20th Feb 2009 update email from Skandia

20th Feb 2009 update email from Skandia

Update – 20 February 2009 - Kaupthing Singer and Friedlander (Isle of Man) Limited (KSFIOM)

Scheme of Arrangement

At the hearing of 19 February, the liquidation of Kaupthing Singer and Friedlander (Isle of Man) Limited (KSFIOM) was again postponed with 9 April set as the next date for the court to convene.

At the next hearing, the final version of the proposed Scheme of Arrangement (SoA) will to be submitted by the Isle of Man Government.

Royal Skandia has had legal representation at each of the previous liquidation hearings, however we felt that this time it was appropriate for our views to be clearly outlined. We therefore submitted our own affidavit to the Isle of Man Government to make our position clear and also ensure our bondholders fully understand the support we have for them and the level of representation we are willing to make on their behalf. This affidavit is available to view via a link on our website or via request from our Helpdesk.

All other affected Insurance Companies joined us in this and submitted similar affidavits to ensure a strong, united message was conveyed to the Government.

Our affidavit states that, whilst we would prefer a SoA over liquidation because of the flexibility of a SoA and the potentially accelerated timetable for distributions, we nevertheless still have a number of concerns about the proposed SoA. These are as follows:

Firstly, as our primary aim is to work in the best interests of our bondholders, we have asked the Government to provide a clear and simple statement that the rights of creditors will not be prejudiced under the proposed SoA when compared to their rights under liquidation i.e. the return under the proposed SoA must be no less favourable than under liquidation. An important aspect of this is the treatment of foreign currency deposits and, in particular, clarification that the proposed SoA would not convert all non-sterling claims into sterling using rates applicable in on 9 October 2008 when KSFIOM ceased trading (as is proposed under the SoA) and, instead, conversion would occur in a manner similar to that which would apply if liquidation occurred i.e. at a date equivalent to a liquidation winding up order. This is a fundamental requirement because, if the SoA were to convert using October 2008 rates, this would lead to a material disadvantage to our non-sterling bondholders as compared to a liquidation.

Secondly, we have asked the Government to ensure all creditors, large or small, are treated equally. Our aim here is to ensure Royal Skandia’s share of each payment is directly proportional to its overall claim and, consequently, that each Royal Skandia bondholders receives a fair share of each payment when compared to all other creditors.

Thirdly we stressed on behalf of our bondholders that the continuing delays that have occurred as the proposed SoA is prepared are both frustrating and, in many cases, leading directly to financial hardship. In our view these issues could be alleviated by an immediate payment of 12.5% which, we believe, is financially viable as the accounts already published by the liquidator provisional indicate sufficient funds have already been recovered (and will ultimately be distributed regardless of whether a SoA or liquidation goes ahead). Therefore, as those funds are guaranteed, we feel they should be returned without delay.

Fourthly, we stated that the Government’s Early Payment Scheme, whilst in our view a very worthy initiative, should nevertheless be consistent for all depositors large or small, joint or individual, to ensure that each of our bondholders are treated in the same way as ordinary KSFIOM depositors.

Finally we made it clear that the overriding objective of both the liquidator provisional and all other interested parties must still be to ultimately achieve a 100% return for all KSFIOM depositors.

The stance of Royal Skandia, on behalf of its bondholders, is therefore now clearly outlined and we strongly believe that our concerns and suggestions should be carefully considered by the Isle of Man Government and ultimately adopted by them as specific features of the SoA.

Royal Skandia will also, via the Manx Insurance Association, be represented on the creditor’s committee currently being established by the Government to produce a final draft of the SoA. This gives us the opportunity to constructively influence the content of the scheme and ensure our bondholders are equally and fairly treated both now and, if approved, when the scheme is activated.

We therefore await their response and, as always, will ensure details on any developments are rapidly passed on to our bondholders.

Early Payment Scheme

We are pleased to confirm that we are nearing the completion of our exercise to credit affected Bonds with £1,000 via the Isle of Man Government’s Early Payment Scheme and expect all payments to be in place shortly.

The enhancement of this scheme to increase payments to a total of £10,000 has also been approved by the Government and we are now awaiting details with regards to when funds will be made available. Unfortunately we are disappointed to report that this additional payment will only be made per Bond and not per Bondholder (i.e. there will be no distinction between single, Joint or Multiple bondholders; the same payment will be made to all). This differs to the treatment of the initial £1,000 payments, a crucial and material difference that we have raised with the Government on behalf of our affected bondholders as we feel consistency should be maintained.

As and when there are further developments to this Scheme we will provide an immediate update.


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