Hudson Structured Capital Management Ltd., the insurance-linked securities (ILS), reinsurance and transportation focused investment manager, was the largest capacity provider to back a first transaction from a new financing solution for intellectual property assets created by broking group Aon.
Terming the solution “an innovative ILS friendly structure”, Edouard von Herberstein, Partner at Hudson Structured’s reinsurance investment unit HSCM Bermuda said that this financing of intangible intellectual property assets looks set to be a growth area.
Insurance and reinsurance broking group Aon has been working on solutions to assist organisations with their intangible and intellectual property assets, both from a financing and risk transfer point of view and this first transaction looks to achieve both for a client.
The broker has announced the launch of its Intellectual Property (IP) Capital Market Solution and the close of an IP-backed lending transaction worth over $100 million, which it says is believed to be the largest such transaction ever consummated.
“Aon is committed to helping clients navigate an increasingly complex world. The launch of this solution is a watershed moment, bringing together innovative lenders and insurance markets with Aon’s industry-leading, proprietary valuation technology to create a new alternative financing opportunity for IP-rich companies,” explained Greg Case, Chief Executive Officer of Aon. “Intangible assets are the foundation of today’s global economy, and Aon is innovating first-generation solutions to help companies both protect and maximize the value of these important assets.”
The first transaction saw Indigo Ag, a high-growth, IP-rich agricultural technology company, borrowing more than $100 million from a lender and using its intellectual property as collateral.
The value of that collateral has been insured by a group of insurance markets led by Markel Specialty. But ILS and reinsurance specialist investor Hudson Structured Capital Management (HSCM) was the largest capacity provider, Aon explained.
von Herberstein os HSCM Bermuda said, “We are excited to participate in the financing of IP assets through an innovative ILS friendly structure. This is yet another example of insurance and insurance-linked securities markets offering risk transfer solutions for intangible assets. We believe there are significant and growing opportunities and interest in that sector.”
Jim Gray, Executive Underwriting Officer of Professional Liability at Markel Specialty, added, “Markel is proud to have worked with Aon in crafting a unique solution, and look forward to building this new market with Aon in the future.”
Aon arranged an IP Collateral Insurance policy in excess of $100 million for the lender, a bespoke policy which Aon believes is the largest of its kind.
Leveraging proprietary intellectual property valuation tools and a collateral protection insurance policy, the arrangement has enabled an IP-backed debt structure that helped Indigo raise additional funds while avoiding any equity dilution.
“As an innovative company using microbial and digital technologies to facilitate positive transformation of the agriculture system, Indigo sought to find a way to collateralize its extensive IP asset portfolio,” explained Jim Young, Indigo’s Chief Financial Officer. “In a first of its kind deal, Aon leveraged an approach that articulated the value of our IP – making it a true capital asset – which allowed us to secure a significant amount of non-dilutive debt financing.”
Because of the fact intellectual property is typically hard to value and considered intangible, many organisations look to dilutive equity approaches to finance growth.
“Aon is helping to provide innovative growth companies with a path to non-dilutive growth capital that preserves the ownership and value for their founders and early investors,” Lewis Lee, CEO, Aon’s IP solutions explained. “We are excited to enable them to unlock this valuable asset and are now positioned to facilitate a wide range of transactions.”
Hudson Structured has an appetite for a diverse range of insurance and reinsurance linked investments, with this innovative intellectual property collateral provision seemingly right in the managers’ wheelhouse as it looks to source interesting opportunities for its investors.
It’s encouraging to see ILS market support put behind an innovative arrangement that helps companies better recognise the value that is often locked-up in intangibles such as intellectual property.
It’s another great example of bringing together data analytics, with traditional insurance processes and capital markets technology from ILS specialists to create a unique financing and risk transfer product that could close an evident gap and as a result support growth for organisations with value locked up in their IP.