Company name Ballantyne Re Plc
Headline Proposed Restructuring


RNS Number : 9584V
Ballantyne Re Plc
12 April 2019
 

 

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

 

RE: PROPOSED RESTRUCTURING

 

                                                                                                            12 April 2019   

 

 

Ballantyne Re plc

 

 

$250.0 million Class A-1 Floating Rate Notes due 2036 (the Class A-1 Notes)
$500.0 million Class A-2 Floating Rate Guaranteed Notes Series A due 2036 (the
Class A-2a Notes)
$500.0 million Class A-2 Floating Rate Guaranteed Notes Series B due 2036 (the
Class A-2b Notes)
$100.0 million Class A-3 Floating Rate Guaranteed Notes Series A due 2036 (the
Class A-3a Notes)
$100.0 million Class A-3 Floating Rate Guaranteed Notes Series B due 2036 (the
Class A-3b Notes)
$100.0 million Class A-3 Floating Rate Guaranteed Notes Series C due 2036 (the
Class A-3c Notes)
$100.0 million Class A-3 Floating Rate Guaranteed Notes Series D due 2036 (the
Class A-3d Notes)

$10.0 million Class B-1 7.51244% Subordinated Notes due 2036 (the Class B-1 Notes)
$40.0 million Class B-2 Subordinated Floating Rate Notes due 2036 (
the Class B-2 Notes)

 

 

Proposed Transaction

The Directors of Ballantyne Re plc (Ballantyne) wish to announce that Ballantyne has entered into a lock-up support agreement (the Lock-Up Support Agreement) with Ambac Assurance UK Limited (Ambac), Assured Guaranty Europe plc and Assured Guaranty Corp. (together, Assured Guaranty), certain Class A Noteholders (as defined below), Security Life of Denver Insurance Company (SLD) and Swiss Re Life and Health America Inc. (SRLHA) in connection with a proposed restructuring transaction in respect of its obligations under the Class A-1 Notes, the Class A-2a Notes, the Class A-2b Notes, the Class A-3a Notes, the Class A-3b Notes, the Class A-3c Notes and the Class A-3d Notes (together, the Scheme Notes) (the Restructuring).

The key features of the Restructuring are as follows:

·      the novation of the indemnity reinsurance agreement between Ballantyne and SLD dated 19 November 2008 (as amended) (the Reinsurance Agreement) to SRLHA (the Novation);

·      the disbursement of the assets from Ballantyne's reinsurance trust account (the RTA) to effectuate the Novation and make payment to the holders of Scheme Notes (the Class A Noteholders) in full and final satisfaction of their claims against Ballantyne;

·      the commutation of the financial guarantees (the Ambac Guarantees) provided by Ambac in connection with the Class A-2a Notes, the Class A-3a Notes, the Class A-3b Notes, the Class A-3c Notes and the Class A-3d Notes (together, the Ambac Guaranteed Notes) (the Commutation); and

·      the preservation of claims under the financial guarantees (the Assured Guaranty Financial Guarantees) provided by Assured Guaranty in connection with the Class A-2b Notes (the Assured Guaranteed Notes).

The Restructuring will be implemented through a scheme of arrangement (the Scheme) under Part 9 of the Irish Companies Act 2014 (the Act), requiring the consent of the requisite majorities of the relevant Class A Noteholders at each Scheme Meeting (as defined below).

Following implementation of the Restructuring, it is intended that Ballantyne will be wound-up by way of a solvent liquidation.

Background to and Reasons for the Restructuring

Ballantyne was formed as a special purpose vehicle for the purpose of entering into and performing a reinsurance agreement entered into with Scottish Re (U.S.), Inc. (SRUS) effective 1 April 2006 (as amended) (the Original Reinsurance Agreement), pursuant to which SRUS ceded to Ballantyne, on an indemnity reinsurance basis, risks relating to certain term life policies issued by third party ceding insurers that were reinsured by SLD and retroceded to SRUS (the Defined Block of Business). In order to fund its obligations under the Original Reinsurance Agreement, Ballantyne issued certain notes (including the Scheme Notes) and engaged a third party investment manager (the Original Investment Manager) to manage the funds raised. 

Approximately 95% of the funds raised by Ballantyne through the issuance of the notes was invested in subprime and Alt-A securities which experienced c.$1bn of losses between May 2006 and October 2008. These investment losses exposed SRUS to potentially significant reserve credit shortfalls.  With effect from 1 October 2008, SRUS's interests in the Original Reinsurance Agreement and the agreement governing the RTA were assigned from SRUS to SLD, and SLD and Ballantyne entered into the Reinsurance Agreement. In 2008 and 2009, a series of contractual recaptures by SRUS and SLD under the Reinsurance Agreement reduced Ballantyne's quota share in the Defined Block of Business to 33.5%.  

In June 2009, Ambac, in the name of Ballantyne, commenced a legal action against the Original Investment Manager relating to the management of Ballantyne's investment accounts. In early 2017, Ballantyne finalised a settlement of the litigation and on 17 April 2017 received $325.6 million in cash in return for releases of all claims by Ballantyne and Ambac. The full settlement amount was deposited in cash into the RTA.

