Further to its announcement on 25 May, Randall & Quilter Investment Holdings Ltd. (LON:RQIH), the leading non-life global specialty insurance company, has today confirmed its intention to conduct an equity fundraise of a minimum of $100 million (£81.2 million) by way of a non-pre-emptive offer, an open offer and a management subscription.
The new ordinary shares to be offered in the Fundraise will be issued at a price of 105 pence per New Ordinary Share.
In reliance on existing shareholder authorities, up to 10% of the Company’s issued share capital will be issued on a firm basis with the balance of New Ordinary Shares being offered conditional upon shareholder approval at a general meeting of the Company expected to take place on 11 July 2022.
The Company will conduct a non-underwritten placing via a bookbuild process, which will be launched immediately following this announcement and is subject to the terms and conditions set out in Appendix 1 to this Announcement (which forms part of this Announcement).
Highlights:
· Fundraise to raise gross proceeds of a minimum of $100 million (£81.2 million) at an Issue Price of 105 pence per share.
· Placing of New Ordinary Shares to institutional investors partly on a firm basis and partly on a conditional basis to be conducted via the Bookbuild.
· Certain members of the Board and R&Q’s senior management intend to subscribe for New Ordinary Shares for approximately $1.4 million (£1.1 million) on a conditional basis.
· Open Offer to raise up to $8 million (and no more than €8 million) in order to provide a wider group of qualifying shareholders with the opportunity to participate.
· Of the net proceeds of the Fundraise, approximately $60 million will be used to fund collateral requirements and the balance to pay down debt.
· The Conditional Issuance is subject to approval by the Shareholders at the General Meeting of the Resolutions.
· Following close of the Bookbuild, the Company expects to post the Circular, including the notice of General Meeting on or around 17 June 2022. Full details of the Open Offer will be included in the Circular.
· Ordinary Shares issued as part of the Firm Issuance are expected to be issued and admitted to trading on AIM on 16 June 2022.
· Ordinary Shares issued as part of the Conditional Issuance are expected to be issued and admitted to trading on AIM on 12 July 2022.
(1) Based on a GBP/USD exchange rate of 1.2315, sourced from Bloomberg as at 10 June 2022.
William Spiegel, Randall & Quilter Executive Chairman of R&Q, said:
“We have been encouraged by the strong indications of interest we have had from shareholders in participating in the Fundraise. Our 2021 Full Year Results, which we have also issued today, demonstrate the underlying strength and ongoing momentum of our two core businesses, and the significant opportunities we see for both as we execute against our Five-Year Strategy. The fundraising will give us the capital required to de-lever our balance sheet and maintain the strong financial profile needed to support our continued growth.“
Background to and reasons for the Fundraise and use of proceeds
The new R&Q management team took over in April 2021 and initiated an in-depth review of the Group’s Legacy Insurance portfolio in Q4 2021. The review identified a potential c.$90 million non-cash, pre-tax charge associated with impairing a structured reinsurance contract that had been recognised as an asset on the Group’s balance sheet.
The value of this asset on the balance sheet under IFRS is the amount expected to be realised in the ordinary course of business and is dependent on many assumptions over a 40-year projection period, including investment returns and the quantum and timing of notified and incurred but not reported claims.
Recently, claims have accelerated above expectations, leaving the subsidiary with minimal liquid assets while still requiring $34 million to meet future claim payments before it can access the lower layer of the reinsurance coverage. Management believes it is in the best interests of shareholders for the subsidiary to commute the reinsurance policy in order to provide the subsidiary with liquidity to meet anticipated claims rather than having R&Q contribute up to $34 million to this subsidiary over the next 2-3 years. The commutation has no impact on the subsidiary’s statutory capital position. The decision will enable R&Q to move forward with a less volatile business.
Furthermore, in Q4 2021, the Group used meaningful cash capacity to fund collateral requirements upon certain reserve strengthening. The combined impact of these two items results in a need for approximately $100 million of equity capital to de-lever the balance sheet and improve the Group’s financial profile. Of the net proceeds from the Fundraise, c. $40m will be used to pay down debt, reducing leverage which increases as a result of the impairment of the structured reinsurance contract. The remaining c.$60m will be used to fund collateral requirements.
