Thousands of Keydata clients with life settlement products invested with Lifemark face a further wait to discover if they will recover their money as the company’s directors continue to work on a restructuring plan.
Lifemark announced on March 2 that a number of bonds underpinning several retail investment products provided and administered by Keydata had defaulted. As a result, 23,000 investors with £349m in these products will not receive the income payments due to them.
The bonds invest in life policies which require continuing premium payments. Lifemark believes is in the best interests of bondholders to use the remaining cash available to pay insurance premiums rather than making interest payments under the bonds, in order to preserve the value of the Lifemark portfolio.
The problem centres on mortality claims which have not occurred in line with expectations and therefore Lifemark’s advisers were made aware of the need for improved cashflow or amendments to the original aims of the bond.
Provisional administrator KPMG Advisory was appointed on November 20. Luxemburg regulator, the Commission de Surveillance du Secteur Financier is still considering a restructure proposal submitted by Lifemark on January 31.
Concerns about a potential “liquidity gap” relating to certain Keydata Lifemark bonds (secure income bond four and secure income plan) surfaced last July in a High Court case between the FSA and Keydata founder Steward Ford who is understood to have set up Lifemark with other business associates and remains a major shareholder. Ford filed an injunction to prevent the FSA from accessing information stored on a seized Keydata server.
Court documents submitted by the FSA suggested that the CSSF was in discussions with Ford since the start of 2009 regarding a predicted liquidity gap from 2012-13 but that Ford and a fellow Lifemark director did not think action was necessary as Lifemark would continue to issue
bonds and new funds invested would cover its obligations to existing investors.
The FSA viewed this as a “particularly serious matter” and an indication of “a real risk of problems at Lifemark” and/or those specific plans. It also said Ford “lacked integrity” in failing to inform it of the liquidity gap.
Lifemark’s directors are now working on a restructuring programme and may seek to borrow money to maintain premium payments but interest on this could erode investor returns. It may instead look to sell some policies mid-term, though a forced sale could hit returns. Proposals are expected to emerge in coming weeks. Advisers say that policyholders should strongly consider the proposals presented to them ahead of a
AWD Chase de Vere senior manager Jason Walker says: “Stopping income until policies have matured or pushing backmaturity dates, I imagine would be proposed to investors at some point. The other option is some sort of controlled liquidation of the assets if policyholders do not vote for these sort of things. They would have to sell policies on the secondhand market which is dire at the moment, you would probably
get a third of market value.”
The CSSF and the FSA are in discussions with Keydata administrator PricewaterhouseCoopers about the implications for clients as 95 per cent of Lifemark’s investors are Keydata investors.
In an update on is Moneymadeclear website on March 8, the FSA says it is not clear if the Financial Services Compensation Scheme will be involved.
Vintage Financial director Geoff Hartnell says: “There is a genuine belief that there is sufficient evidence to cause the FSCS to come into the play.”