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New Scottish Re deal gives equity option to trust preferred securities holders

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New Scottish Re deal gives equity option to trust preferred securities holders

Subsidiaries of Scottish Re Group Ltd. executed a stock purchase agreement with Hildene Re Holdings LLC on June 11, days after that company emerged as the winning bidder in a bankruptcy court-supervised auction for the equity in the reorganized Scottish Annuity & Life Insurance Co. (Cayman) Ltd.

Terms of the agreement, as previously reported, call for Hildene Re to pay $21.5 million in cash and recapitalize Scottish Annuity & Life and its operating subsidiaries with $12.5 million. The stalking-horse bid by an affiliate of Hudson Structured Capital Management Ltd. would have included $12.5 million in cash consideration and provided for a similarly sized recapitalization.

An overview of the new agreement as filed with the U.S. Bankruptcy Court for the District of Delaware indicates a number of key revisions to the structure of the deal beyond price as well as to the treatment of claims related to trust preferred securities issued by Scottish Re companies.

Scottish Re affiliates issued $129.5 million in aggregate principal amount of trust preferred securities, of which Scottish Re Group held approximately $43 million. The stalking-horse agreement called for holders of those securities to receive pro rata share of interests in a distribution trust, which would later be exchanged for cash once the estate paid out or reserved for administrative, priority and secured claims.

Under the agreement with Hildene Re, trust preferreds holders could elect to receive cash or their pro rata share of 30% of the equity in the reorganized Scottish Annuity & Life. The liquidators of Scottish Re Group have indicated that they will elect to receive cash for their stake in the trust preferreds. Hildene Re would obtain a stake of at least 70% in the reorganized company.

Funds managed by Hildene Capital Management LLC, which own Hildene Re, were among the non-insider holders of the Scottish Re trust preferreds.

"We are pleased with the outcome of the auction and look forward to working closely with Scottish Re's existing management team to close a transaction that will provide the company with a stronger balance sheet and greater financial flexibility to grow," Hildene Capital Management President and Chief Investment Officer Brett Jefferson said in a statement provided to S&P Global Market Intelligence.

The new agreement also confirms an indication made during the auction process that the equity holders of Scottish Re Group would not be eligible for the customary release and exculpation provisions of the Scottish Re debtors' Chapter 11 plan. Affiliates of Massachusetts Mutual Life Insurance Co. and Cerberus Capital Management LP combined to directly or indirectly hold 100% of Scottish Re Group's equity voting power as of March 31.

Prospective causes of action against the equity holders and various other claims will be transferred to a distribution trust. The Scottish Re trust preferred holders and general unsecured claimants will receive pro rata interests in the distribution trust.

U.S. Bankruptcy Judge Laurie Selber Silverstein on June 12 issued an order approving Hildene Re's designation as the winning bidder. The final offer made by the Hudson Structured affiliate during the auction was designated the backup bid.

The transaction remains subject to various conditions, including confirmation of an amended Chapter 11 plan and regulatory approvals.