Source - RNS
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 (£29.9 million at £1:$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:

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;

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;

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;

it is also expected that the liquidator will set aside a retention amount to meet any unascertained or unknown liabilities of the Company; and

an exchange rate of £1:$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 £0.4 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
 
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