To sell or not to sell: EEA investors facing ‘dismal’ options

Added 20th June 2016

Investors in beleaguered Guernsey-based EEA Life Settlements Fund are stuck between the devil and the deep blue sea as they decide whether to sell their shares at a heavily discounted price or face another 10 years in the failed fund.

To sell or not to sell: EEA investors facing ‘dismal’ options

Investors reportedly face selling their shares at a “dismal”, heavily discounted price compared with the net asset values (NAV) published by EEA. 

In an update to shareholders, David Trinkwon, founder of the EEA Investors’ Group, expressed concern that many potential sellers are not aware of the full picture.

He wrote: “After losing up to 40% of their original capital to date, with future losses still to come because of the EEA policy sale in September 2015, investors are now facing another 70% discount to avoid being locked into this failed fund for another 10 years.”

History

Investors have been stuck in the $410m (£285.5m, €363.5m) fund since 2011.

Launched in 2005, the EEA fund experienced a rush of redemptions in 2011 after the UK’s then Financial Services Authority (FSA) waned retail investors not to invest in what it controversially called “death bonds”.

The fund resumed trading in 2014 after the Guernsey Financial Services Commission approved a restructure that divided the shares into continuing for those wishing to remain invested and run-off for those wanting out.

Secondary sale

Several million pounds have already been registered by run-off investors with Tullett Prebon Alternative Investments (TPAI) to sell their shares in an already delayed secondary sale.

However, run-off investors choosing to sell via TPAI, which has a closing date of 24 June, face losing an estimated 10-12% redemption payment scheduled for the end of June 2016, Trinkwon warned.

He wrote: “EEA have repeatedly refused requests to exercise their distraction to re-schedule their redemption date to avoid the clash with the share sale and pay the accrued cash to the existing investors. This means that the buyers of any shares will get an immediate ‘rebate’ of almost half of their purchase amount, potentially followed by a similar amount over the next six months, and ongoing payments thereafter.”

Another offer

Trinkwon also warned that, by selling through TPAI, eligible shareholders will also miss out on a better offer currently available from another regulated London broker, Southey Capital, which is offering 3-4 percentage points more per share than TPAI.

Southey, however, will also be taking the benefit of any upcoming redemption payment from EEA. There is no current deadline for offers to sell through Southey Capital.

Continuing share offer

In addition to the run-off share sale, Southey and Guernsey-registered broker Ravenscroft have offered to buy continuing shares at 40-50% of NAV.

According to Trinkwon, EEA has sent two letters to shareholders to publicise the TPAI sale process, but has not sent any letters informing them of other possible buyers.  

The TPAI offer

In August 2015, EEA wrote to run-off shareholders to advise that it had been in discussions with TPAI about running a secondary sale process for run-off shareholders.

TPAI offered to match its clients, who have indicated that they wish to purchase run-off shares, with EEA run-off shareholders looking to sell.  

Scheduled for March or April 2016, caution was urged by Trinkwon. In an email, he advised run-off shareholders to register with TPAI but cautioned them to proceed carefully.

He wrote: “Registration with TPAI is non-binding but a decision to sell must be made during April 2016 when a strike price has been provided to the potential sellers by TPAI. [Investors] will then have to decide whether or not to accept the offer and commit some or all you [their] shares to the sale.”

Delay

Shareholders were dealt a further blow in April when a delay in the secondary sale was announced.

In an email to investors on 31 March, TPAI advised: “Due to the complex nature of this asset class, prospective bidders have requested additional time to complete their due diligence on the run-off share class. We will update those who have registered for the process over the next few weeks with an amended timeline for the strike price announcement.” 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 

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