Pearl’s capital base hit by credit crunch
Heavily indebted life insurance group Pearl is under renewed strain after the credit crunch eroded the capital buffers of its life funds.
The closed life or “zombie” funds group has to find more than £200 million to meet a bank loan repayment due this month.
According to documents filed last week with the Financial Services Authority, the capital buffers at a number of Pearl’s subsidiaries — such as Phoenix & London Assurance and Scottish Mutual — have fallen by around 20 per cent due to the credit crunch.
Sources say this has reduced the spare cash Pearl gets from those life companies, limiting its ability to pay back its debts.
Despite Pearl’s financial struggles, policyholders’ investments are safe as the life funds are ring-fenced.
Pearl is struggling under the weight of more than £3 billion of expensive bank debt, most of which it took on at the top of the market.
Those debts are serviced by the dividends and cash Pearl gets from its subsidiary life companies.
But the City watchdog is tightening the rules governing the capital structures of insurance companies. It is understood the FSA is against insurers using cash flows from their life funds to service debts, while those same life funds are seeing their investment portfolios clobbered.
To add to its woes, its bondholders are to sue it for refusing to pay them £33 million in missed interest payments.
Pearl, fronted by Pizza Express to Punch Taverns entrepreneur Hugh Osmond, is looking to stage a £2 billion float on the London Stock Exchange by the end of the year.
Ahead of this, Pearl is attempting to restructure its balance sheet. It is trying to convince its 17 banks to agree to a debt-for-equity swap, which would wipe out its debts.
But the banks, led by nationalised lenders Lloyds and Royal Bank of Scotland, are believed to have vetoed the swap.
It is thought they would like to take control of Pearl and recover their money by selling it to insurance magnate Clive Cowdery. Pearl maintains the talks are on track.
At a meeting with its bondholders last week Pearl reiterated that it would not pay them the £33 million of interest payments it owes on £200 million of bonds or IOUs it is responsible for.
As a result, bondholders are to sue and it is understood legal notices could be handed to Pearl this week.