On 12 June 2017, with the consent of Ambac and SLD, Ballantyne acquired $148.1 million par value of Class A-1 Notes at an aggregate purchase price of $68.5 million (representing a price of approximately $0.463 per Note).  These Notes (the RTA Class A-1 Notes) were acquired through the participation in a private auction process using funds available in the RTA and are currently held in the RTA.

At the date of Ballantyne's latest audited financial statements (31 December 2017), Ballantyne reported total assets of $1,254.8m and total liabilities of $2,408.3m. Total liabilities include insurance contract liabilities of $384.6m which rank in priority to the Scheme Notes. Total liabilities also include Scheme Note liabilities of $1,551.9m and other creditors of $471.8m. The assets available to meet non insurance contract liabilities at 31 December 2017 amount to c. $870.2m. This gives rise to a deficit of $1,153.4m in the available assets compared to the amounts due to the Scheme Noteholders and other creditors.

As a consequence of the deficit in net assets, the Class C Notes were contractually written-down on 31 December 2007 and 1 December 2008 in accordance with the terms of the Indenture. Furthermore, as a result of the material deficit in value available to the Scheme Notes, there is no economic value attributable to the Class B-1 Notes and Class B-2 Notes which are contractually subordinated to the Scheme Notes.

As a result of its financial positon, Ballantyne has experienced on-going events of default as a result of being unable to pay scheduled interest in full on the Scheme Notes, which has triggered payments under the Ambac Guarantees and the Assured Guaranty Financial Guarantees.

In light of the material impairment to the Scheme Notes, Ambac engaged with certain of the Class A Noteholders, Assured Guaranty, SLD and potential alternative reinsurance counterparties for the purpose of assessing the options to restructure Ballantyne and/or Ballantyne's liabilities under the Scheme Notes and/or Ballantyne's reinsurance obligations. As a result of that process and following further discussion with Ballantyne, the Restructuring is now being proposed as Ballantyne has concluded that it is in the best interests of Ballantyne and the Scheme Noteholders for the Scheme to be implemented.

Key Economic Terms of the Restructuring

The key economic terms of the Restructuring include:

·      a cash payment to all Class A Noteholders expected to be approximately 51% of the par value of the Scheme Notes;

·      an additional cash payment of 17.4% of the par value of the Class A-2a Notes to each holder of Class A-2a Notes and a payment of 14.5% of the par value of the Class A-3 Notes to each holder of Class A-3 Notes in consideration of the Commutation;

·      the preservation of the Assured Guaranty Financial Guarantees in connection with the Assured Guaranteed Notes;

·      the payment of the Lock-Up Fee (as defined below) of 1.25% of the par value of the Scheme Notes held by each Consenting Noteholder (as defined below); and

·      deferred consideration expected to represent up to approximately 1% of the par value of the Scheme Notes[1] to be distributed to Class A Noteholders through trust arrangements established to distribute any surplus arising from the release of amounts held back or placed in escrow on account of potential indemnity claims and costs.

Implementation of the Restructuring

It is proposed that the Restructuring will be effected through the Scheme.

Subject as described below, Ballantyne intends to present to the Irish High Court an Originating Notice of Motion in accordance with the Act in relation to the Scheme (the Originating Notice of Motion). The Originating Notice of Motion will seek an order that Ballantyne convenes meetings of certain of its creditors (the Scheme Meetings) for the purposes of considering and, if thought fit, approving the Scheme.

It is proposed that the approval of the Class A Noteholders will be sought in two separate Scheme Meetings, which will be held as follows:

·      a single meeting of holders of the Ambac Guaranteed Notes; and

·      a single meeting of the holders of the Class A-1 Notes and the holders of the Assured Guaranteed Notes.

SLD will consult with the Colorado Department of Insurance (the CDOI) as soon as reasonably practicable following the date hereof with respect to the Novation and related transactions as they relate to SLD. Neither SLD nor SRLHA anticipate that the Novation and related transactions will be subject to regulatory approval.

Ballantyne shall on the later of (A) two business days following the receipt by Ballantyne's legal counsel of all signed signature pages required to be delivered to it pursuant to the terms of the Lock-Up Support Agreement (discussed further below) (or as soon as reasonably practicable thereafter) and (B) a business day falling no more than fifteen (15) business days following the receipt by Ballantyne of written notice from SLD confirming that SLD does not anticipate an objection from CDOI or, if required, that SLD has received a written notice of approval of or non-objection from CDOI, present the Originating Notice of Motion to the Irish High Court (which fifteen (15) business day period may be extended in accordance with the terms of the Lock-Up Support Agreement).

