TIDMTLI
RNS Number : 6253J
Alternative Asset Opps PCC Ltd
13 September 2016
For immediate release on 13 September 2016
THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION
Alternative Asset Opportunities PCC Limited
Proposed Changes to the Investment Objective and Policy
to facilitate the Proposed Disposal of the Portfolio
The Board of Alternative Asset Opportunities PCC Limited (the
"Company") announced on 23 June 2016 that it was exploring the
possibility of a sale of the portfolio and to that end had provided
information on the Company's portfolio of policies to certain
interested parties. The Board is pleased to announce today that is
has conditionally agreed to sell 71 of the Company's 80 policies
for a total cash consideration of $40.0 million, subject to
adjustment (the "Disposal"). The Disposal will require changes to
the Company's current investment objective and policy which are
material and therefore are subject to the approval of Shareholders
in accordance with the Listing Rules and the Articles (the
"Proposal").
The Proposal, if approved, will result in the amendment of the
current investment objective and policy of the Company in order to
implement the Disposal. The Company will remain a listed investment
trust, but with the sole purpose of completing the Disposal and
returning cash to Shareholders. It is expected that following
completion of the Disposal the Company will soon thereafter put
forward proposals for a members' voluntary winding up or other
restructuring and further details will be sent to Shareholders in
due course.
The Company will shortly be publishing a circular (the
"Circular") containing details of the Proposal and the Disposal
which will be sent to Shareholders and submitted to the National
Storage Mechanism.
The Chairman's Letter, as contained in the Circular, is set out
below.
Terms used and not defined in this announcement bear the meaning
given to them in the Circular.
"Dear Shareholder
Proposed Changes to the Investment Objective and Policy to
facilitate the Proposed Disposal of the Portfolio and Notice of
Extraordinary General Meeting
1. INTRODUCTION
The Company is a protected cell company registered in Guernsey
and was established with one cell known as the US Traded Life
Interests Fund (the "Cell"). All references to the Company mean a
reference to the Company acting on behalf of the Cell, unless the
context requires otherwise. On 23 June 2016, the Board announced
that it had provided information on the Company's portfolio of
policies to certain interested parties in order to explore the
possibility of a sale of the portfolio. Your Board has now
concluded that it would be in the best interests of Shareholders as
a whole to dispose of all 80 policies currently held in the
portfolio and has conditionally agreed to sell 71 of these policies
to Vida for a total cash consideration of $40.0 million, subject to
adjustment (the "Disposal"). This will require changes to the
Company's current investment objective and policy, which are
material and therefore are subject to the approval of Shareholders
in accordance with the Listing Rules and the Articles.
2. BACKGROUND TO AND REASONS FOR THE PROPOSAL
The Company's strategy to date has been to hold the majority of
its policies to maturity, with the possibility of policy sales
being kept under review. In addition, in the event of a regular
flow of policy maturities, the Company expected to be in a position
to return funds to Shareholders. Although the level of maturities
experienced by the Company in the year ended 30 June 2014, at $17.4
million (representing 13 policies on 12 lives), was the highest in
the Company's history, in the following financial years to 30 June
2015 and 2016 aggregate maturities were significantly lower,
amounting to $10.9 million (representing 4 policies on 4 lives),
and $14.0 million (also 4 policies on 4 lives) respectively. The
first maturity in the current financial year, amounting to $1.2
million, was announced on 31 August 2016. The Company returned 2
pence per share to Shareholders on 1 August 2014 and a further 2
pence per share on 20 March 2015.
While the number of policy maturities over the last two
financial years to 30 June 2016 has been relatively small (8
policies on 8 lives) the Company has been fortunate in that each
maturity has averaged over $3 million, which has resulted in the
Company having cash balances as at 31 July 2016 amounting to $6.3
million, with the Company's $10 million debt facility remaining
undrawn. However, in light of the unexpectedly slow rate of
maturities experienced by the Company, the premiums which need to
be paid continue to be a very material expense and, in the absence
of further maturities, are expected to amount to $9.7 million for
the 12 months from 1 September 2016.
