitation for the life insurer and two affiliates.

Lindberg is subject to a federal criminal indictment for alleged attempts to bribe North Carolina's insurance commissioner. Sandford in the declaration said the alleged acts culminating in the indictment are "wholly unrelated" to the Agera entities and that Lindberg has "no involvement" with their day-to-day operations.

Not mentioned in the declaration is Senior Health Insurance Co. of Pennsylvania, whose exposure to the Agera entities dates back to since-terminated and disputed investment management agreements with Beechwood Re Ltd. and affiliates. A long-term care insurer, Senior Health wrote down approximately 50% of the value of its investments in the companies during 2018. But at fair value of more than $36.6 million as of Dec. 31, 2018, after the impact of rounding, the Agera positions still ranked as its third-highest amount of combined investments in a counterparty at 1.7% of its total admitted assets.

Senior Health's Beechwood-linked investments, including Agera, are subject to substantial litigation. For its part, Senior Health alleged in a July 2018 complaint against the Beechwood entities that its holdings in Agera amounted to the "most egregious abuses" of the investment management agreements. The Beechwood entities, according to Senior Health, structured the ownership of the investments in such a way that enabled them to exit their positions "at a large profit" while the insurer was left almost $70 million of funds in "illiquid interests of questionable worth."

The company reported holding $17.5 million in Agera preferred stock, $7.5 million in Agera bonds, $5.7 million in AGH Parent preferred stock, almost $3 million of equity interest in Agera and less than $3 million in two series of AGH Parent bonds as of year-end 2018. In its most recent quarterly statement, Senior Health reported zero other-than-temporary impairments on its holdings of stocks, bonds or other invested assets during the first half of this year.

A major focus of the Colorado Bankers receivership is to reduce the amount of affiliated investments held by the insurer and to increase its long-term liquidity. A document posted by the rehabilitator showing statutory financial highlights from the first half indicates that the write-off of the $35 million Agera investment followed the company's determination that the position was permanently impaired.

While Colorado Bankers was granted a security interest in substantially all of Agera's assets in connection with the revolver, that interest is subordinate to pledges made in connection with agreements through which a BP PLC affiliate supplies electricity and natural gas to certain Agera entities. Sandford estimated that a gross amount of $161.6 million is outstanding under those agreements, including energy supply liabilities, mark-to-market exposure and collateral support obligations posted by BP on Agera's behalf.

Sandford's declaration indicates that Agera's financial challenges predate the recent enforcement actions. He said members of senior management uncovered various structural challenges upon joining Agera about a year ago. A subsequent financial restatement led Agera to be in breach of a tangible net worth covenant of the BP agreements, leading the parties to enter a forbearance pact that contemplated significant capital contributions to the Agera operating entities.

Lindberg's Eli Global LLC committed to a turnaround plan under which it would provide the funding necessary to satisfy the capital contributions, Sandford said, but only a portion of the amounts due were satisfied. BP notified Agera of a default under the agreement in late April; weeks later, Sandford observed that it had become clear that Eli Global would be unable to inject the required capital.

In connection with the bankruptcy filing, Agera and an Exelon Corp. affiliate entered an agreement for the sale of customer contracts for consideration of nearly $24.8 million subject to a court-supervised auction process.