Further to the CSSF notice being posted on their website (See below) we have asked ARM via Catalyst to provide a response to all bondholders as soon as possible. We have been advised by ARM that the Client communication letter promised some two weeks ago is once again with the CSSF at their request for further comment.
ARM have also advised that they intend to fully respond to Bond holders as soon as possible once they have received the appropriate permissions and agreements to do so.
The FSA continue to advise that any relevant information in conjunction with the ARM Bond, Catalyst Investment Group or their ongoing dialogue with other European Regulators will be immediately notified to Rockingham for inclusion on this update.
Rockingham would like to advise that notification of the CSSF update on Friday evening was provided by the FSA to Rockingham and not directly from the CSSF.
The CSSF made the following posting on their website late on Friday evening:
Commission de Surveillance du Secteur Financier
COMMUNIQUE DE PRESSE 11/31
ARM ASSET BACKED SECURITIES S.A. (“ARM”)
FREQUENTLY ASKED QUESTIONS
1. Who is ARM ?
ARM is a securitisation undertaking governed by the Luxembourg law of 22 March 2004 on securitisation (the “Law”). It has been issuing bonds from Luxembourg since 2006 pursuant to a base prospectus first approved for the purposes of the prospectus directive 2003/71/EC on 3 August 2007 by the Irish Stock Exchange (and amended by subsequent base prospectuses issued and approved since that date). However, ARM has never obtained a licence from the CSSF nor been subject to its prudential supervision.
2. When does a Luxembourg securitisation undertaking need to apply for a licence?
Securitisation undertakings governed by the Law must be authorised and supervised by the Commission de Surveillance du Secteur Financier (the “CSSF”) if they fulfil the criteria of the Law, i.e. as soon as they issue securities to the public on a continuous basis.
3. How did the licence application proceed?
Before applying for the legally required licence, ARM had been issuing bonds to the public for over 2 years (the “Application”) without having the required authorization by the CSSF.
The CSSF then instructed ARM to stop issuing further bonds, pending its decision as to ARM’s Application. However and despite the CSSF’s instruction, ARM had continued to collect monies from new investors (the “Pending Investors”).
When ARM was informed by the CSSF that it would not be in a position to grant a licence, ARM committed to relocate within a short period of time to Ireland where, according to ARM, a licence would not be needed. However, as of the date of the Decision, as defined below, such relocation has still not occurred.
In July 2011, ARM was unable to honour redemption/refund requests and was late on coupon payments.
On 29 August 2011, the CSSF decided to refuse to grant a licence to ARM as a regulated securitisation undertaking under the Law (the “Decision”).
4. What are the consequences of the CSSF Decision?
The Decision entails a suspension of any payment by ARM and prohibition for ARM, under penalty of voidance, to take any measures other than protective measures, unless otherwise authorized by the CSSF acting as supervisory commissioner (“commissaire de surveillance”).
5. What is a suspension of payments / What will happen to my investment ?
There are various types of suspension of payments. Generally speaking, a suspension of payments is only a temporary measure the purpose of which is to postpone or delay all payment obligations of a person/company until further notice.
In the case of ARM, the suspension of payments is an automatic legal consequence of the CSSF Decision and designed to ensure equal treatment of all of ARM’s investors and creditors, until the appointment by the court of a liquidator.
In practice, this means that no coupon payments will be made, nor any redemption/refund requests paid until after the court has appointed a liquidator.
6. When will the court appoint a liquidator?
Provided the CSSF Decision is not challenged, the Luxembourg public prosecutor will request the court to appoint a liquidator one month after the CSSF Decision has become final. It will become final one month after it was served to ARM (which occurred on 29 August 2011).
If the CSSF decision is challenged, a liquidator will only be appointed if and after the administrative courts confirm the CSSF Decision. The court process could take several years.
7. Will there be a firesale?
The CSSF would expect the court appointed liquidator to take into consideration the specific nature of the underlying assets of ARM’s portfolio, i.e. senior life settlement policies, and to propose an adequate liquidation process to the court taking this feature into consideration, thus applying for an orderly wind-down of ARM’s portfolio, akin to a restructuring within ARM, or a transfer of ARM’s assets into a new entity, via a restructuring.
8. What are the CSSF’s main concerns with respect to granting a licence to ARM?
The CSSF considers that the conditions for granting a licence were not fulfilled for the following reasons:
the extended issuing activity in breach of legal and regulatory provisions ;
ARM’s inability and/or unwillingness to comply with prudential and legal requirements; the CSSF’s prudential concerns related among others to the adequacy of ARM’s liquidity risk management and the lack of a permanent liquidity facility;
the continued collection of new investor funds after the CSSF’s prohibition to issue new bonds and its consequences as described in the next item ;
uncertainty as to the rights of Pending Investors, including the nature thereof, and the resulting concerns as to an appropriate use of Pending Investors’ funds in the past ;
ARM’s fee structure which the CSSF considers to have been detrimental to its financial position and the non-transparent disclosure thereof; and
the deteriorated financial situation which has had as a consequence the late payment of the July 2011 coupons and the incapacity to honour redemption/refund requests which fell due on 1 July 2011 .
9. Did the CSSF consider the impact on investors before taking the Decision?
The CSSF considered taking its Decision very carefully, including the potential effect on investors. The scale of the prudential and legal issues identified by the CSSF and the need to safeguard existing and Pending Investors’ assets and ensure an orderly wind down or transfer of ARM’s business under the control of the court meant that taking the Decision was deemed to be the best course of action in order to protect the interests of all investors, i.e. the existing bondholders and the Pending Investors.
