American Overseas Acquire Orpheus Group
In a filing with the Bermuda Stock Exchange, American Overseas Group Limited announced the acquisition of Orpheus Group Ltd. [together with its subsidiaries, “Orpheus”], formerly the principal shareholder of the Company, for a combination of common stock and senior notes.
The statement said, “Following the transaction, the Company’s outstanding common shares increased from 27,492 shares to 42,914 shares, net of treasury stock. The Company also issued approximately $43.9 million of senior notes in connection with the transaction.
“Orpheus is a specialty writer of non-standard auto [“NSA”] business in the U.S. In addition, Orpheus provides specialty risk transfer, reinsurance and management services through its operating subsidiaries in the U.S., Bermuda and Barbados.
“Orpheus derives the vast majority of its income from management fees earned in connection with providing these services. The acquisition completes the transformation of the Company into a Property & Casualty insurance holding company. The Company now has 41 employees and a well-established franchise with strong cash flow characteristics.
“It is currently anticipated that the Financial Guaranty business of American Overseas Reinsurance Company Limited [“AORE”] will continue to run-off over an extended period of time. The Company will continue to work on establishing AORE as a specialty writer of Property & Casualty reinsurance.
Prior to the acquisition, Orpheus owned approximately 48.0% of the Company’s outstanding common shares. As a result of the acquisition, the outstanding shares of the Company are now widely distributed. No single shareholder currently owns more than 10% of the Company’s outstanding shares.
“The senior notes issued by the Company mature on October 28, 2039. During the term of t-he senior notes the holders will receive interest at a fixed rate of 9.0% per annum, payable in quarterly installments. Principal is not due until maturity. The stock of AORE and Orpheus have been pledged as collateral for the senior notes.
“The senior notes also contain a replacement capital covenant that will prevent the company from purchasing any of its junior securities without the advance written consent of the holders of a majority of the senior notes by principal amount, unless such purchase is funded with proceeds from the issuance of new junior securities. The Company will continue to be permitted to redeem its Series A Preference shares for an amount not to exceed the pro-rata share of the Series A Preference shareholder’s share of the assets in the Series A Trust that was established earlier this year.
“The U.S. holding company subsidiary of Orpheus also had outstanding debt at the time of the acquisition. As part of the acquisition, the Company renegotiated the terms of this legacy debt. The remaining legacy debt will also mature on October 28, 2039. The legacy debt will pay interest at a fixed rate of 12.0% per annum, payable in quarterly installments. Principal will not be due until maturity.
“The legacy debt also contains a dividend restriction that will prevent the U.S. holding company subsidiary from paying dividends to Orpheus without the express written consent of the note holder, except for the funds that may be necessary to enable the Company to pay its operating expenses and interest on the senior notes.
“The Company currently expects the operating cash flow of the acquired businesses to be sufficient to pay the interest on the senior notes and the legacy debt, and that excess cash flow, if any, will be reinvested in the acquired businesses. The Company does not anticipate having sufficient cash flow to pay dividends on its common shares or Series A Preference shares, or to repurchase common shares, for the foreseeable future.”