Furthermore, in the months preceding the announcement of a
possible disposal of the portfolio on 23 June 2016, the Company
became aware of the potential for insurers to apply increases to
premium rates, known as "cost of insurance" ("COI") increases. This
was highlighted in the half yearly report for the six months to 31
December 2015 and in specific announcements released on 11 May 2016
and 26 May 2016. To date, 15 policies, with a face value of $16.6
million, will see COI increases ranging from 5 per cent. to 100 per
cent. and the portfolio contains a further 10 policies with a face
value of $14.0 million issued by insurance groups known to have
already applied COI increases elsewhere, but where the Company's
policies remain unaffected. The Company has recently been made
aware of planned COI increases in relation to six policies issued
by a further insurer, but no details have yet been provided and
accordingly these policies were not included in the offer by Vida
referred to below. While there has been significant industry
dispute, including legal action, over the appropriateness of such
increases, there can be no certainty that any dispute or legal
action will produce a favourable result for the Company, nor is it
likely that such matters will be resolved quickly.
The value of the Company's portfolio as at 31 July 2016 amounted
to $43.3 million. Notified COI increases, including significant
increases in respect of four Transamerica policies, were included
in the latest announcement of Net Asset Value as at 31 July 2016
released on 17 August 2016, although no account has been taken of
the possible COI increases by a further insurer referred to above
since the Company is currently aware only of the intention to apply
a COI increase and has no information as to timing or quantum.
In light of the proposed offer by Vida of $40.0 million for 71
of the 80 policies in the portfolio, the Board, in conjunction with
its advisers, has reappraised whether it should continue to hold
the policies to maturity or whether it should take the opportunity
to dispose of the portfolio, by selling 71 policies to Vida and
seeking to conclude agreements for the sale of the remaining nine
policies as soon as practicable. In reaching its decision to
recommend the Proposal, which will result in the completion of the
Disposal, the Board was influenced by several key factors,
including:
-- the premium of approximately 7.1 per cent. of Vida's offer
over the most recent book valuation of those policies to which the
offer relates;
-- the significant premium of the resulting NAV following the
offer over the prevailing share price;
-- the relatively slow level of maturities the Company has experienced;
-- the current weakness of Sterling, which means that the
proceeds in Sterling terms are likely to be materially better than
they would have been in the first half of 2016;
-- the uncertainty over whether further COI increases will be
applied and whether any action to mitigate them will be
successful;
-- the decreasing number of policies remaining in the Company's portfolio; and
-- the running costs of the Company which, as the policies
mature and the Company's asset base shrinks, become a higher
proportion of NAV.
The Company's market capitalisation is now approximately $39.7
million (GBP29.9 million at GBP1:$1.33). The monthly running costs
of the Company are approximately $875,000, of which some 91 per
cent. represents the cost of the premiums, but the overheads of the
Company become harder to justify as further policies mature and the
size of the Company shrinks.
3. THE PROPOSAL
The purpose of this Circular is to explain the background to,
reasons for and benefits of the Proposal and to convene an
Extraordinary General Meeting to seek the approval of Shareholders.
The notice convening that meeting, which will be held on 10 October
2016 at 10.30 a.m., is set out in Part III of this Circular. The
Directors unanimously recommend that Shareholders vote in favour of
the resolution, as they intend to do in respect of their own
beneficial holdings totalling 1,682,854 Shares, to approve the
Proposal at the Extraordinary General Meeting (the
"Resolution").
The Proposal set out in this Circular is to amend the current
investment objective and policy of the Company in the manner set
out in paragraph 6 below. The Proposal is subject to the approval
of Shareholders and this Circular contains a notice of the
Extraordinary General Meeting at which the Resolution will be
considered.
The Proposal, if approved, will result in the amendment of the
current investment objective and policy of the Company in order to
implement the Disposal. In addition, the Company will remain a
listed investment trust, but with the sole purpose of completing
the Disposal and returning cash to Shareholders. It is expected
that following completion of the Disposal the Company will shortly
thereafter put forward proposals for a members' voluntary
winding-up or other restructuring and further details will be sent
to Shareholders in due course.
In the event that the Resolution to be proposed at the
Extraordinary General Meeting is not passed, the Company will
continue to operate under its current investment objective and
policy and the Board will consider alternative proposals for the
future of the Company.
4. THE DISPOSAL
The Company conducted a thorough sales process, inviting bids
from a large number of interested parties and negotiating with
several before agreeing terms with Vida Longevity Fund, L.P.
("Vida"). Vida has completed its due diligence on the portfolio and
the Sale and Purchase Agreement between the Company and Vida,
conditional inter alia on the approval by Shareholders of the
Resolution, was entered into on 12 September 2016.
The Purchaser
The purchaser is Vida, a limited partnership registered in
Delaware, which is managed by Vida Capital Inc., an institutional
asset manager focused on providing longevity-contingent investment
solutions to institutions and individual investors. Vida Capital
Inc. currently manages both open- ended hedge fund and closed-end
private equity structured investment solutions.
