CATCo fund to redeem $29.34m shares at NAV, 40%+ above listed prices

The CATCo Reinsurance Opportunities Fund Ltd., the listed retrocession focused investment fund strategy managed by Markel CATCo Investment Management, is set to buy-back almost $30 million of shares in a first compulsory purchase and the purchase is being made at NAV, which is well-above the current listed share prices for the fund.

Markel CATCo Investment Management has been managing the run-off of its retrocessional reinsurance fund strategy over recent months, returning capital where it has been able to through a reverse tender offer and a series of share buy-backs.

As a way to accelerate that process and return capital faster to investors, Markel CATCo proposed a compulsory redemption of some of the remaining shares.

That proposal was approved by shareholders and immediately Markel CATCo is proceeding with the first compulsory purchase of shares in the CATCo Reinsurance Opportunities Fund, with some $29.34 million of outstanding shares being bought back from investors.

But the CATCo fund shares have been trading at a significant discount to NAV ever since the major catastrophe losses of 2017 and 2018, which means holders will benefit from recouping that discount as the redemptions are set to be made at a net asset value price.

The $29.34 million of share capital represents some 8.94% of the reinsurance fund’s total issued share capital, split as 6.51% of the Ordinary Shares currently in issue, and 10.64% of the C Shares.

The shares are being redeemed pro-rate across the investor base in the CATCo Reinsurance Opportunities Fund, so each holder will receive something back in this first repurchase.

The shares are being redeemed at NAV price at Feb 29th 2020, which is well above the currently listed share prices for both types of shares.

For the Ordinary shares the redemption will be at $0.2669 per share, while for the C Shares it will be $0.5164 per share.

The current share prices are listed on the London Stock Exchange as $0.19 at yesterday’s close for the Ordinary shares and $0.36 for the C Shares.

In fact, the listed share price for either class has not been as high as this NAV redemption price since as far back as December 2018, so for holders this is a welcome partial exit opportunity.

As we explained at the beginning of this year, investors had been circling the shares of this CATCo listed fund and acquiring stakes in it with the hope that an eventual redemption or liquidation would be at a profitablly higher level than the listed price.

It turns out that has been the case, at least with this first compulsory purchase, with holders set to benefit from a net asset value level exit, that is much higher than the current listed share prices, as the NAV repurchase price is 40% higher than the listed price for the Ordinary shares and 43% higher for the C shares.

There remains a question of whether CATCo fund shares would ever benefit from the subrogation claims PG&E faces, which could potentially return more value to the shares, lifting their share prices further in time.

But for holders, this initial redemption will be welcome at such a profit compared to the listed share price, which holders will be hoping continue.