Item 1.01 Entry into a Material Definitive Agreement.
On November 25, 2019, American International Group, Inc. ("AIG") entered into a
membership interest purchase agreement with Fortitude Group Holdings, LLC
("Fortitude"), The Carlyle Group L.P. ("CG"), Carlyle FRL, L.P., an investment
fund advised by an affiliate of CG ("Carlyle FRL"), T&D United Capital Co., Ltd.
("T&D") and T&D Holdings, Inc. ("TDH") (the "Purchase Agreement"), pursuant to
which, subject to the satisfaction or waiver of certain conditions set forth
therein, Carlyle FRL will purchase from AIG a 51.6% ownership interest in
Fortitude for a purchase price of $1,209,359,618, subject to the adjustments set
forth in the Purchase Agreement, and T&D will purchase from AIG a 25% ownership
interest in Fortitude for a purchase price of $585,930,047, subject to the
adjustments set forth in the Purchase Agreement (the "Transactions"). In
addition, the parties will seek to cause to be paid to AIG a planned
distribution of $500 million on a non-pro rata basis, subject to regulatory
approvals (the "Target Distribution"). To the extent AIG does not receive all or
a portion of the Target Distribution prior to the later of May 13, 2020 and the
closing of the Transactions (the "Closing"), Carlyle FRL, with funding from new
investors, will pay AIG up to an additional $258 million and T&D will pay AIG up
to an additional $125 million. Following Closing, AIG's ownership interest in
Fortitude will be reduced from 80.1% to 3.5%, subject to the adjustments set
forth in the Purchase Agreement. Fortitude is the holding company for Fortitude
Reinsurance Company, Ltd. ("Fortitude Re"), formerly known as DSA Reinsurance
Company, Ltd., the reinsurer of approximately $31 billion of reserves from AIG's
Legacy Life and Retirement Run-Off Lines and approximately $4 billion of
reserves from AIG's Legacy General Insurance Run-Off Lines related to business
written by multiple wholly-owned AIG subsidiaries. AIG expects to contribute
approximately $1.45 billion of the proceeds of the sale to certain of its
insurance company subsidiaries for a period of time following Closing.
AIG's Board of Directors and the governing bodies of Fortitude, Carlyle FRL and
T&D have each approved the Transactions. Each of the parties has made customary
representations and warranties in the Purchase Agreement and agreed to certain
covenants and other obligations, including indemnities for breaches of the
Purchase Agreement. The purchase price under the Purchase Agreement is subject
to a post-closing purchase price adjustment pursuant to which AIG will pay
Fortitude Re for certain adverse development in property casualty related
reserves, based on an agreed methodology, that may occur on or prior to December
31, 2023, up to a maximum payment of $500 million. Upon Closing, the adverse
development cover that AIG had agreed to provide to TC Group Cayman Investment
Holdings, L.P. ("TC"), an affiliate of CG, in connection with TC's 2018 purchase
of a 19.9% ownership interest in Fortitude (the "2018 Transaction"), will be
terminated. In connection with the Purchase Agreement, AIG, Fortitude and an
affiliate of Carlyle FRL have agreed, effective as of Closing, that AIG's
commitment to invest or cause Fortitude to invest at least $6 billion of
investment assets into various CG strategies on or before May 13, 2021 will be
assumed by Fortitude, and AIG will be released therefrom. Consistent with the
terms of the 2018 Transaction, TC remains obligated to pay AIG $95 million at
December 31, 2023 and, to the extent AIG does not receive all or a portion of
the Target Distribution prior to May 13, 2020, up to an additional $100 million.
Upon Closing of the Transactions, the unconditional capital maintenance
agreement provided by AIG for the benefit of Fortitude Re will be terminated.