The Sale and Purchase Agreement
The Company has entered into an asset purchase agreement with
Vida on 12 September 2016 (the "Sale and Purchase Agreement").
Under the Sale and Purchase Agreement, the Company will sell all of
its rights, title and interest in 71 policies to Vida. The
aggregate consideration to be paid for all the policies is
$40,000,000 plus the actual amount of premium paid by the Company
to keep all policies valid and in force after 12 September 2016 and
up to the date on which each policy is transferred to Vida (the
"Aggregate Purchase Price").
The Sale and Purchase Agreement is conditional upon:
-- the payment by Vida of the Aggregate Purchase Price into an
escrow account within three business days of the execution of the
Sale and Purchase Agreement; and
-- Shareholders approving the Resolution within forty (40)
calendar days of the date of this Circular.
Subject to the conditions of the Sale and Purchase Agreement
being fulfilled, the funds held in the escrow account will be
released over time to the Company as and when the transfer of
rights, title and interest in the policies is registered and
acknowledged by the insurance company (or companies) issuing such
policies, and the satisfaction of any other closing conditions in
the Sale and Purchase Agreement.
The Company and Vida have each given certain standard
representations, warranties, covenants and agreements under the
Sale and Purchase Agreement. Each party has also agreed to
indemnify the other party for any losses (and related expenses)
arising out of a material breach of these representations,
warranties, covenants and agreements, such right to survive until
the date that Shareholders approve proposals for a winding-up of
the Company and the appointment of liquidators.
The Sale and Purchase Agreement is governed by the laws of the
State of New York and any dispute will be referred to
arbitration.
In the event that Shareholders approve the Resolution, it is
expected that completion of transfers of the individual policies
comprising the Disposal will take place on a weekly basis, with
most of the transfers being completed within the following 3-4
weeks.
5. BENEFITS AND RISKS OF THE PROPOSAL
Benefits
The Board believes that the Proposal offers the following
significant benefits to Shareholders:
-- The sale price of the Disposal represents a premium of
approximately 7.1 per cent. to the book valuation of those policies
comprising the Disposal as at 31 July 2016.
-- Following completion of the Disposal and the winding-up, on
the basis of the assumptions set out below, Shareholders should
expect to receive a capital return per Share which in aggregate is
likely to be at a significant premium to the current Share price of
41.5 pence on 12 September 2016:
o receipt of proceeds of $40.0 million pursuant to the Disposal
and further material proceeds pursuant to the sale of the remaining
nine policies in the portfolio;
o transaction costs are expected to amount to approximately 0.6
pence per Share including fees payable to the Investment Manager
and the expenses incurred in relation to this Circular and the
Disposal;
o the eventual costs of winding-up the Company, including
premiums, the running expenses of the Company and the Shareholder
resolutions, are estimated to be approximately 0.6 pence per
Share;
o it is also expected that the liquidator will set aside a
retention amount to meet any unascertained or unknown liabilities
of the Company; and
o an exchange rate of GBP1:$1.33.
A more accurate estimate of the likely aggregate capital return
per Share can be made following the entry into agreements for the
sale of the remaining nine policies. Based on the above
assumptions, together with values for the remaining nine policies
of either zero or $5.3 million (being the book value as at 31 July
2016), would give a range of approximately 47 pence to 53 pence per
share.
Shareholders should note that the above estimate of the range of
amounts which could be returned to Shareholders following
completion of the Disposal is for illustrative purposes only and
should not be relied upon.
Risks
In considering your decision in relation to the Proposal, you
are referred to the risks set out below.
Shareholders should read this Circular carefully and in its
entirety and, if you are in any doubt about the contents of this
Circular or the action you should take, you are recommended to seek
immediately your own personal financial advice from your
stockbroker, bank manager, solicitor, accountant or other
independent financial adviser authorised under the Financial
Services and Markets Act 2000 immediately or, if outside the United
Kingdom, another appropriately authorised financial adviser.
Only those risks which are material and currently known to the
Company have been disclosed. Additional risks and uncertainties not
currently known to the Company, or that the Company currently deems
to be immaterial, may also have an adverse effect on the Company.
The risks associated with the Proposal are:
-- There is no guarantee that the Company will achieve its
investment objective and policy as amended, because the Disposal
may not be completed.
-- Completion of the Disposal may take longer than expected and
therefore the eventual winding-up or other restructuring may be
delayed.
-- In addition to Shareholder approval, the Disposal is also
conditional on each relevant insurance company consenting to the
change in beneficial ownership of the policy and accordingly there
can be no certainty that the Disposal will be completed.
