_______________________________________________________________________________
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): May 2, 2006
_________________
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))
_______________________________________________________________________________
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
On May 2, 2006, Ballantyne Re plc ("Ballantyne Re"), 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 in a private placement (i) $250,000,000 in aggregate principal amount of
Class A-1 Floating Rate Notes due May 2, 2036 (the "Class A-1 Notes"), (ii)
$500,000,000 in aggregate principal amount of Class A-2 Floating Rate Guaranteed
Notes Series A due May 2, 2036 (the "Class A-2A Notes"), (iii) $500,000,000 in
aggregate principal amount of Class A-2 Floating Rate Guaranteed Notes Series B
due May 2, 2036 (the "Class A-2B Notes"), (iv) $100,000,000 in aggregate
principal amount of Class A-3 Floating Rate Guaranteed Notes Series A due May 2,
2036 (the "Class A-3A Notes"), (v) $100,000,000 in aggregate principal amount of
Class A-3 Floating Rate Guaranteed Notes Series B due May 2, 2036 (the "Class
A-3B Notes"), (vi) $100,000,000 in aggregate principal amount of Class A-3
Floating Rate Guaranteed Notes Series C due May 2, 2036 (the "Class A-3C
Notes"), (vii) $100,000,000 in aggregate principal amount of Class A-3 Floating
Rate Guaranteed Notes Series D due May 2, 2036 (the "Class A-3D Notes"; together
with the Class A-1 Notes, Class A-2A Notes, Class A-2B Notes, Class A-3A Notes,
Class A-3B Notes and the Class A-3C Notes, the "Class A Notes"), (viii)
$10,000,000 in aggregate principal amount of Class B-1 7.51244% Subordinated
Notes due May 2, 2036 (the "Class B-1 Notes"), (ix) $40,000,000 in aggregate
principal amount of Class B-2 Subordinated Floating Rate Notes due May 2, 2036
(the "Class B-2 Notes"; together with the Class B-1 Notes, the "Class B Notes"),
(x) $50,000,000 in aggregate principal amount of Class C-1 Subordinated Variable
Interest Rate Notes due May 2, 2036 (the "Class C-1 Notes"), (xi) $170,000,000
principal amount of Class C-2 Subordinated Variable Interest Rate Notes due May
2, 2036 (the "Class C-2 Notes"; together with the Class C-1 Notes, the "Class C
Notes"), (xii) $500,000 Class D Convertible Notes due May 2, 2037 (the "Class D
Notes"; together with the Class A Notes, the Class B Notes, and the Class C
Notes, the "Notes"), (xiii) 163,000,000 Redeemable Preference Shares of $1.00
each in its capital (the "Redeemable Preference Shares"), and (xiv) 18,200,000
Non-Redeeemable Preference Shares of $1.00 each in its capital (the
"Non-Redeemable Preference Shares"; together with the Redeemable Preference
Shares, the "Preference Shares"). Scottish Annuity & Life Insurance Company
(Cayman) Ltd., a direct, wholly-owned subsidiary of Scottish Re Group Limited,
purchased $40.0 million principal amount of the Class C-1 Notes, all of the
Class C-2 Notes and all of the Preference Shares in a private placement.
Scottish Re Group Limited purchased all of the Class D Notes in a private
placement.
Ballantyne Re was formed as a special purpose vehicle for the purpose of
reinsuring a block of business purchased from ING American Insurance Holdings,
Inc. ("ING") on December 31, 2004 and includes 1,700,000 policies with an
aggregate face value of over $180,000,000,000. Proceeds from the issuance of the
Notes and the Preference Shares will be used to provide credit for reinsurance
for certain statutory reserves associated with the term life insurance policies
(commonly referred to as Regulation XXX reserves) in the business acquired from
ING.
2
The payment of scheduled interest payments under the Class A-2A Notes,
Class A-3A Notes, Class A-3B Notes, Class A-3C Notes and Class A-3D Notes (the
"Ambac Guaranteed Securities") and the ultimate repayment of principal of such
notes on May 2, 2036 are insured by Ambac Assurance UK Limited ("Ambac UK"), a
financial guarantor authorized and regulated by the Financial Services Authority
of the United Kingdom, through two financial guarantees (the "Ambac
Guarantees"). Ambac UK will not guarantee the payment of any redemption premium,
the early repayment of principal on the Ambac Guaranteed Securities, taxes or
shortfalls for withholding taxes. These notes are direct financial obligations
of Ballantyne Re, and neither the Company nor any of its affiliates is an
obligor or guarantor on the Ambac Guaranteed Securities.
The payment of scheduled interest payments under the Class A-2B Notes (the
"Assured Guaranteed Securities") and the ultimate repayment of principal of such
notes on May 2, 2036 are insured by Assured Guaranty (UK) Ltd. ("Assured
Guaranty (UK)"), a financial guarantor authorized and regulated by the Financial
Services Authority of the United Kingdom, through a financial guarantee (the
"Assured Guaranty Guarantee"). Assured Guaranty (UK) will not guarantee the
payment of any redemption premium, the early repayment of principal on the
Assured Guaranteed Securities, taxes or shortfalls for withholding taxes. These
notes are direct financial obligations of Ballantyne Re, and neither the Company
nor any of its affiliates is an obligor or guarantor on the Assured Guaranteed
Securities.