Importance of the Fundraise
As announced by the Company on 25 May 2022, R&Q received pre-emptive waivers from its bank lenders with regard to its existing financial covenants until the earlier of completion of an equity raise or 29 June 2022. R&Q has obtained further amendments for the testing period ending on 30 June 2022 on the conditions that investors are contractually committed to invest $100 million by 21 June with the net proceeds from the Fundraise being received by 31 July 2022.
This $100 million is to address the short-term funding requirements of the Group, namely $60 million of collateral to meet its Funds at Lloyd’s requirements and the remainder to pay down its existing bank revolver to satisfy financial covenants.
If the Company is unable to raise gross proceeds of at least $100 million in the Fundraise, the Group will therefore be in default under certain of its lending facilities on 31 July 2021, which will entitle the Group’s lenders to call for repayment. It would also lead to the triggering of cross-default and cross-acceleration provisions under the Group’s other facilities. In this event, the Company would first seek to obtain further waivers from its lenders. If these waivers were not forthcoming, the Board would be required to attempt to secure funding through an alternative equity raise, new debt facilities or the disposal of assets. However, there can be no assurance that the Group would be able to secure alternative financing or make the required disposals. If the Group was required to make immediate repayments under all of its existing facilities, the Group would in all likelihood not be able to continue to operate as a going concern.
The Company is required to provide $30 million by 21 June 2022 to meet its FAL requirements and intends to apply net proceeds from the Firm Issuance to satisfy this obligation on time. Furthermore, the Company is required to provide an additional $30 million by August 2022 to meet its FAL requirements and intends to use the net proceeds from the Conditional Issuance for this purpose. In the event that the net proceeds of the Fundraise are insufficient to meet these FAL obligations, it would have an adverse impact on the reputation of the Group’s legacy insurance business with respect to the Lloyd’s market and also result in the Group potentially suffering financial penalties.
The Group has arranged various Letters of Credit totalling £68 million in respect of the FAL requirements. As is typical in the insurance banking market, these LoC facilities are reviewed annually and, if not renewed or replaced, then R&Q may be required to provide cash to the FAL. Based on the continued strong performance of the Group’s syndicates, the Board is confident that sufficient facilities will be available and expect to arrange a LoC facility to replace all of the Group’s FAL LoCs during H2 2022. However, should the Fundraise not complete, given the impact this would have on the Group’s financial condition, it would likely become more challenging to secure these facilities.
In addition, there remains a Lloyd’s unfunded LoC supporting tier 2 capital in FAL of £24.5m, which will expire on 11 November 2022 conditional upon the completion of the Fundraise. If the Fundraise does not succeed, R&Q would need to cash collateralise to the amount of £24.5m by 30 June 2022. Subject to the Fundraise being successful, the Board is confident that R&Q will be able to arrange a replacement for the existing LoC with its current and prospective banking partners. If a replacement LoC cannot be arranged, R&Q would have to contribute £24.5m to the FAL in November or would otherwise be short of the collateral requirements at Lloyds.
Following the announcement on 25 May 2022 that shareholders did not approve the required resolutions for the proposed acquisition of R&Q by Brickell, AM Best revised their under review status of R&Q from developing to negative. Were AM Best to downgrade R&Q’s rating as a result of the Fundraise not being successful, the Directors believe this would have a material adverse effect on the Company’s future trading.
Full year results for the twelve months ended 31 December 2021
R&Q has separately today announced its results for the twelve-month period ended 31 December 2021, which should be read in conjunction with this Announcement.
Potential sale of Ordinary Shares
The Company is aware of the notice of public sale published by Vida Longevity Fund, LP, Vida Insurance Credit Opportunity Fund II, LP, and Vida Insurance Credit Opportunity Fund III, LP, on 9 June 2022 stating that on 20 June 2022 34,218,366 Ordinary Shares, being 12.4 per cent. of the current issued share capital of the Company, pledged to Vida by Brickell PC Insurance Holdings LLC and 777 Partners LLC, shall be sold as a single block in a public sale.