-- If consent to the change in beneficial ownership of the
individual policies by the relevant insurance company is not
received within 120 days after the date of request, such policies
will be excluded from the sale and the Disposal, excluding those
policies and with appropriate adjustments for such exclusions, will
proceed. In such circumstances, the Company would be left holding
one or more individual policies and, together with the nine
policies not being acquired by Vida, it may not be possible to
realise such policies at their underlying book value. In addition,
the Company will be responsible for the payment of premiums on such
"rump" policies and the subsequent disposal of these policies may
cause further delay in the eventual winding-up or other
restructuring of the Company.
-- While the Board has used its best endeavours to estimate the
costs of the Disposal and the subsequent winding up, the cost
figures provided above are provisional only and are likely to
increase in the event of delays to the timetable.
-- The Company's current investment objective and policy does
not provide for currency hedging and, since the sale price is
denominated in Dollars, the eventual Sterling amount received by
the Company following completion of the Disposal will be influenced
by movements in the Sterling:Dollar exchange rate. Adverse
movements in the exchange rate - that is to say a weaker Dollar
relative to Sterling - will reduce the aggregate capital return per
share ultimately made.
6. PROPOSED CHANGES TO INVESTMENT OBJECTIVE AND POLICY
Implementation of the Proposal will require material changes to
the Company's current investment objective and policy. The
Company's current investment objective and policy and the proposed
changes are set out below.
Current Investment Objective and Policy
"The Company's objective in respect of the Fund is to provide
investors with an attractive capital return through investment
predominantly in a diversified portfolio of US Traded Life
Interests. The Company has invested the assets of the Fund in a
range of TLIs on the lives of US citizens aged, at the time of
acquisition, between 78 and 92 years. All TLIs acquired are
Whole-Of-Life policies or Universal Life policies. No viatical
policies (that is, a policy on the life of an Insured who is
terminally ill and with a life expectancy of less than 2 years)
were acquired. The TLIs acquired were policies issued by a range of
US life insurance companies. Each underlying life insurance company
had an A.M. Best or a Standard & Poor's credit rating of at
least "A" at the time of acquisition of the relevant policy. A.M.
Best is a US credit rating agency which provides the most
comprehensive coverage of the US life company sector. Not more than
15 per cent. of the gross assets of the Fund, at the time of
purchase, were invested in life policies issued by any single US
life insurance company or group. The Board has overall
responsibility for allocating the assets of the Fund in accordance
with the investment objective and policy. The Investment Manager is
responsible, inter alia, for monitoring on behalf of the Board,
that the TLIs held are consistent with the Fund's investment
objective and policy.
The Company may borrow a principal sum of up to 75 per cent. of
the Fund's Net Asset Value to be applied in meeting TLI acquisition
costs, premium payments and other expenses. It is intended that the
proceeds of TLIs which mature are used, after the deduction of
expenses:
-- first, to reduce and then eliminate bank borrowings under the Facility Agreement; and
-- secondly, to return capital to Shareholders as determined by the Board.
Pending the return of capital to Shareholders of the Fund, the
cash proceeds of TLIs may be invested in a portfolio that may
include US treasury bonds, UK gilts and Sterling-denominated
corporate bonds with a minimum rating of AA by Standard &
Poor's or an equivalent rating by another rating agency.
The Company (in respect of the Fund) does not intend to use
currency hedging. As a result, Shareholders will be exposed to
currency risk. The Company retains the right (in respect of the
Fund) to vary the policy on currency hedging subject to Shareholder
approval.
Whilst the Company does not intend to use derivatives as a part
of its investment strategy, the Directors retain the discretion to
employ derivatives for investment purposes or for hedging."
Proposed Investment Objective and Policy
In view of the Proposal to complete the Disposal, return capital
to Shareholders and put forward proposals for a members' voluntary
winding-up or other restructuring of the Company, it is proposed
that the Company's entire existing investment objective and policy
be replaced and, subject to the Resolution being passed at the
Extraordinary General Meeting, the Company will adopt and adhere to
the following investment objective and policy:
"The investment objective and policy of the Company in respect
of the Fund is to conduct a sale of its portfolio: (i) to Vida
Longevity Fund, LP for a total cash consideration of $40.0 million,
subject to adjustment in respect of the value of policies excluded
from the sale, on the terms set out in the Sale and Purchase
Agreement which has been entered into between Vida Longevity Fund,
LP and the Company on 12 September 2016; and (ii) to other parties,
both as described in the circular to Shareholders dated 13
September 2016. Thereafter the Company will return cash to
Shareholders and proceed towards a members' voluntary winding-up,
or other restructuring, subject to the further approval of
Shareholders.
