Funds forced into buyout transaction by investors
Threatened and asserted claims by two small investors prompted a buyout transaction offering accelerated return of capital to investors of Markel CATCo Reinsurance Fund Ltd and CATCo Reinsurance Opportunities Fund Ltd.
In addition, it has led to the CATCo group of companies filing applications with the Supreme Court of Bermuda today for the appointment of joint provisional liquidators (JPLs) — Simon Appell of AlixPartners UK LLP and John McKenna of Finance and Risk Services Ltd — with limited powers for restructuring purposes only.
Markel Corporation and Markel CATCo Investment Management Ltd (MCIM) said today that although they believe the claims to be without merit, such claims have disrupted the continued timely and orderly return of additional capital to investors.
The buyout is now being offered to prevent the potential for inequitable treatment of some investors at the expense of all others.
The appointment of the JPLs will enable the implementation of the buyout transaction and the approval of the schemes to best ensure the fair, equitable and accelerated distribution of assets to all investors in the funds.
The buyout transaction offers an early return of substantially all net asset value to investors in the company, while allowing investors to retain the right to receive any upside at the end of the current run-off period if currently held reserves are more than sufficient to pay claims.
The funds, which are insurance-linked securities funds managed by Bermuda-based MCIM, have been in run-off since June 2019.
Affiliates of Markel Corporation will be providing funding of up to approximately $150 million to facilitate the buyout transaction of the retrocessional segregated accounts of the funds.
In addition, an affiliate of Markel Corporation will be providing tail risk cover that will allow for the return of approximately $100 million of trapped collateral to investors in the private fund's separately structured reinsurance offering, known as the Aquilo Fund segregated account.
MCIM is extending an opportunity to all investors in the funds to provide a support undertaking with respect to the buyout transaction on or before October 22 (early consent deadline) to become eligible to receive at closing a fee equal to 1 per cent of the investor's proportional entitlement to the current NAV as at closing (early consent fee).
The boards of directors of each of the Private Fund and Public Fund have unanimously determined that the buyout transaction is in the best interests of each of their respective funds (taking into account the interests of their respective investors) and recommend that their investors return support undertakings by the early consent deadline.
Assuming that satisfactory investor support for the buyout transaction is received by the early consent deadline, each of the funds will propose to their respective investors schemes of arrangement under Bermuda law. Pursuant to the schemes and the buyout transaction, all investors, the CATCo group companies (MCIM, the Public Fund, the Private Fund and Markel CATCo Re Ltd), Markel Corporation and each of their related parties, among others, will grant customary mutual releases of all claims related to the buyout transaction, the CATCo group companies' businesses and the investors' investment in the funds.
A copy of the announcement and further details regarding the proposal can be accessed at https://catcobuyout.alixpartners.com