The Company has no involvement in any potential sale by Vida and will not receive proceeds from any sale. In addition, there can be no assurance that the sale will take place on 20 June 2022 or at all.
Details of the Fundraise
Placing
The Placing will be conducted by way of the Bookbuild which will be launched immediately following this Announcement in accordance with the terms and conditions set out in Appendix 1 to this Announcement (which forms part of this Announcement). Barclays Bank PLC and Numis Securities Limited are acting as Joint Global Coordinators and Joint Bookrunners in respect of the Fundraise.
Pursuant to the terms of the Placing Agreement, the Joint Bookrunners have conditionally agreed to use reasonable endeavours to place the Placing Shares at the Issue Price with institutional and other investors.
Following this Announcement, the Joint Bookrunners will immediately commence the Bookbuild to determine demand for participation in the Placing. The final number of Placing Shares will be determined by the Company and the Joint Bookrunners at the close of the Bookbuild, and the results of the Placing will be announced as soon as practicable thereafter. Timing of the closing of the book and allocations are at the discretion of the Company and the Joint Bookrunners. Members of the public are not eligible to take part in the Placing. The Placing is not underwritten.
The Placing will comprise the Firm Placing and the Conditional Placing. At the Company’s annual general meeting in 2021, the Company obtained shareholder approval to issue ordinary shares representing up to 10% of the Company’s issued ordinary share capital on a non-pre-emptive basis. The allotment and issue of the Firm Placing Shares will rely on the existing shareholder authorities. However, the allotment and issue of any Conditional Placing Shares will require the Company to convene the General Meeting and will be conditional upon such shareholder approval being granted.
The Firm Placing may complete if the Conditional Placing does not, whether by reason of a failure to obtain shareholder approval or non-satisfaction of the other conditions.
Subject to the discretion of the Company and the Joint Bookrunners to elect otherwise, the Firm Placing Shares and the Conditional Placing shares will be allocated proportionately with the same investors. An investor allocated Firm Placing Shares will be conditionally allocated an equivalent proportion of Conditional Placing Shares.
Placees should note that the Placing Shares do not carry any entitlement to participate in the Open Offer. The Placing Shares are not subject to clawback in respect of valid applications for Open Offer Shares by Qualifying Shareholders pursuant to the Open Offer.
Appendix 1 to this Announcement (which forms part of this Announcement) contains the detailed terms and conditions of the Placing.
For settlement purposes, certain investors may subscribe for New Ordinary Shares at the Issue Price directly from the Company and, in such circumstances, will enter into subscription letters with the Company on substantially the same terms and conditions as Placees (the “Direct Subscription“). Subscribers in the Direct Subscription will be allocated New Ordinary Shares between the Firm Issuance and the Conditional Issuance in the same proportions as Placees.
Open Offer
In order to provide Qualifying Shareholders who do not take part in the Placing with an opportunity to participate in the Fundraise, on the terms and subject to the conditions to be set out in the Circular (and, in the case of Qualifying Non-CREST Shareholders, the Application Form), the Company is providing Qualifying Shareholders with the opportunity to subscribe for Open Offer Shares, to raise up to $8 million on the basis of:
1 Open Offer Share for every 44.48458 Existing Ordinary Shares held by a Qualifying Shareholder on the Record Date
Qualifying Shareholders may subscribe for Open Offer Shares in proportion to their holding of Existing Ordinary Shares on the Record Date. Qualifying Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares under the Excess Application Facility up to the total number of Open Offer Shares available under the Open Offer. The Open Offer is not underwritten and no prospectus will be published in connection with the Open Offer.
The full terms and conditions will be contained in the Circular and, in the case of Qualifying Non-CREST Shareholders, the Application Form, which are expected to be sent to Shareholders and be made available on the Company’s website at https://www.rqih.com/investors/shareholder-information/shareholder-notices/ on or around 17 June 2022.
