Hannover Re, Vesttoo, creditors reach settlement over longevity swap

Another settlement agreement has been reached in the Vesttoo bankruptcy case, as the debtors, the Official Committee of Unsecured Creditors and reinsurance giant Hannover Re have reached an agreement over funds related to a longevity swap transaction.

We had reported back in February that there were other transactions being discussed and a potential chance for additional commutations of reinsurance deals that were being worked on by parties involved in the bankruptcy case, including one involving Hannover Re.

As we said, those additional transactions had a chance of bringing some more funds into the bankruptcy estate, while also allowing parties to them, cedents in particular, to recover some of the cash involved.

Now, a settlement agreement has come to light which involves Hannover Re and, like some of the other Vesttoo settlements we’ve covered, this would involve the majority of any cash linked to the transaction going back to the cedent (so Hannover Re in this case) but some of it being relinquished to go into the estate.

We understand this settlement requires court approval still, but has been agreed between the parties involved.

Hannover Re had entered into a longevity swap transaction with one of the Vesttoo structures, Vesttoo Bay XXI, Limited Partnership in this case, in December 2022.

It was a typical ISDA form agreement, as is often seen with privately transacted longevity swap arrangements.

Interestingly, Vesttoo Bay XXI provided what is being termed a valid letter of credit (LOC) in this case, so this is one of the rare cases where Vesttoo had transacted with an LOC that was not a fraudulent one.

The LOC was for £15 million and came from Santander bank and Vesttoo Bay XXI also posted cash with the bank amounting to 110% of the LOC amount as security for it.

Now, the Vesttoo structure, the Creditor Committee and Hannover Re have reached an agreement over the estimated settlement value of this longevity swap transaction, under the ISDA forms agreement.

The parties have foregone an actuarial valuation from an independent third-party, in favour of speeding a resolution amongst themselves.

The agreement reached proposes that Hannover Re will be able to withdraw £11,380,625 from the letter of credit as well as any interest that accrues, after which the original LOC will be cancelled and Hannover Re will release and discharge the bank (Santander) from any further obligations or liabilities in relation to it.

The remainder of any available funds will go to the bankruptcy estate for the Vesttoo vehicle, Vesttoo Bay XXI and hence go into the pot for bankruptcy expenses and distribution.

At the stage all distributions are being made, all parties involved in the settlement will release each other from any future claims related to this longevity swap transaction.

The remaining value from the transaction that will go into the bankruptcy pot is expected to be around £5,469,375 (roughly US $6,891,412).

As said, court approval is required to formalise the settlement agreement under the bankruptcy case and the parties are petitioning to be able to file certain redacted documents under this motion, to protect Hannover Re’s data and information.

As transactions are wound up and settlement amounts greed, it is both getting capital back into the hands of cedents and providing funds for the bankruptcy estate.

However, the longer the case drags on and the more litigation there is, the more likely it is that the bankruptcy estate is largely, if not wholly, used to pay for expenses and service providers, with little else going to the cedent contingent that are involved.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.