Scottish Re Group Ltd (fka SKRRF)

[Enterprising Investor]

Scottish Re Group Limited Announces Agreement for a Cash Out Merger of its Ordinary Shares with Affiliates of its Controlling Shareholders as well as an Agreement to Unwind the Orkney I Securitization and to Cede the Orkney I Block of Business

Company Release - 04/15/2011 18:00

HAMILTON, Bermuda--(BUSINESS WIRE)-- Scottish Re Group Limited (“Scottish Re” or the “Company”) (Pink Sheets: SKRRF) announced today that it entered into agreements with respect to two significant transactions. First, the Company entered into a merger agreement as explained below pursuant to which a newly formed subsidiary of its controlling shareholders, SRGL Acquisition, LDC (an affiliate of Cerberus Capital Management, L.P. (“Cerberus”)) and certain affiliates of Massachusetts Mutual Life Insurance Company (“MassMutual Capital” and, together with Cerberus, the “Investors”), will merge into Scottish Re and all Ordinary Shares of non-affiliate holders will be converted into the right to receive a cash amount equal to $0.30 per share (approximately $21 million in aggregate), an 87.5% premium over the average trading price of the Ordinary Shares over the past three months, which amount will be funded solely by the Investors. As a result, all of the outstanding Ordinary Shares will be owned by affiliates of the Investors. Second, the Company entered into agreements to unwind the 2005 Orkney I securitization transaction and to cede the Orkney block of business to Hannover Life Reassurance Company of America (“Hannover Life Re”), as explained more fully below. Each of these transactions is subject to certain conditions; however, neither transaction is conditioned upon completion of the other, and it is possible that the merger agreement may be effected without the Orkney transaction being consummated and vice versa.

Merger Agreement

On April 15, 2011, Scottish Re entered into an agreement and plan of merger (the “Merger Agreement”) with affiliates of the Investors, pursuant to which an affiliate of the Investors will be merged into Scottish Re and Scottish Re will continue as the surviving entity. Under the plan of merger, all Ordinary Shares (other than Ordinary Shares held by shareholders that properly exercise appraisal rights under the laws of the Cayman Islands and Ordinary Shares held by the Investors or affiliates of the Investors) will be converted into the right to receive $0.30 per share, which represents a premium of $0.14 (or 87.5%) over the average trading price of the Ordinary Shares over the past three months (collectively, the “Merger”). The Merger consideration to the Ordinary Shares, which is expected to be approximately $21 million in aggregate, will be funded solely by the Investors. Following the effectiveness of the Merger, all of the outstanding Ordinary Shares of Scottish Re will be owned by affiliates of the Investors. The Company’s Convertible Cumulative Participating Preferred Shares and its Non-Cumulative Perpetual Preferred Shares will be unaffected by the Merger and remain outstanding. Under the terms of the Registration Rights and Shareholders Agreement, dated May 2007 among the Company, MassMutual Capital, Cerberus and certain other shareholders (the “Shareholders Agreement”), any agreement for the Company to merge with the Investors or an affiliate of the Investors requires the prior approval of a majority of disinterested directors of Scottish Re’s Board of Directors (the “Board”). To this end, a special committee of the Board, comprised of disinterested directors, was appointed to consider, and determine whether to recommend to the full Board that the Company engage in, the Merger. In connection with the Merger, Houlihan Lokey acted as the special committee’s financial advisor.

Completion of the Merger is subject to a number of conditions, including (a) approval by the Company’s shareholders, including a majority of the Ordinary Shares held by non-affiliates attending and voting at the shareholders meeting (whether in person or by proxy) and (b) receipt of required governmental consents and approvals. Consummation of the Orkney I Unwind Transaction described below is not a condition to the completion of the Merger.

The Merger Agreement permits Scottish Re to solicit, receive, evaluate and enter into negotiations with respect to alternative proposals for a 45 day “go-shop” period beginning April 15, 2011. The special committee, with the assistance of its independent advisors, will solicit alternative proposals for the acquisition of the Ordinary Shares during this period. The Merger Agreement also provides the Investors with a customary right to match a superior proposal. There can be no assurance, however, that this process will result in a superior proposal.

Daniel Roth, Chief Financial Officer of Scottish Re, indicated that “this merger proposal by our controlling shareholders provides holders of our Ordinary Shares the opportunity to achieve liquidity at an attractive premium to the current trading price. At the same time, the Merger will allow the Company to simplify its capital and ownership structure without the use of Company funds.”

