R&Q: Financial Instability Could Lead to Liquidation

R&Q Insurance Holdings Ltd. warns it is facing growing financial difficulties, which could affect the “company’s stability as a business” and ultimately lead to liquidation.

In a June 13 statement, R&Q acknowledges it has been struggling under the weight of adverse loss development in its core legacy acquisition business, unexpected costs and expenses associated with sale of its program management business, Accredited, as well as the inability to consummate external legacy transactions.

For several years, R&Q has been aiming to restructure the company, namely by raising capital and selling assets, including the sale of Accredited, to Onex Corp., the Toronto-based private equity company, for a purchase price of $465 million. The sale was intended to help R&Q reduce R&Q’s debt load. (In 2022, the company acknowledged its capital position was being hit by the new IFRS accounting standards, implemented in 2023.)

In the course of the sale negotiations, R&Q revealed (in its June 13, 2024 update) that Onex provided an alternative transaction structure to that of the original sale agreement, which would involve R&Q filing for a provisional liquidation in Bermuda and then completing the sale of Accredited to Onex through that process.

“The provisional liquidators would then look to realize value from the group’s remaining assets,” said R&Q in the statement, noting, however, that R&Q directors believe that “in such circumstances there would be very little, if any, chance of any value accruing to the company’s shareholders.”

Meanwhile, R&Q and Onex have continued to discuss implementing the sale on its original terms.

The original agreement with Onex was announced on Oct. 20, 2023. On April 24, 2024, R&Q entered a lock-up agreement with certain of its lenders and creditors to implement the proposed restructuring.

R&Q noted that this period of “intensive discussion with its lenders, regulators and other stakeholders (both before and after the signing of the lock-up agreement) has resulted in the company incurring significant additional unexpected costs and expenses (either on its own behalf or on behalf of or due to the requirements of other stakeholders).”

In addition, as it previously announced on Dec. 22, 2023, R&Q said it has been constrained since that time from consummating external transactions for R&Q Legacy. “These factors, as well as further adverse reserve development and a degree of general stress to the company’s businesses during this period, have had a material impact on the company’s stability as a business and as a going concern.”

R&Q said the board is “exploring and evaluating all options that may be available to the company, including the Onex alternative proposal, as well as potential sources of liquidity, while continuing to work to complete the original sale.

R&Q warned if the sale does not proceed according to its original terms, and it does not receive the related net cash proceeds, it would not be able to complete a financial deleveraging of R&Q. At that point, the company would not be able “to repay its debt facilities as they become due, and R&Q would therefore be unable to continue as a going concern.”

Source: R&Q

This article was originally published by Insurance Journal. Reporter L.S. Howard is the International and Reinsurance editor of Insurance Journal and Carrier Management.