Ballantyne Re life ILS investors to finally realise losses in restructuring

Investors in the Scottish Re sponsored 2006 Ballantyne Re Ltd. Regulation XXX life insurance-linked securities (ILS) transaction look set to finally realise their losses, as a restructuring of the vehicle, novation of the underlying reinsurance and winding up procedure has been proposed.

Ballantyne Re has a long and checkered history in the ILS market, being one of the life insurance-linked securities (life ILS) transactions that had its collateral invested in perhaps less than suitable assets.

Around the time of its issuance, prior to the global financial crisis, ILS transactions, especially longer-term life ILS deals, often had their collateral invested into asset classes that today you would never see in ILS.

In the case of the Ballantyne Re life ILS, 95% of the collateral had been invested in a portfolio of sub-prime residential mortgage-backed securities (RMBS) and other alternative asset backed securities (ABS).

But the portfolio of assets faced significant mark-to-market losses and extremely poor performance, resulting in around $1 billion of investment losses between May 2006 and October 2008.

Various efforts were taken over the ensuing years to stabilise or even improve the performance of the portfolio, but the losses remained a feature and noteholders appeared stuck with them, with little sign of a chance to realise them or trade out of the Ballantyne Re notes.

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.

Now, investors may at least get a chance to secure what little principal value is left in the notes, should the proposal for a restructuring and winding up of Ballantyne Re Ltd. be approved.

Under the proposed restructuring deal, the Class A noteholders could expect to receive a payment for roughly 51% of the par value of the Scheme Notes, while Class A-2a noteholders may receive 17.4% of the par value and Class A-3 noteholders 14.5%.

Funds will be disbursed from Ballantyne Re’s reinsurance trust account to novate the contracts and reimburse noteholders, should the winding up be approved.

A Lock-Up Support Agreement has been entered into with key noteholders, including Ambac and Assured Guaranty (who both provided financial guarantees related to Ballantyne Re) which secures their support for voting for the proposed restructuring scheme of arrangement.

If this all goes ahead, the Ballantyne Re noteholders and other creditors will at least realise their losses and benefit from any remaining value of the notes, finally putting Ballantyne Re to bed and enabling parties to move on from the transaction.

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)

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