Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Ballantyne Re life ILS assets disbursed to investors as restructure completed


The Scottish Re sponsored 2006 Ballantyne Re Ltd. Regulation XXX life insurance-linked securities (ILS) transaction has finally been fully wound up, as a restructuring has been completed and the remaining assets in the reinsurance trust account disbursed to investors.

payments-money-cash-ils-reinsuranceIt’s taken a long time for the Ballantyne Re transaction to reach this point, enabling investors to fully realise their losses, as a restructuring of the vehicle, a novation of the underlying reinsurance and winding up procedure has now been completed.

Ballantyne Re has a long and chequered history in the ILS market, being one of the life insurance-linked securities (life ILS) transactions that had its collateral invested in particularly risky assets.

The Ballantyne Re life ILS saw 95% of the collateral invested in a portfolio of sub-prime residential mortgage-backed securities (RMBS) and other alternative asset backed securities (ABS) which faced significant mark-to-market losses and extremely poor performance, resulting in around $1 billion of investment losses between May 2006 and October 2008.

There were a number of attempts to stabilise or improve the performance of the portfolio of investment assets, but the losses remained and noteholders appeared stuck with them

It was assumed that Ballantyne Re would struggle to return much capital to investors following the huge mark-to-market losses on the assets in the underlying collateral accounts, but now investors have been able to secure what little principal value was left in the notes after the restructuring and winding up was completed.

According to insurer Ambac, which had provided a financial guarantee related to Ballantyne Re, the Ballantyne Re plc restructuring program has now closed and as a result the insurer has been able to eliminate its $900 million of insured Ballantyne net par exposure.

The restructure featured a novation of the indemnity reinsurance agreement between Ballantyne and Security Life of Denver Insurance Company to Swiss Re Life and Health America Inc, as well as the disbursement of assets from Ballantyne’s reinsurance trust account to effectuate the novation and make payment to noteholders and the commutation of Ambac UK’s obligations related to Ballantyne’s Ambac UK guaranteed notes

Ballantyne is now expected to be wound-up by way of a solvent liquidation.

Claude LeBlanc, President and Chief Executive Officer of Ambac commented on the news, “The closing of the Ballantyne restructuring,  Ambac UK’s largest Adversely Classified Credit, advances our de-risking strategy, improves the quality of our Book Value, materially increases our Adjusted Book Value and significantly strengthens Ambac UK’s regulatory capital position.” Mr. LeBlanc continued, “We believe the Ballantyne restructuring furthers our strategy of stabilizing our insurance platform.”

As we explained previously, the restructuring plan proposed that Class A noteholders would receive a payment for roughly 51% of the par value of the Scheme Notes, while Class A-2a noteholders could receive 17.4% of the par value and Class A-3 noteholders 14.5%. It’s assumed those percentages remained once the restructuring was underway.

So that appears to be it for the noteholding investors that had Ballantyne Re notes sitting in their portfolios, with any recovery likely very welcome after the drawn out process that has been seen since the notes were first affected by poor investment decisions for their collateral as long ago as 2006.

Read some of our older articles on the Ballantyne Re deal:

Ballantyne Re life insurance securitization default almost inevitable (Sept 2011)

Loss faced by Ballantyne Re life securitization investors becomes clearer (Aug 2012)

Ballantyne Re Reg XXX life securitization investors facing losses: Fitch (Jul 2013)

S&P withdraws Ballantyne Re Reg XXX life securitization ratings (Nov 2015)

J.P. Morgan to pay $400m to settle Orkney Re II & Ballantyne Re cases (Mar 2017)

Ballantyne Re life ILS investors to finally realise losses in restructuring. (Apr 2019)


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