Interest on the principal amount of the Notes is payable in intervals
ranging from every 28 days to monthly to annually, depending on the note,
initially at a rate equivalent to one-month LIBOR plus 0.61% for the Class A-1
Notes (and after May 2, 2022, one-month LIBOR plus 1.22%), one-month LIBOR plus
0.31% for the Class A-2A Notes (and after May 2, 2027, one-month LIBOR plus
0.62%), one-month LIBOR plus 0.36% for the Class A-2B Notes (and after May 2,
2027, one-month LIBOR plus 0.72%), 4.99%, 4.99%, 5.00% and 5.01% for the Class
A-3A Notes, Class A-3B Notes, Class A-3C Notes, and Class A-3D Notes,
respectively (with the rate on these notes to reset every 28 days), 7.51244% for
the Class B-1 Notes, one-month LIBOR plus 2.00% for the Class B-2 Notes, and a
variable rate based on performance of the underlying block of business for the
Class C Notes.
The Class B Notes are subordinated to the Class A Notes. If there are
insufficient funds available for interest payments on the Class B-1 Notes and
the Class B-2 Notes on any scheduled payment date, then interest payments on
these notes will be deferred and accrued at 7.51244% and one-month LIBOR plus
2.0%, respectively, compounding on each successive scheduled payment date. The
Class C Notes are subordinated to the Class A Notes and the Class B Notes in
right of payment. If there are insufficient funds available for interest
payments on the Class C Notes on any scheduled payment date, then interest
payments on these notes will be deferred and accrued at a rate based on
performance of the underlying block of business.
The Class D Notes will not bear interest, however, at any time after the
Notes have been redeemed or repaid in full, the Class D Notes may be converted
in full or in part, at the option of the holder of the Class D Notes, into Class
B ordinary shares of
3
Ballantyne Re. The Class B ordinary shares issued upon a conversion of all of
the Class D Notes would represent a majority of the voting power of the ordinary
shares of Ballantyne Re.
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
Ballantyne Re's ordinary shares.
Under the terms of the Indenture, dated as of May 2, 2006, among Ballantyne
Re, Ambac UK and Assured Guaranty (UK), as financial guarantors (the "Financial
Guarantors"), The Bank of New York, acting through its London branch, as trustee
(the "Trustee") and The Bank of New York, a New York banking corporation, as
auction agent and securities intermediary (the "Indenture"), any Financial
Guarantor or the holders of not less than 66-2/3% of the aggregate amount of the
outstanding Class A Notes with the authority to exercise the right of control
under the Indenture (as long as such Financial Guarantor is not in default on
any of its obligations under the Financial Guarantees and is not involved in
bankruptcy proceedings) (the "Directing Party"), may direct The Bank of New
York, as trustee, to foreclose on certain accounts of Ballantyne Re (the
"Collateral") securing the Financial Guarantees if any of the following events
of default occurs:
o A payment is made by Ambac UK under any of the Ambac Guarantees;
o A payment is made by Assured Guaranty (UK) under the Assured Guaranty
Guarantee;
o Ballantyne Re becomes subject to bankruptcy, insolvency,
reorganization, liquidation, examination, or other similar proceeding,
or certain other events of insolvency occur with respect to Ballantyne
Re;
o Ballantyne Re fails to make any scheduled interest payment on any of
the Class A Notes, Ballantyne Re fails to make any scheduled interest
payment on any Class B Notes or Class C Notes for any reason other
than due to insufficient funds in accordance with the priority of
payments (as defined in the Indenture), or Ballantyne Re fails to make
payment of principal of any of the Class A Notes, the Class B Notes
and the Class C Notes on the stated maturity date, or of the
redemption price on the applicable redemption date and any such
default remains unremedied for a period of three business days;
o The security interest in the Collateral granted to the Trustee ceases
to be either (i) a first priority perfected security interest with
respect to a security interest that is governed by New York law or
(ii) a fixed or floating charge with respect to a security interest
that is deemed to be governed by Irish law;
4
o Ballantyne Re fails to pay any fees or other amounts due to Ambac UK
under the Guarantee and Reimbursement Agreement dated May 2, 2006 (the
"Guarantee Agreement") or the Ambac Financial Guarantee Fee Letter
dated May 2, 2006 when due, and such failure continues for a period of
three business days after Ambac UK has given Ballantyne Re notice of
the failure;
o Ballantyne Re fails to pay any fees or other amounts due to Assured
Guaranty (UK) under the Guarantee Agreement or the Assured Guaranty
Fee Letter dated May 2, 2006 when due, and such failure continues for
a period of three business days after Assured Guaranty (UK) has given
Ballantyne Re notice of the failure; or
o Any representation or warranty made by Ballantyne Re under the
Indenture proves to have been untrue when made, or Ballantyne Re
defaults in the performance of any material covenant or agreement
applicable to Ballantyne Re under the Indenture, and such breach or
default remains unremedied for 30 days after the Trustee or any
Financial Guarantor has given Ballantyne Re written notice of such
breach.
If any above-listed event of default has occurred and is continuing, then the
Directing Party may direct the Trustee to accelerate the Ambac Guaranteed
Securities and the Assured Guaranteed Securities and, as a consequence, the
Class A-1 Notes, whereupon all principal and interest will become immediately
due and payable.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Press Release issued by Scottish Re Group Limited on May 4, 2006.
5
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:
-------------------------------------
Paul Goldean
Executive Vice President and General Counsel
Dated: May 8, 2006
6
INDEX TO EXHIBITS
Number Description
- ------ -----------
99.1 Press Release issued by Scottish Re Group Limited on May 4, 2006.
7