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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 21, 2005
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SCOTTISH RE GROUP LIMITED
(Exact name of registrant as specified in its charter)
_____________________
Cayman Islands 001-16855 98-0362785
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
P.O. Box HM 2939
Crown House, Third Floor, 4 Par-la-Ville Road
Hamilton HM12
Bermuda N/A
(Address of Principal Executive Offices) (Zip Code)
(441) 295-4451
Registrant's telephone number, including area code
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On December 21, 2005, Orkney Re II plc ("Orkney Re II"), a public
limited company incorporated under the laws of Ireland, whose issued ordinary
shares are held by a share trustee and its nominees in trust for charitable
purposes, issued (i) $382,500,000 in aggregate principal amount of Series A-1
Floating Rate Guaranteed Notes due December 21, 2035 (the "Series A-1 Notes"),
(ii) $42,500,000 in aggregate principal amount of Series A-2 Floating Rate Notes
due December 21, 2035 (the "Series A-2 Notes," and together with the Series A-1
Notes, the "Series A Notes"), and (iii) $30,000,000 in aggregate principal
amount of Series B Floating Rate Notes due December 21, 2035 (the "Series B
Notes," and together with the Series A Notes, the "Notes") in a private
placement. Concurrently with the offering of the Notes, Orkney Re II issued (i)
$30,000,000 principal amount of Series C Floating Rate Notes due December 21,
2036 (the "Series C Notes"), (ii) $500,000 principal amount of Series D
Convertible Notes due December 21, 2036 (the "Series D Notes"), and (iii)
76,190,000 Preference Shares of $1.00 each in its capital (the "Preference
Shares"). Scottish Annuity & Life Insurance Company (Cayman) Ltd., a direct,
wholly-owned subsidiary of Scottish Re Group Limited (the "Company"), purchased
all of the Series C Notes and the Company purchased all of the Series D Notes
and Preference Shares, in each case in a private placement.
Orkney Re II was formed as a special purpose vehicle for the purpose
of entering into and performing a reinsurance agreement between it and Scottish
Re (U.S.) ("Scottish Re"), an indirect wholly owned subsidiary of the Company,
pursuant to which Scottish Re will cede to Orkney Re II on an indemnity
reinsurance basis risks associated with certain term life insurance policies
with guaranteed level premiums issued between January 1, 2004 and December 31,
2004. Proceeds from the issuance of the Notes, the Series C Notes, the Series D
Notes and the Preference Shares will be used, amnong other things, to fund a
reinsurance trust account in favor of Scottish Re, which will provide Scottish
Re with credit for reinsurance for certain statutory reserves associated with
these term life insurance policies (commonly referred to as Regulation XXX
reserves). The payment of scheduled interest payments under the Series A-1 Notes
and the ultimate repayment of principal on December 21, 2035 are insured by
Assured Guaranty (UK) Ltd. ("Assured"), a financial guarantor authorized and
regulated by the Financial Services Authority of the United Kingdom, through a
financial guarantee (the "Series A-1 Notes Guarantee"). Assured will not
guarantee the payment of any redemption premium, the early repayment of
principal on the Series A-1 Notes, taxes or shortfalls for withholding taxes.
The Notes are direct financial obligations of Orkney Re II, and none of Scottish
Re, the Company or any of their affiliates is an obligor or guarantor on the
Notes.
The annual interest rate on the Notes will equal the 3-month London
Interbank Offered Rate ("LIBOR"), plus a spread. The Series A-1 Notes, Series
A-2 Notes and Series B Notes bear interest at a rate equal to the 3-month LIBOR
plus 0.425%, 0.73% and 3.0% per year, respectively. Such interest will be
payable quarterly in arrears on each February 11, May 11, August 11, and
November 11 (each a "Scheduled Payment Date"), for each period beginning on (and
including) February 11, 2006, and each succeeding Scheduled Payment Date, and
ending on (but excluding) the next succeeding Scheduled Payment Date. The Series
B Notes are subordinated to the Series A Notes. If there are insufficient funds
available for interest payments on the Series B Notes on any
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Scheduled Payment Date, then interest payments on these notes will be deferred
and accrued at 5.0%, compounding on each successive Scheduled Payment Date.
