Scottish Re Group has started the implementation of a sale and restructuring plan for its Cayman Islands subsidiary, Scottish Annuity & Life Insurance Company (SALIC), and its US subsidiary, Scottish Holdings (SHI).

The sale and restructuring plan is being carried out by the commencement by SALIC and SHI of US Chapter 11 proceedings in the US Bankruptcy Court of Delaware on 28 January 2018.

Related to the SALIC/SHI chapter 11, Scottish Re stated that a stock purchase agreement was signed between SALIC and SHI on one hand and an investment fund advised by Hudson Structured Capital Management, on the other.

After the closing the share purchase agreement, Hudson Structure will own 100% of SALIC’s reorganized stock.

Scottish Re said the SALIC/ SHI chapter 11 is significant as the sale and restructuring plan will include not only SALIC and SHI to Hudson, but also SALIC’s other subsidiaries including Scottish Re (U.S.) (SRUS) and Scottish Re (Dublin) (SRD).

Scottish Re stated that SALIC faces acute liquidity issues in the first quarter of this year, because of Scottish Re’s adverse performance and the strain created by the upcoming payments due on 20 quarters of accrued and deferred interest on trust preferred securities guaranteed by SALIC.

Between 2002 and 2004, SALIC’s subsidiaries SHI and Scottish Financial (Luxembourg) (SFL) sold bonds to various trusts. Those trusts in turn issued trust preferred securities to the market (TRUPS). SALIC guaranteed the payment and other obligations for the TRUPS transactions which is presently at $86m.

As permitted under the terms of the TRUPS, SHI and SFL started deferring interest payments on TRUPS, starting the first quarter of 2013. As per the terms, interest may only deferred for a maximum period of 20 consecutive quarters. This resulted in accrued and deferred interest amounting to $20m. And this amount must be repaid in the first quarter of this year.

SALIC has come up with a restructuring plan to resolve its liquidity issue. Among the steps, it has engaged Keefe, Bruyette & Woods to identify and buyer, retain legal counsel in New York, Delaware, Bermuda and the Cayman Islands who are very familiar with Scottish Re and insurance restructuring options.

With the impending liquidity constraint facing SALIC, the SALIC/SHI Chapter 11 process is designed to permit SALIC to continue as a going concern and to continue to meet its obligations to third party and affiliated reinsurance counterparties and business partners and also to permit the business, after-reorganization and under new ownership to continue to participate in the US life reinsurance and annuity industries.

Image: Scottish Re Group announces sale and restructuring plan and the commencement of Chapter 11 proceedings by certain of its subsidiaries. Photo: Courtesy of Stuart Miles at