Lock-Up Support Agreement and Class A Noteholder Support

Ballantyne has entered into the Lock-Up Support Agreement with Ambac, Assured Guaranty, approximately 82% by value of the Class A Noteholders (including Ambac and Assured but excluding the RTA Class A-1 Notes), SLD and SRLHA. Under the Lock-Up Support Agreement, the Class A Noteholders (other than Ambac, which has agreed not to vote in circumstances where a key feature of the Scheme is the Commutation) have agreed, among other things, to cast all the votes in respect of their locked up Scheme Notes in favour of the Scheme at the Scheme Meetings.  

The Lock-Up Support Agreement provides that each of Ambac and Assured Guaranty, in addition to its obligations under the Lock-Up Support Agreement in its capacity as a Consenting Noteholder, will use commercially reasonable efforts to take or cause to be taken all actions reasonable, necessary and appropriate in furtherance of the Restructuring. The Lock-Up Support Agreement also provides that SLD and SRLHA will use commercially reasonable efforts to take or cause to be taken all actions reasonably necessary and appropriate in furtherance of the Restructuring with respect to the Novation. The parties to the Lock-Up Support Agreement have also agreed to provide signature pages to the key restructuring and novation documents to which each is party to Ballantyne's legal counsel in advance of commencement of the Scheme to be held in escrow pending release in accordance with the terms of the Lock-Up Support Agreement. 

The Lock-Up Support Agreement also provides that Ballantyne will pay to each Class A Noteholder that enters into the Lock-Up Support Agreement by the deadline to be set out in the Scheme Circular (as defined below) (the Lock-Up Deadline) (each a Consenting Noteholder) and who complies with its obligations under the Lock-Up Support Agreement a fee of 1.25% of the principal value of the Scheme Notes held by that Consenting Noteholder (the Lock-Up Fee).

Scheme Circular

Detailed terms of the Restructuring and the Scheme will be set out in the scheme circular (the Scheme Circular) which will be delivered to Class A Noteholders through DTC by the Information Agent, Lucid Issuer Services Limited, and made available on a designated scheme website after the hearing and determination of the Originating Notice of Motion by the Irish High Court. The Scheme Circular will set out the information Class A Noteholders will require in respect of the Restructuring and the Scheme, including details of the Scheme Meetings and further details of the proposed payments to Class A Noteholders. Holders of the Class B-1 Notes and the Class B-2 Notes will be provided with the Scheme Circular for information purposes only as their consent is not required to implement the Restructuring.

Miscellaneous

Ballantyne has appointed William Fry as its Irish legal adviser, Davis Polk & Wardell LLP as its New York legal adviser and PwC as its financial adviser. 

If Class A Noteholders require any further information in relation to voting at the Scheme Meetings, they are requested to contact the Information Agent, Lucid Issuer Services Limited, by email at Ballantyne@lucid-is.com.

 

This announcement contains inside information. The person responsible for this announcement is Adrian Masterson, Director, Ballantyne. The date and time of this announcement is 7:30am (Dublin time) on 12 April 2019.

No offer of securities

This announcement is for information purposes only, it is not, nor should it be construed as, an offer of, or solicitation of an offer, to purchase, subscribe for, or otherwise acquire, or sell or otherwise dispose of any securities to any person in any jurisdiction. In particular, this announcement does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of Ballantyne have been, or will be, registered under the US Securities Act of 1933, as amended (the Securities Act), and securities of Ballantyne may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

The Restructuring will be proposed solely by means of the Scheme Circular, which will contain the full terms and conditions of the Restructuring and the Scheme, including details of how to vote in respect of the Scheme. No decision in respect of, or other response to, the Restructuring or the Scheme should be made on the basis of the information contained in this announcement. Accordingly, any decision in respect of, or other response to, the Restructuring or the Scheme, should be made only on the basis of the information contained in the Scheme Circular.

This announcement does not constitute a prospectus or a prospectus equivalent document.

Cautionary Statement Regarding Forward-Looking Statements

This announcement contains certain forward-looking statements with respect to Ballantyne. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "believe", "will", "may", "would", "could" or "should" or other words of similar meaning or the negative thereof. Forward-looking statements include statements relating to the implementation of the Restructuring and/or the Scheme or the financial position of Ballantyne.

These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on certain assumptions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All subsequent oral or written forward-looking statements attributable to Ballantyne or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. Ballantyne undertakes no obligation to update publicly or revise forward-looking or other statements contained in this Announcement, whether as a result of new information, future events or otherwise, except to the extent legally required.

The release, publication or distribution of this announcement in or into certain jurisdictions may be restricted by the laws of those jurisdictions. Accordingly, copies of this announcement and all other documents relating to the Restructuring and/or the Scheme are not being, and must not be, released, published, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction. Persons receiving such documents (including, without limitation, nominees, trustees and custodians) should observe these restrictions. Failure to do so may constitute a violation of the laws of any such jurisdiction. To the fullest extent permitted by applicable law, Ballantyne disclaims any responsibility or liability for the violations of any such restrictions by any person.

 

 

This announcement has been issued through the Companies Announcement Service of Euronext Dublin.

 



[1] The amount of deferred consideration ultimately paid may be less than this if certain payments are required to be made out of the amounts held back or placed in escrow under the terms of the transaction documentation. 


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