NEW YORK (Reuters) ? Grace Brothers Ltd., a shareholder of Bermuda-based Scottish Re Group Ltd. (SCT.N), said yesterday it has urged the embattled reinsurer to reconsider alternatives to its planned transaction with MassMutual Capital Partners LLC and affiliates of Cerberus Capital Management L.P.

But Scottish Re said it was sticking with its plan.

On November 27, Scottish Re agreed to sell control of itself to MassMutual Capital Partners and private equity firm Cerberus for $600 million by issuing new preferred stock.

The financing, which requires shareholder approval, threw a lifeline to Scottish Re, which could have been forced to shut down or stop accepting new business, analysts said.

Grace Brothers, in a statement, said it believes the value of Scottish Re would be higher ?without this dilutive transaction?. The shareholder said alternatives were available to maximise stockholder value, including a rights offering in which all shareholders were allowed to participate.

It said that ?even if such a rights offering would only raise enough capital to allow the company to undergo an orderly liquidation or a runoff of its assets, the value to existing stockholders would be higher than that resulting from the proposed MassMutual/Cerberus transaction?.

In a letter to Scottish Re?s board, Grace Brothers said the transaction almost certainly maximises returns for new investors at the expense of existing shareholders.

Grace Brothers said it would vote against the transaction.

Yesterday, a spokeswoman for Scottish Re said the MassMutual/Cerberus transaction ?will stabilise the company and provides the best available opportunity to deliver long term shareholder value?. Scottish Re?s shares have lost more than half of their value since July, when the reinsurer said its chief executive had resigned and it was going to post a big second-quarter loss.

Private equity firm Cypress Group owns about 15 percent of Scottish Re, according to Reuters data.