Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Heritage to redeem private debt from Fermat & Hudson Structured


Heritage Insurance Holdings, Inc. is changing its capital structure, adding a new $125 million credit facility, the proceeds of which will be used to redeem previous financing including private debt that ILS specialists Fermat Capital Management and Hudson Structured had invested in.

The U.S. primary property and casualty insurance group said it has arranged a $125 million secured credit facility with Regions Bank acting as the Administrative Agent, featuring a $75 million term loan and a $50 million revolving credit facility.

The proceeds along with other company funds will be put to work to redeem $79.5 million of Heritage’s outstanding senior secured notes, the company said, as well as to repurchase $72.7 million of its outstanding convertible senior notes.

The $79.5 million of senior secured is the private debt arrangement that ILS fund managers Fermat Capital Management and Hudson Structured Capital Management invested in back in 2016.

The two ILS managers led the $79.5 million private debt investment for Heritage, alongside other unnamed financial institutions, backing the senior secured private debt notes that were expected to yield three-month LIBOR plus 8.75% until 2023.

Heritage said it expected to pay a $2.4 million premium expense in the fourth quarter 2018 due to this early redemption of the $79.5 million senior secured notes.

That suggests an early redemption bonus of sorts for the two ILS fund managers that had invested in the private insurance debt.

Bruce Lucas, Chairman & CEO of Heritage Insurance Holdings, said, “Improving our capital structure and retiring our convertible notes has been a key focus over the past year and these transactions are a significant enhancement. Our new capital structure reduces debt service by almost 50% on favorable terms and conditions, and will generate higher net income for the Company for the forseeable future.”

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