Due to the multijurisdictional implications of the file, the CSSF, the Financial Services Authority (FSA), the Central Bank of Ireland (CBI) and the Malta Financial Services Authority (MFSA) have been and keep working in close cooperation.
10. Why has the CSSF not published any information on the way forward nor on the proposed Insetco deal ?
10.1 Concerning disclosure on the current situation, please see points 4 to 7 above. In this context, the CSSF would like to draw your attention to the following :
ARM is a company whose bonds are listed on the Irish Stock Exchange (which is a regulated stock exchange) and therefore subject to all applicable rules and regulations of the market abuse directive 2003/6/EC of 28 January 2003 on insider dealing and market manipulation and the relevant national implementing laws.
Thus the CSSF is not in a position to disclose any confidential information exchanged with ARM to any third parties.
10.2 Concerning disclosure on the proposed Insetco transaction, the CSSF can state the following :
ARM and Insetco have informed investors that on 26 August 2011, they entered into a conditional sale and purchase agreement which is subject inter alia to positive feedback of a majority by value of all of ARM’s investors. To that end, ARM intends to issue a consultation paper to its investors (the “Consultation”).
However, the CSSF would like to stress that ultimately, the acceptance of the proposed Insetco deal will be within the court appointed liquidator’s remit, once appointed, who will have to decide inter alia on all questions that arise in relation to ARM and its business, in accordance with his judicial mandate.
As a consequence of the above, the CSSF is and will not be in a position to express any opinion on the proposed Insetco deal. Further, the CSSF needs to carefully assess any disclosure by ARM to its investors and, as the case may be, ensure it is based on proper legal advice, in order to avoid communication of any incomplete, misleading or incorrect information.
The CSSF is therefore actively liaising with ARM on a daily basis, to ensure that any communication by ARM to its investor community, and in particular the Consultation, is factually correct in all aspects. The CSSF can also confirm that a meeting with representatives of ARM and Insecto plc did take place.
Luxembourg, 23 September 2011
The direct link to this announcement is at: http://www.cssf.lu/fileadmin/files/Publications/Communiques/Communiques_2011/CP_1131.pdf
No communications have been directly received at Rockingham from the CSSF in relation to any of our emails sent during the last 7 days. This includes our request to meet with the CSSF with a number of Bondholders at some stage this week.
To date we have received no cooperation or assistance from the CSSF with the exception of the above web posting in relation to updating bondholders.
Rockingham Independent Ltd
Following our posting of Client emails to the CSSF on Friday two other Bondholders have asked us to post emails that have been forwarded directly to the CSSF we do not believe that an answer has been received by either Bond Holder to date.
My mail to the CSSF reads as follows:
I am an investor in the ARM asset backed fund and have been advised that a company called Insetco plc are intending to purchase Catalyst Investment Group Limited and that they have submitted draft wording for you to approve.
I have spoken to ARM to try and get details of what the cause of the problems are and why the restructuring will benefit the bondholders I am most concerned that they seem to not want to disclose:
a) what the actual cause of the problems within the existing investment is. They seem to be saying that it is a temporary cash shortage but will not provide details of exactly what caused it. In particular it would be informative to the bondholders if they advised what expenses were incurred (e.g. salaries, commissions etc.) and whether those are in line with the norm for a similar investment.
b) what the charging structure will be within Insetco. Do they have a business model that sets out how they will achieve the expected returns from the fund, etc.
I am concerned that ARM and Insetco are going to request the investors to vote without giving them sufficient information to properly understand what the options are.
My biggest concern is that there may have been unusual charges against the fund within ARM and that they are trying to hide this by a reverse takeover of the company using Intesco. Is the CSSF going to look into what has happened in the past and ensure that the bondholders are fairly treated?
I would be grateful if you would consider the interests of the bondholders when you approve the letter that ARM/Insetco are intending to send to us.
Dear Ms Campill,
My wife and I are one of the many investors in ARM and this represents a very significant amount of our pension fund money. After receiving outline information regarding this situation along with a notification of the proposed reverse take-over by Insetco plc, we note that the CSSF has imposed a news blackout on the entire situation. The last information we received in early September, informed investors that they would shortly receive a full explanation of the situation and offer on which they would be asked to vote, within the next few days. Since then, your imposed news & information black-out is causing extensive alarm amongst investors, and no doubt ‘the markets’ who will be asked to purchase some of the enlarged issued share capital. You have totally refused to answer any questions on this situation, and only grudgingly acknowledged the e-mail that Rockingham Retirement sent, requesting an explanation and up-date of your actions. It would appear that your actions are intent of wrecking the proposed acquisition and in the process willfully destroying the savings of many innocent investors. It would seem to the investors in ARM, whose savings are at risk, that your organisation is intent on wrecking the proposed acquisition. As a regulatory body, your organisation is supposed to protect peoples investments, not destroy them. I request in the strongest terms that you provide an explanation of your actions and provide the investors with the information and explanations that they deserve.
We are continuing to obtain as much information as possible for bondholders but are finding the current situation very difficult to ascertain an accurate view of the current position.
We are currently receiving a large number of calls and e mails from concerned investors but unfortunately we currently do not have clear answers to your specific questions. May we ask that you refer to this website for the daily update at 4.30 so we can keep all bondholders informed on the same basis.
Rockingham ‘ARMhelp’ Support Team.