AM Best has said the credit ratings of Sutton Specialty Insurance and Sutton National Insurance Company are to remain unchanged following the announcement that Vida Capital would sell shares of R&Q.
According to AM Best, the shares were pledged as collateral by Brickell PC to a loan supplied by Vida Capital to 777 Partners, the main economic backer of Brickell PC. Brickell PC is the parent company of Sutton National. Assuming the sale of the shares is completed as contemplated currently, AM Best said it does not expect the transactions execution to result in any immediate changes to Sutton National’s ratings.
The news comes after a failed acquisition of R&Q by Brickell in recent months. The latter had made allegation in May this year relating to an implementation agreement between the two firms. A settlement, without admitting liability, was made this week relating to that. That settlement included a payment from R&Q of $1.25m as a contribution towards Brickell’s costs.
The settlement relates to an acquisition agreement between the pair that failed earlier this year, which followed an $80m investment from Brickell in January 2021.
The deal, which was announced at the start of April, valued R&Q’s existing issued share capital at approximately £482m, while Brickell, a vehicle backed by 777 Partners, was also proposing to invest $100m of new equity funding into R&Q as part of the arrangement.
R&Q required the funding to shore up its balance-sheet, after announcing around $30m of adverse reserve development, a circa $90m charge related to impairing a structured reinsurance contract that had been capitalised an a balance-sheet asset, and having used ‘meaningful’ cash to fund additional reserve strengthening that was required, making the new funding essential.
At the time of the announcement in April, it was reported by R&Q that Brickell and its affiliates had a 23.2% shareholding in R&Q, but held 9.9% voting rights in the company.
As Reinsurance News explained, initial shareholder voting on the proposed takeover of R&Q was adjourned as the company failed to gain sufficient support for the deal at the first attempt.
A second shareholder meeting and vote was due to take place until R&Q said that it had received a letter from Brickell, alleging that R&Q was in breach of certain obligations under the implementation agreement related to the proposed transaction.
777 Partners-backed Brickell claimed that this was a material breach by R&Q of the terms of the Implementation Agreement and that it wanted to exercise its right to terminate the deal with immediate effect.
R&Q did not agree and wrote back to Brickell in such terms, adding that in its view the deal agreement remained in effect.
It later became apparent that a significant proportion of shares in R&Q owned by would-be acquirer 777 Partners were held as collateral to a loan by another party.