Scottish Re will be preparing and sending to shareholders in connection with the shareholders meeting an information statement containing more detailed information regarding the Merger. Assuming satisfaction of the conditions to closing, the Merger is expected to close in the second quarter of 2011. No assurances can be given that the conditions to closing will be satisfied and the Merger consummated.

Orkney I Unwind Transaction

On April 15, 2011, Scottish Re entered into agreements to unwind the 2005 Orkney I securitization transaction and to recapture from Orkney Re, Inc. (“Orkney Re”) and immediately cede to Hannover Life Re the defined block of level premium term life insurance policies issued by direct ceding companies between January 1, 2000 and December 31, 2003 (such defined block, the “Orkney Block”, and such transactions, as further discussed below, the “Orkney I Unwind Transaction”). The Orkney I Unwind Transaction will be accomplished in part pursuant to the Settlement and Release Agreement, dated as of April 15, 2011, by and among Orkney Re, its parent Orkney Holdings, LLC (“Orkney Holdings”), Scottish Re (U.S.), Inc. (“Scottish Re (U.S.)”), the Company, the financial guarantor of the Orkney Holdings notes, and the investment manager for the Orkney I securitization transaction (the “Settlement Agreement”). Contemporaneous with the transactions contemplated by the Settlement Agreement, Scottish Re (U.S.) will recapture the Orkney Block from Orkney Re (the “Orkney Recapture”) and immediately will cede the Orkney Block to Hannover Life Re pursuant to a coinsurance reinsurance agreement, effective January 1, 2011 (the “New Reinsurance Agreement”).

On the date of closing of these transactions, Scottish Re (U.S.) would effect the Orkney Recapture and receive recapture consideration from Orkney Re, which recapture consideration will be used in part to fund the ceding commission of $565 million due from Scottish Re (U.S.) to Hannover Life Re under the New Reinsurance Agreement. Any assets thereafter remaining in the accounts at Orkney Re will be released to Orkney Holdings. Such remaining assets will be used by Orkney Holdings to purchase all of the outstanding notes issued in 2005 by Orkney Holdings (the “Orkney Notes”) pursuant to privately negotiated purchase agreements (the “Note Purchase Agreements”) for an aggregate amount of $590 million, which represents a discount to the aggregate principal amount of $850 million of the Orkney Notes outstanding. Once repurchased, the Orkney Notes will be cancelled and Orkney Holdings will pay a dividend of any remaining assets to its parent, Scottish Re (U.S.).

Approximately $700 million of the aggregate principal amount of the Orkney Notes to be purchased are held by affiliates of Cerberus, one of our controlling shareholders. Cerberus previously informed the Company that Cerberus had acquired the Orkney Notes in the secondary market during 2009. None of the Company, Scottish Re (U.S.), Orkney Holdings, Orkney Re, or any of our other subsidiaries was a party to Cerberus’ purchase of the Orkney Notes. Under the terms of the Shareholders Agreement, the Company's execution of the Note Purchase Agreement with Cerberus requires the prior approval of the independent directors of the Board. To this end, a special committee of the Board, comprised of disinterested directors, was appointed to consider, and determine whether the Company should engage in, the Orkney I Unwind Transaction.

In connection with the Orkney I Unwind Transaction, Houlihan Lokey acted as the special committee’s exclusive financial advisor. BofA Merrill Lynch acted as exclusive financial advisor to the Company in connection with the reinsurance of the Orkney Block to Hannover Life Re.

The closing of the Orkney I Unwind Transaction, which is expected to occur in the second quarter of 2011, is subject to a number of closing conditions, including the receipt of required regulatory approvals. Consummation of the Merger described above is not one of the closing conditions. No assurances can be given that the conditions to closing will be satisfied and the Orkney I Unwind Transaction consummated.

“The Orkney I Unwind Transaction is consistent with our runoff strategy of reducing our reinsurance obligations and simplifying the operations of the Company. The transaction also strengthens the capital and surplus position of our primary U.S. operating subsidiary, Scottish Re (U.S.), and further positions it for removal of the Order of Supervision issued by the Delaware Department of Insurance in 2009,” stated Meredith Ratajczak, Chief Executive Officer of Scottish Re (U.S.).

http://www.snl.com/irweblinkx/file.aspx?IID=4021224&FID=11056708