Pending the return of cash to Shareholders of the Fund, cash
balances may be invested in a portfolio that may include US
treasury bonds, UK gilts and Sterling-denominated corporate bonds
with a minimum rating of AA by Standard & Poor's or an
equivalent rating by another rating agency. The Company (in respect
of the Fund) does not intend to use gearing."
In the event that the Resolution to be proposed at the
Extraordinary General Meeting is not passed, the Company will
continue to operate under its current investment objective and
policy and the Board will consider alternative proposals for the
future of the Company.
7. COSTS OF THE PROPOSAL
It is expected that the costs of the Proposal, including fees
payable to the Investment Manager in connection with the Disposal
and other expenses, will amount to GBP0.4 million in aggregate
(approximately 0.6 pence per Share) and these costs will be borne
by the Shareholders and the Net Asset Value will reduce
accordingly.
8. EXTRAORDINARY GENERAL MEETING
Set out at the end of this Circular is a notice convening an
Extraordinary General Meeting to be held at 10.30 a.m. at the
office of Allianz Global Investors GmbH, UK Branch, 199
Bishopsgate, London EC2M 3TY on 10 October 2016, at which an
ordinary resolution will be proposed to amend the Company's
investment objective and policy.
All Shareholders are entitled to attend and vote at the EGM. In
accordance with the Company's Articles of Incorporation, each
Shareholder present in person or by proxy (or, if a corporation, by
a representative) shall upon a show of hands have one vote and upon
a poll shall have one vote for every Share held. Two Shareholders
present in person (or by proxy) holding 5 per cent. of the issued
share capital of the Cell between them (excluding any Shares held
as treasury shares) will constitute a quorum.
9. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of this Circular will be available for inspection at the
offices of Herbert Smith Freehills LLP, Exchange House, Primrose
Street, London EC2A 2EG and at the registered office of the Company
during normal business hours on any Business Day from the date of
this Circular until the conclusion of the Extraordinary General
Meeting and at the place of the Extraordinary General Meeting for
at least 15 minutes prior to, and during, the meeting.
A copy of this Circular has been submitted to the National
Storage Mechanism and will shortly be available for inspection at:
www.morningstar.co.uk/uk/NSM.
10. ACTION TO BE TAKEN
You will find enclosed with this Circular a Form of Proxy for
use at the EGM. Whether or not you propose to attend the EGM in
person, you are asked to complete the Form of Proxy and return it
to Capita Asset Services, at PXS1, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4ZF so as to arrive as soon as possible, but in
any event so as to be received not later than 10.30 a.m. on 6
October 2016. Completion and return of a Form of Proxy will not
preclude you from attending and voting at the EGM in person if you
wish.
If you are in any doubt as to what action you should take, you
are recommended to seek your own personal financial advice from
your stockbroker, bank manager, solicitor, accountant or other
independent financial adviser authorised under the Financial
Services and Markets Act 2000 immediately, or, if outside the
United Kingdom, another appropriately authorised financial
adviser.
If you have any questions regarding the Form of Proxy please
contact Capita Asset Services on 0371 664 0321. Calls are charged
at the standard geographic rate and will vary by provider. Calls
outside the United Kingdom will be charged at the applicable
international rate. The helpline is open between 9.00 a.m. - 5.30
p.m., Monday to Friday excluding public holidays in England and
Wales. Please note that Capita Asset Services cannot provide any
financial, legal or tax advice and calls may be recorded and
monitored for security and training purposes.
11. RECOMMENDATION
In the Board's opinion, the Proposal is in the best interests of
the Company and its Shareholders as a whole. Accordingly, your
Board unanimously recommends that Shareholders vote in favour of
the Resolution to be proposed at the Extraordinary General Meeting,
as they intend to do in respect of their own beneficial holdings
which amount to, in aggregate, 1,682,854 Shares (representing 2.3
per cent. of the existing issued Share capital of the Cell as at 12
September 2016, the last practicable day prior to publication of
this Circular).
Yours faithfully
Charles Tracy
Chairman"
Enquiries
Stockdale Securities Limited 020 7601 6118
Alastair Moreton/Rose Ramsden
Tracey Lago 020 3246 7405
Company Secretary
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCUUSRRNVAKAUR
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September 13, 2016 02:01 ET (06:01 GMT)
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