The New Ordinary Shares will not be made available to the public except under the terms of the Open Offer. Subject to certain exceptions, the Open Offer will be made to Qualifying Shareholders with registered addresses in, or who are resident in or citizens of, the United Kingdom.
Management Subscription
Members of the Board, together with certain members of senior management of the Group, have agreed to subscribe for New Ordinary Shares by way of the Management Subscription at the Issue Price, conditional on the Resolutions being passed at the General Meeting. The aggregate number of New Ordinary Shares to be subscribed for in the Management Subscription is 1,053,715, including subscriptions by the following Directors and persons discharging managerial responsibilities:
| Director | Number of New Ordinary Shares |
| Alan Quilter | 476,190 |
| William Spiegel | 154,667 |
| Thomas Solomon | 154,667 |
| Philip Barnes(2) | 95,238 |
| Eamonn Flanagan | 95,238 |
| Joanne Fox | 20,000 |
| PDMRs | |
| Pat Rastiello | 38,667 |
| Benjamin Masel | 19,048 |
(2) New Ordinary Shares to be subscribed for by Christine Barnes, wife of Philip Barnes
The New Ordinary Shares
The New Ordinary Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares in issue at the time, including the right to receive dividends and all other distributions declared, made or paid after the date of Admission.
New Ordinary Shares issued as part of the Firm Issuance are expected to be issued and admitted to trading on AIM on 16 June 2022.
New Ordinary Shares issued as part of the Conditional Issuance are expected to be issued and admitted to trading on AIM on 12 July 2022.
General Meeting
The Circular, including notice of the General Meeting, is expected to be sent to Shareholders and be made available on the Company’s website at https://www.rqih.com/investors/shareholder-information/shareholder-notices/ on or around 17 June 2022.
It is proposed that a General Meeting be held at 71 Fenchurch Street, Ground Floor, London EC3M 4BS at 2.00 p.m. on 11 July 2022, where the resolutions will be proposed to seek authority to issue and allot the New Ordinary Shares under the Conditional Issuance.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
| 2022 | |
| Existing Ordinary Shares marked ‘ex’ by the London Stock Exchange | 8.00 a.m. on 14 June |
| Record Date and time for entitlements under the Open Offer | 6.00 p.m. on 14 June |
| Admission and commencement of dealings in Firm Issuance Shares | 16 June |
| CREST accounts credited in respect of Firm Issuance Shares in uncertificated form | 16 June |
| Despatch of definitive share certificates for Firm Issuance Shares held in certificated form | By 23 June |
| Posting of the Circular, the Form of Proxy, the Form of Instruction and, for Qualifying Non-CREST Shareholders only, the Application Form | 17 June |
| Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to stock accounts in CREST of Qualifying DI Holders | 8.00 a.m. on 20 June |
| Latest recommended time for requesting withdrawal of CREST Open Offer Entitlements and Excess CREST Open Offer Entitlements from CREST | 4.30 p.m. on 4 July |
| Latest time and date for depositing CREST Open Offer Entitlements and Excess CREST Open Offer Entitlements into CREST | 3.00 p.m. on 5 July |
| Latest time and date for splitting of Application Forms (to satisfy bona fide market claims only) | 3.00 p.m. on 6 July |
| Latest time and date for receipt of the Form of Instruction for, or placing of a CREST instruction in relation to, the General Meeting | 2.00 p.m. on 6 July |
| Latest time and date for receipt of completed the Forms of Proxy to be valid at the General Meeting | 2.00 p.m. on 7 July |
| Latest time and date for receipt of completed Application Forms from Qualifying Shareholders and payment in full under the Open Offer or settlement of relevant CREST instruction in respect of Depositary Interests (as appropriate) | 2.00 p.m. on 8 July |
| General Meeting | 2.00 p.m. on 11 July |
| Announcement of result of the General Meeting and Open Offer | 11 July |
| Admission and commencement of dealings in Conditional Issuance Shares | 8.00 a.m. on 12 July |
| Conditional Issuance Shares credited to CREST stock accounts in Depositary Interest form | 12 July |
| Despatch of definitive share certificates for Conditional Issuance Shares held in certificated form | By 19 July |
