Scottish Re Group Ltd. says it is unwinding a securitization deal and implementing a merger that should provide liquidity for ordinary shareholders.

Scottish Re, Hamilton, Bermuda (Pink Sheets:SKRRF.pk), is a company that once operated a large life reinsurance operation but later ran into problems with claims rates and investment performance.

Affiliates of Cerberus Capital Management L.P., New York, and Massachusetts Mutual Life Insurance Company, Springfield, Mass., now control Scottish Re.

The merger agreement calls for a new subsidiary of the controlling shareholders to merge into Scottish Re, the company says.

Non-affiliate holders of ordinary shares would get a total price of about $21 million, or 30 cents per share, Scottish Re.

The company notes that the shares have been selling for an average price of about 16 cents.

If the deal is completed as planned, affiliates of the controlling investors would end up owning all Scottish Re ordinary shares, the company says.

The controlling investors need the approval from “disinterested directors” to go forward with the deal. The company has made up a special committee of disinterested board members to consider the deal.

The deal would let Scottish Re simplify its capital and ownership structure, Daniel Roth, the Scottish Re chief financial officer, says in a statement about the deal.

Scottish Re also has agreed to unwind the 2005 Orkney I securitization transaction and to cede the Orkney block of level-premium term life business to Hannover Life Reassurance Company of America, Orlando, Fla., a unit of Hannover R?ckversicherung A.G., Hannover, Germany.

The policies were written from 2000 to 2003 by 37 life insurers. A U.S. unit of Scottish Re put them in a securitization pool in 2005.

Scottish Re now has agreed to recapture the policies and cede them to Hannover Life Re.

Scottish Re would receive recapture consideration and use part of that money to fund a $565 million commission that would be paid to Hannover Life Re, Scottish Re says.

Any remaining assets would be used by Scottish Re’s Orkney Holdings affiliate to buy back and cancel notes issued in 2005 by Orkney Holdings.

An affiliate of Cerberus holds about $700 million of the Orkney notes, and Scottish Re says it will use a special committee of disinterested directors to consider the note buyback.

Hannover Re says the business it would assume would generate about $80 million in annual premium revenue.

Hannover Re hopes to get the regulatory approvals it needs to complete the deal in May.

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