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December 03, 2006 at 02:00 PM
Scottish Re Group Ltd. cleared a major hurdle in its effort to survive with the promise of a $600 million cash infusion from Mass Mutual Capital Partners L.L.C. and Cerberus Capital Management L.P.
Analysts noted that the plan is a step in the right direction, but said actual implementation is needed before a formal reassessment of the reinsurer can begin.
In a Nov. 27 conference call, Paul Goldean, CEO of the company, based in Hamilton, Bermuda, outlined the pending transaction (see sidebar).
In an interview with National Underwriter, Goldean spoke about plans for the company to “retain existing clients and attract new business.”
Goldean says that globally, Scottish Re’s salespeople have been in contact with clients who, for the most part, are not terminating contracts. So, he says, the company is retaining existing business.
Attracting new business, Goldean says, will involve improving ratings in addition to the new capital infusion the company will receive when the transaction closes in roughly 120-150 days. “We have significantly more capital than we need right now for current business,” Goldean says.
He also notes that the 2 new investors have received a commitment for a $500 million Triple-X financing facility that will fully fund 2005 and 2006 business. The company has a large block of Triple-X business that it built and bought through a transaction with ING Re on October 2004.
The ratings goal, according to Goldean, is to return to “at least an ‘A-’ level.” If Scottish gets its ratings back to that level by Jan. 1, 2008, he says, then it could continue to build both capital and new business through 2010 to “nearly the level that it was at before [it stopped writing business].”
The business may be a “slightly different mix,” he says, but declined to provide specifics because more discussion is needed on that point.
New capital could be generated in a variety of ways, including new collateral facilities or earnings from the company’s own book of business, he says.
The issue of an additional capital infusion from the 2 new investors was not raised during negotiations, he says. However, he adds, intuitively an investor does not put up so much capital into a company unless they are willing to support that company.
Goldean says that ultimately a capital infusion rather than an outright purchase turned out to be “the best transaction” for Scottish Re. There are pressures that bidders faced including a mix of rating concerns and sensitivity to the need for capital.
When asked about a $4 per share sales price for the capital infusion if the investors decide to convert preferred shares to common shares, Goldean said he “couldn’t touch on that,” but the shareholder proxy will provide more detail. In general, he cited Scottish Re’s “liquidity position and other matters.”
At close of day on Nov. 28, the company’s stock closed at $5.97. The stock has a 52-week range of $2.95-$25.99.
In a statement, Cerberus management said, “We recognize Scottish Re’s market strengths and great potential for growth. We look forward to working with them to address their immediate and long-term financial requirements and return the company to the right path to an improved market position and value for all stakeholders.”
