In the wake of a failed attempt to acquire Randall & Quilter Investment Holdings Ltd (R&Q), it turns out 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.
On April 1st, perhaps a prescient date, it was announced that R&Q was set to be acquired by one of its major shareholders, Miami-based investment group 777 Partners.
The proposed deal valued R&Q’s share capital at approximately £482 million, with the acquisition vehicle Brickell PC Insurance Holdings LLC, which is backed by 777 Partners, also said to be intending to invest $100 million of new equity funding into R&Q.
R&Q required the funding to shore up its balance-sheet, after announcing around $30 million of adverse reserve development, a circa $90 million 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.
R&Q was struggling to get sufficient investor support to approve the deal, subsequent to which it was reported that 777 Partners were pulling out of the acquisition.
A day later the deal had fallen apart after R&Q failed to gain shareholder approval, at which stage the legacy and program management specialist’s management said it would seek to raise the capital it needed on its own.
Fast-forward around two weeks and an intriguing filing was issued by alternative investments company Vida Capital.
Vida Capital is a specialist in life settlements and longevity insurance related investments, but also operates in some other areas of insurance related credit/debt financing we understand.
It states that the Vida Longevity Fund, LP, Vida Insurance Credit Opportunity Fund II, LP, and Vida Insurance Credit Opportunity Fund III, LP, are intending to sell 34,218,366 shares of ordinary shares of Randall & Quilter Investment Holdings Ltd.
It constitutes a notice of public sale under Article 9 of the Uniform Commercial Code, and we’re told that the details suggest 777 Partners had pledged these R&Q shares as collateral to a loan, or financing, supplied by Vida.
The filing states that the shares were pledged as collateral to the three aforementioned Vida Capital managed investment funds, which are the Secured Parties, by Brickell PC Insurance Holdings LLC (the Pledgor) and 777 Partners LLC (the Borrower).
Together, the filing names Brickell and 777 as the Debtors in this arrangement.
The sale of the shares is being held to “enforce the rights of the Secured Parties,” so the Vida funds.
Here, the information is lacking as to exactly what has triggered the rights to sell the R&Q shares that were pledged as collateral, but our sources have made two possible suggestions.
One, that the share price may have fallen below a peg, or predefined level, allowing the lender to sell the collateral. R&Q’s share price is currently down roughly 42% since the acquisition attempt was announced.
Or two, that the borrower is in default, in some way, to the loan or financing conditions and so the collateral can be sold to make good on the arrangement.
So, it appears 777 Partners or an entity owned by it had borrowed capital or been financed by entities operated by Vida Capital and that 777 had pledged the R&Q shares as collateral to it, giving Vida a first lien right to them.
That first lien right has now been taken, possibly for one of the two reasons mentioned above, allowing Vida to sell the shares.
But given the over 34 million R&Q shares represent roughly 12.5% of the legacy and program management firms’ share capital and this had been pledged to another party, while cited in acquisition announcements, it does make for an interesting nugget of information alongside this M&A saga.
It’s more than half of the shareholding 777 Partners was said to have in R&Q at the time of its acquisition attempt.
Was it fair to call these a shareholding if they were pledged as collateral elsewhere? Or did 777 have another 12.5% of R&Q’s shares, outside of the 23.2% shareholding cited?
Now these 34 million R&Q shares appear to have been forfeit to Vida to sell, although it’s not clear what, if any, value could still flow back to 777 from the sale.
For those interested, the notice of sale of the shares can be found here.
