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A Bermudian financial structure used by the Miami-based bidder for Everton Football Club to funnel money invested for widows and orphans into the sport has begun to unravel.
777 Re, a Bermuda-based reinsurer, has enabled 777 Partners to pursue an ambitious dealmaking spree that has included trophy sporting assets and football clubs from Genoa and Hertha Berlin in Europe to Vasco da Gama in Brazil.
But the reinsurer’s ability to further finance the Miami-based firm’s deals is under pressure, while creditors to 777 Partners have turned to the courts.
US insurance group A-Cap, a lender to 777, late last month said it would attempt to raise $400mn in fresh capital and take back control of assets ceded to 777 Re because of credit rating downgrades. Separately, a lawsuit filed in New York last week sought to prevent the transfer of 777 Partners’ assets to a co-founder to protect creditors’ interests, calling the firm a “house of cards”. 777 declined to comment on the court case.
777, which initially made its money in niche areas of finance such as structured settlements, historically flew under the publicity radar.
The deal to acquire Everton, the nine-time champions of England, from British-Iranian Farhad Moshiri has put the group into the spotlight, drawing scrutiny from local politicians, journalists, rating agencies and regulators.
The Premier League has been assessing 777 since September last year, during which time Sir Jim Ratcliffe’s purchase of a Manchester United stake was waved through.
777 has not disclosed how it will finance an Everton takeover, but people close to the deal have said 777 Re was not essential to funding the deal. A person close to 777 told the Financial Times in December that an entity called Nutmeg Acquisition would be used in the purchase. Following scrutiny of 777 Re’s lending to Nutmeg, people close to 777 insisted that separate financing plans were in place.
777 Partners has lent at least £150mn to Everton, according to several people with knowledge of the matter. A-Cap has also provided direct finance to a number of 777 entities.
The reinsurer was at the heart of 777’s “insurance funding model”, according to 2021 pitch documents that said 777 Re sat between third party insurers and 777 portfolio companies. People close to 777 said the group and the reinsurer had an “aggressive” investment strategy. In the presentation, 777 said its approach could generate returns on equity of more than 40 per cent, compared with the 10 per cent in the “traditional approach”.
Annuities such as those offered by A-Cap are typically backed by low risk investments in liquid securities, because policyholders are often able to redeem funds, subject to penalties. Insurers sometimes “cede” assets and liabilities to reinsurers in order to manage their balance sheets.
AM Best, a rating agency that specialises in insurance, has raised concerns about the quality of assets held by 777 Re, which are invested to support 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.
At the start of last year, half of 777 Re’s $3bn assets were classified as related party investments, while $2bn worth were classed as “level 3” assets considered hard to sell or accurately value, according to the most recent accounts available.
A-Cap’s plan to raise capital is a response to the downgrade from AM Best, which centred on concerns about 777 Re’s holdings.
777 Partners co-founder Josh Wander told the Financial Times that he was “not that concerned” about 777 Re, which he said did not need more capital: “The business is overcapitalised.” He added that the entity was reducing its holdings of illiquid assets “even though . . . we have done absolutely nothing wrong”.
One industry expert who had examined 777 Re’s 2022 accounts said of its illiquid assets “in trying to reposition the portfolio it’s unlikely it’ll be able to sell at those valuations”.
A-Cap controls life insurers based in Utah and South Carolina. A-Cap chief executive Kenneth King late last month told insurance agents that AM Best’s downgrade was unwarranted. “I think that there was pressure for [AM Best] to take action, for anybody that had a relationship with 777 Re,” said King. He added: “We don’t agree with their position.”
Michael Wise of the South Carolina insurance regulator said he was aware that his Bermudian counterparts were addressing issues at 777 Re, and that the state continued to “co-ordinate our efforts as necessary” with other US state regulators.
Silac, which has $10bn in assets and is run by a longtime friend of Donald Trump, did not respond to requests for comment. The Bermuda Monetary Authority declined to comment. The Utah state regulator declined to comment on A-Cap. AM Best declined to comment.
Additional reporting by Josh Noble and James Fontanella-Khan in New York