The Series C Notes will bear interest at a rate determined in
accordance with a schedule based on the experience of the term life insurance
policies that have been reinsured. The interest rate on the Series C Notes is
initially set at LIBOR plus 10.0% and will range from LIBOR plus 10.0% to 0% and
will decrease as the experience of the policies becomes less favorable. Any
interest on the Series C Notes not paid on a Scheduled Payment Date will be
deferred and accrued at 5.0%.
The Series D Notes will not bear interest, however, at any time after
the Notes have been redeemed or repaid in full, the Series D Notes may be
converted in full or in part, at the option of the holder of the Series D Notes,
into Class B ordinary shares of Orkney Re II. The Class B ordinary shares issued
upon a conversion of all of the Series D Notes would represent a majority of the
voting power of the ordinary shares of Orkney Re II.
The Preference Shares do not have any voting rights or rights to income
or entitlement to dividends, but the holder is entitled to a return of the
amounts paid for the Preference Shares in priority to any payment to the holders
of Orkney Re II's ordinary shares.
Under the terms of the Series A-1 Notes Guarantee, so long as Assured
is not in default on any of its obligations under the Series A-1 Notes Guarantee
and is not involved in bankruptcy proceedings, Assured may direct The Bank of
New York, as trustee (the "Trustee"), under an indenture (the "Indenture") among
Orkney Re II, the Trustee, and Assured, to foreclose on certain accounts of
Orkney Re II (the "Collateral") securing the Series A-1 Notes Guarantee if any
of the following events of default occurs:
o payment by Assured under the Series A-1 Notes Guarantee;
o nonpayment of interest when due and payable in accordance with
the terms of the Series A Notes;
o nonpayment of all, or part, of the principal of the Notes;
o the security interest in the Collateral ceases to be a perfected
security interest under New York law or a fixed or floating
charge under Irish law, other than as a result of any act or
omission on the part of Assured;
o failure to make payments to Assured under ancillary agreements;
o breach or misrepresentation of any representation or warranty
under the Indenture by Orkney Re II, or default in performance of
any material covenant or agreement applicable to Orkney Re II
under the Indenture, if unremedied for a period of 30 days after
receiving notice; or
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o bankruptcy, insolvency, reorganization, liquidation, examination
or other similar proceeding of Orkney Re II.
If an event of default occurs and is continuing, the entire principal of the
Series A Notes, and interest accrued thereon may be declared to be due and
payable immediately. As a consequence, the Series B Notes will be automatically
accelerated.
The Series A Notes are not redeemable prior to February 11, 2007,
unless Scottish Re has recaptured all or part of the business reinsured to
Orkney Re II. Such redemption would be on a Scheduled Payment Date, in cash, at
103% of the principal amount to be redeemed. The Company may redeem all or part
of the Series A Notes on any Scheduled Payment Date between February 11, 2007
and February 11, 2018 at a redemption price equal to 103%, 102.25%, 101.5% or
100.75% of the principal amount, as determined by the specified Scheduled
Payment Date, payable in cash. The Series A Notes are redeemable at a redemption
price equal to 100% of the principal amount, payable in cash, after February 11,
2018. Any redemption of the Series A Notes will include the accrued interest up
to (but excluding) the date of redemption. If the Series A Notes are not
redeemed in full, the amount redeemed will be allocated pro rata to both the
Series A-1 noteholders and the Series A-2 noteholders. Following a redemption in
full of the Series A Notes, the Series B Notes will be redeemed, to the extent
that funds are still available for redemption under the same terms as the Series
A Notes. Additional information regarding this transaction is set forth in the
press release which is filed as Exhibit 99.1 hereto.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Press Release issued by Scottish Re Group Limited on December 21, 2005./1
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/1 The text of the press release refers to Orkney Re II as a wholly-owned
subsidiary of the Company. Orkney Re II is not a subsidiary of the Company, as
all of Orkney Re II's issued ordinary shares are held by a share trustee and its
nominees in trust for charitable purposes.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SCOTTISH RE GROUP LIMITED
By: /s/ Hugh T. McCormick
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Hugh T. McCormick
Executive Vice President, Corporate Development
Dated: December 28, 2005
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INDEX TO EXHIBITS
Number Description
- ------ -----------
99.1 Press Release issued by Scottish Re Group Limited on
December 21, 2005./1
/1 The text of the press release refers to Orkney Re II as a wholly-owned
subsidiary of the Company. Orkney Re II is not a subsidiary of the Company, as
all of Orkney Re II's issued ordinary shares are held by a share trustee and its
nominees in trust for charitable purposes.
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