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Miami-based bidders for Everton Football Club took advantage of Bermuda's financial structure, which funneled money invested into the sport for widows and orphans, but that structure has begun to unravel.
Bermuda-based reinsurer 777 Re has helped 777 Partners embark on an ambitious deal spree that has included trophy sports assets and football clubs from Europe's Genoa and Hertha Berlin to Brazil's Vasco da Gama.
But the reinsurer's ability to provide further financing for the Miami-based company's deal is under pressure, and 777 Partners' creditors have taken to court.
777 Re's lender, U.S. insurance group A-Cap, said late last month it would try to raise $400 million in new capital and take back control of assets ceded to 777 Re due to a credit rating downgrade. Separately, a lawsuit filed in New York last week seeks to block the transfer of 777 Partners' assets to its co-founders to protect the interests of creditors, calling the company a “house of cards.” 777 declined to comment on the court case.
777 initially made money in financial niches such as structured settlements, but has historically received little public attention.
The acquisition of England's nine-time champions Everton from British-Iranian Farhad Moshiri has thrust the group into the spotlight, drawing scrutiny from local politicians, journalists, ratings agencies and regulators.
The Premier League has been reviewing 777 since last September, during which time Sir Jim Ratcliffe's deal to buy a stake in Manchester United was blocked.
777 has not yet revealed how it will fund the Everton takeover, but sources close to the matter said 777 Re was not critical in funding the deal. A person close to 777 told the Financial Times in December that the acquisition would use an entity called Nutmeg Acquisition. Following a review of 777 Re's loan to Nutmeg, people close to 777 insist a separate financing plan has been drawn up.
777 Partners has loaned Everton at least £150 million, according to several people familiar with the matter. A-Cap also provides direct financing to 777 entities.
Reinsurers are at the heart of 777's “insurance financing model,” with 777 Re sitting between third-party insurers and 777 portfolio companies, according to a 2021 pitch document. People close to 777 said the group and the reinsurer have adopted an “aggressive” investment strategy. 777 said in the presentation that its approach could generate a return on equity of more than 40%, compared with a “traditional approach” of just 10%.
Annuities offered by A-Cap are typically backed by low-risk investments in liquid securities because policyholders are typically able to redeem funds, subject to penalties. Insurers sometimes “lease” assets and liabilities to reinsurers to manage their balance sheets.
Ratings agency AM Best, which specializes in insurance, has expressed concerns about the quality of assets held by 777 Re, which were invested to back annuity contracts sold by A-Cap and another insurer, Silac. Last month, it downgraded the credit ratings of 777 Re and A-Cap and placed Silac on negative watch.
According to the latest accounts, half of 777 Re's $3 billion in assets were classified as related-party investments early last year, while $2 billion worth of assets were classified as “Level 3” which is difficult to sell or difficult to accurately value. assets.
A-Cap's financing plan comes in response to AM Best's downgrade, which was largely due to concerns about its 777 Re holding.
Josh Wander, co-founder of 777 Partners, told the Financial Times that he was “not that worried” about 777 Re, saying the company did not need more capital: “The business is overcapitalized.” He added said the entity is reducing its illiquid asset holdings “nevertheless.” . We did absolutely nothing wrong.”
An industry expert who has reviewed 777 Re's 2022 accounts said it was “unlikely to sell at these valuations as it tries to reposition the portfolio”, referring to its illiquid assets.
A-Cap controls life insurance companies in Utah and South Carolina. A-Cap CEO Kenneth King told insurance agents late last month that AM Best's downgrade was unwarranted. “I think there's pressure [AM Best] Action for anyone associated with 777 Re,” King said. He added: “We do not agree with their position. “
Michael Wise of South Carolina's insurance regulator said he was aware that his Bermudian counterparts were addressing issues with the 777 Re and that the state would continue to “coordinate our efforts as necessary” with other U.S. state regulators.
Silac, which has $10 billion in assets and is run by a longtime friend of Donald Trump, did not respond to a request for comment. The Bermuda Monetary Authority declined to comment. Utah regulators declined to comment on A-Cap. AM Best declined to comment.
Additional reporting by Josh Noble with James Fontanella-Khan in New York
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