Consummation of the Transactions is subject to customary closing conditions,
including, among others, (1) the expiration or termination of any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, if required, and receipt of certain regulatory approvals, including
approval of the Bermuda Monetary Authority (the "BMA"), (2) the absence of any
injunction, judgment or ruling of a governmental authority enjoining,
restraining or otherwise prohibiting the Transactions and (3) subject to
specified materiality standards, the accuracy of the representations and
warranties of, and performance of all covenants by, the parties as set forth in
the Purchase Agreement. Additionally, consummation of the Transactions is
subject to approvals of the BMA, the New York State Department of Financial
Services, the Texas Department of Insurance, the Illinois Department of
Insurance, the Pennsylvania Insurance Department and the Delaware Department of
Insurance with respect to certain amendments to the underlying reinsurance and
investment advisory agreements among AIG, Fortitude and their respective
affiliates. In addition, AIG's obligation to consummate the Transactions is
subject to the termination of $550 million of letters of credit (the "Fortitude
Re LOCs") for which AIG is applicant and obligor, and the replacement of the
Fortitude Re LOCs with another source of statutory capital for Fortitude Re.
The Purchase Agreement also provides certain termination rights for AIG, Carlyle
FRL and T&D, and further provides that upon termination of the Purchase
Agreement, due to a material breach by Carlyle FRL of its obligations under the
Purchase Agreement or a failure of Carlyle FRL to fund the purchase price
payable to AIG, CG will be required to pay AIG a termination fee of $100
million.
Upon Closing of the Transactions, AIG's Legacy Portfolio would recognize a loss
for the portion of the unamortized balance of the intercompany prepaid insurance
assets and related deferred acquisition costs that are not recoverable. As of
September 30, 2019, the unamortized balances of the aforementioned prepaid
insurance assets and related deferred acquisition costs were $2.4 billion
(after-tax) and $0.4 billion (after-tax), respectively. This combined loss of
$2.8 billion would be incremental to any gain or loss recognized on the sale of
AIG's controlling interest in Fortitude. The incremental gain or loss AIG will
recognize on the sale of its controlling interest in Fortitude would be
impacted, perhaps significantly, by market conditions existing at the time of
Closing of the Transactions.
The foregoing description of the Purchase Agreement and the Transactions does
not purport to be complete and is qualified in its entirety by the terms and
conditions of the Purchase Agreement, a copy of which is attached as Exhibit 2.1
to this Current Report on Form 8-K and is incorporated herein by reference. The
Purchase Agreement contains representations, warranties and covenants that the
respective parties made to each other as of the date of such agreement or other
specific dates. The assertions embodied in those representations, warranties and
covenants were made for purposes of the contract among the respective parties
and are subject to important qualifications and limitations agreed to by the
parties in connection with negotiating such agreement. The Purchase Agreement
has been attached to provide investors with information regarding its terms. It
is not intended to provide any other factual information about AIG, Carlyle FRL,
T&D or any other party to the Purchase Agreement. In particular, the
representations, warranties, covenants and agreements contained in the Purchase
Agreement, which were made only for purposes of such agreement and as of
specific dates, were solely for the benefit of the parties to the Purchase
Agreement, may be subject to limitations agreed upon by the contracting parties
(including being qualified by confidential disclosures made for the purposes of
allocating contractual risk between the parties to the Purchase Agreement
instead of establishing these matters as facts) and may be subject to standards
of materiality applicable to the contracting parties that differ from those
applicable to reports and documents filed with the Securities and Exchange
Commission. Investors should not rely on the representations, warranties,
covenants and agreements, or any descriptions thereof, as characterizations of
the actual state of facts or condition of any party to the Purchase Agreement.
In addition, the representations, warranties, covenants and agreements and other
terms of the Purchase Agreement may be subject to subsequent waiver or
modification. Moreover, information concerning the subject matter of the
representations and warranties and other terms may change after the date of the
Purchase Agreement, which subsequent information may or may not be fully
reflected in AIG's, CG's or TDH's public disclosures.
Item 8.01 Other Events.
On November 25, 2019, AIG, CG and TDH issued a joint press release announcing
the execution of the Purchase Agreement. A copy of that press release is
attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated
herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
2.1 Membership Interest Purchase Agreement, by and among American
International Group, Inc., Fortitude Group Holdings, LLC, Carlyle FRL,
L.P., The Carlyle Group L.P., T&D United Capital Co., LTD. and T&D
Holdings, Inc., dated as of November 25, 2019.
99.1 Press release issued by American International Group, Inc., The
Carlyle Group L.P. and T&D Holdings, Inc., dated November 25, 2019.
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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