Advisers with clients invested into life settlement vehicle Arm Asset Backed Securities should be nervous of the rescue plan announced by 'white knight' Insetco.
On the face of it the deal is not appealing. Investors who bought income plans backed by 10-year bonds have been promised 9.25% per annum. AIM-listed life settlement firm Insetco plans to swap them for its own bonds, with an as yet unspecified term, paying 7.5% per annum. What happens to investors who opted for the ARM capital growth bonds remains unclear.
The wisdom of Insetco pursuing the securitisation model for investing in life settlements looks questionable given the problems encountered by SLS Capital, Lifemark and now Arm, who all employed this model.
The deal of course remains subject to regulatory approval. The choice now facing investors is unappealing: take the rescue package or hope to recover some cash from a fire sale of Arm assets after the Luxembourg financial regulator pushed it towards liquidation.
Who then are the bizarrely named Insetco? The current directors acquired the company, which used to operate as a telecomms business, in March 2010, changing its name and investment strategy. However, shares in the firm were suspended in May that year due to concerns about capital.
The company then acquired a Jersey-based life settlement business formed in January 2011 by two of its directors, Daryn Soards and Sanjeev Joshi, through a reverse takeover financed through the issue of new shares.
Insetco announced a £1.4 million profit for the year to December 2010 in April but this revenue stemmed solely from writing off convertible loans. The chief executive of Insetco, Clive Cooke, has some experience of retail financial services from running spread betting firm City Index between 2002 and 2009. However, Cooke was replaced as chief executive in March 2009 when it made a £35 million loss and the business was fined £35,000 by the regulator in 2005 for misleading adverts.
Insetco has also acquired Catalyst Investment Group as part of the deal. The finance house, which specialises in alternative assets, has had a colourful history. Former board member Renwick Haddow was disqualified acting as a director for eight years in 2008.
Catalyst has consistently stalled and blocked New Model Adviser®'s inquiries about Arm, or why it had paid out €7.6 million of investors’ money in commission to the broker network it established. Hopefully, its new owners will be more forthcoming.