Prospective Everton buyer faces new troubles on two fronts

Prospective Everton buyer faces new troubles on two fronts | Insurance Business Asia

Reinsurance

Prospective Everton buyer faces new troubles on two fronts

The reinsurer has been tied with troubles relating to a credit agency and slapped with a fraud lawsuit

Reinsurance

By
Kenneth Araullo

Prospective Everton Football Club buyer and re/insurance holdings firm 777 Partners finds itself in further hot waters, facing troubles with a ratings agency in one hand and a fraud lawsuit in the other.

Two US insurance firms, Atlantic Coast Life Insurance and Sentinel Security Life Insurance, part of the A-Cap insurance group, have initiated legal action against the rating agency AM Best following its supposed “fixation” with 777 Re, a Bermuda-based reinsurer linked to the Miami-based investment group.

The insurers are seeking to prevent AM Best from downgrading their financial strength ratings, which could potentially drop from B++ to B-. The lawsuit was filed last week in a New Jersey court.

Concerns have been raised by AM Best regarding the quality of assets held by the reinsurer, prompting A-Cap to reclaim assets previously ceded to 777 Re through reinsurance transactions. This action follows regulatory pressure to lessen their exposure to the investment firm.

In their legal filing, the insurers argue that AM Best’s impending rating downgrade is based on a misinterpretation of their relationship with 777 Re and an overly pessimistic assessment of the reinsurer’s assets. They also claim that AM Best’s review process was erratic and failed to consider the insurers’ recent progress in reducing their exposure to the reinsurer.

The insurers also cited an email from AM Best indicating an intention to apply $1 billion in writedowns, predominantly on assets external to the A-Cap insurers’ financial books.

The legal complaint includes accusations against AM Best for employing “flawed methods, improper assumptions, and demonstrably false data” in their evaluation process. According to the insurers, this led to arbitrary and capricious rating changes that do not reflect the actual business operations or cooperation extended by the A-Cap insurers.

In addition, the insurers highlighted their recent success in recapturing $510 million worth of assets related to 777 Re, which have now been transferred to a new insurer at par value. They anticipate fully eliminating their exposure to 777 Re by the end of the month.

AM Best has not yet responded to the allegations, and A-Cap has indicated that the matter is currently under litigation.

Fraud lawsuit versus 777 Partners

777 Partners is also facing accusations of fraudulent activity amounting to hundreds of millions of dollars, as alleged in a lawsuit filed by London-based asset manager Leadenhall Capital and its affiliate Leadenhall Life.

The complaint, lodged in a federal court in New York on Friday, claims that 777 Partners and its co-founder Josh Wander engaged in fraudulent activities involving assets worth over $350 million that were either non-existent, not owned by Wander’s entities, or previously pledged to another lender.

According to the lawsuit, Wander acknowledged issues caused by “777 Partners’ antiquated computer system,” describing them as a “screwup” and “embarrassing”. A spokesman for 777 Partners declined to comment on the matter.

This lawsuit adds to the trouble surrounding 777 Partners’ ongoing efforts to acquire Everton Football Club, a process marred by delays and yet to receive approval from the Premier League. The league has stipulated that 777 Partners must meet several conditions to proceed with the takeover, including the repayment of a £158 million debt related to Everton’s new stadium construction, primarily financed by MSP Sports Capital.

The lawsuit also touches on the intricate relationships and financial dependencies involving 777 Partners and A-Cap. Leadenhall’s filing accuses A-Cap of being a crucial supporter of 777, allegedly managing crises in a “Whac-A-Mole” fashion to temporarily stave off creditor actions and public exposure of the ongoing financial schemes.

In response, A-Cap has vigorously denied the allegations, describing Leadenhall’s claims as “sensational and unfounded”, and indicative of a desperate attempt to prioritize its claims over those of other creditors.

A spokesperson for A-Cap emphasized the firm’s commitment to defending its interests and those of its policyholders, underscoring its position as a senior creditor to 777 with no ownership ties, contrary to the assertions made by Leadenhall.

Leadenhall, meanwhile, stated that its lawsuit aims to maximize returns for its investors, highlighting the legal steps it is prepared to take against 777 Partners and associated entities.

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