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Death bond investors offered escape route

Death bond investors offered escape route

Investors and advisers could be rescued from so-called ‘death bonds’ sold by EEA Life Settlements as two broker firms look to purchase the investments for a portion of their value.

The Guernsey-based fund, which invested in second-hand insurance policies from elderly Americans, was suspended in November 2011 after the Financial Services Authority branded this type of policy “toxic” and possibly unsuitable for retail investors.

Returns subsequently nose-dived, losing $200m (£129m), which EEA blamed on the regulator.

Investors with cash trapped in the fund have since taken action in a bid to recover the losses.

However, two companies, Tullett Prebon Alternative Investments and Southey Capital, are expected to give EEA investors an alternative option, with the latter offering to buy between 32.4 per cent and 49.2 per cent of their holding’s net asset value.

Letters sent out to investors by Tullett earlier this year outline how they can sell their run-off shares.

To participate, shareholders have to register to participate in the tender offer before going through the know-your-client process.

This secondary sell-off process was delayed after the fund manager sold a part of the portfolio of life policies.

Meanwhile, Southey Capital, which specialises in bankruptcy claims and illiquid securities, is offering to help investors by providing an impartial brokerage service, particularly for those holders who have missed the 23 March deadline to apply for the Tullett offer.

Southey Capital’s managing director Robert Southey said Tullett’s offer “could be good news for the long-suffering holders of the units”, but argued the process makes it difficult for shareholders to take advantage.

In September, investors holding run-off shares - comprising 60 per cent of the shareholders - received a £56.1m payout afrom EEA after it sold 188 US life insurance policies to an undisclosed buyer.

Mr Southey said investors in the run-off share class would only get their money back once all the policies mature, which he claimed is likely to spread out until at least 2021.

“With a secondary market, the holders that would like to sell would be able to exit early, should they wish too.”

There are currently around 10,000 individuals in the EEA fund, totalling around $410m (£280m) in assets altogether, according to Mr Southey.

Blair Cann, senior partner at M Thurlow & Co, said: “If the holders of the bond think they will eventually receive more than 32.4 per cent of its net asset value, then they may well feel it is best not to sell.

“If they decide to sell they need to investigate the position as deeply as they can.

“Clearly the companies making the offer think they will make money by paying the investors the discounted rate, so the question to ask is why do they think that? What do they know that has persuaded them to make such an offer?”

katherine.denham@ft.com

This article has been amended to remove the name of a firm that clarified it has not been involved in the secondary sell-off process.

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