Collateralized Letter of Credit Facility Agreement between Bayerische Hypo- und Vereinsbank AG and Max Re Ltd.

Summary

Bayerische Hypo- und Vereinsbank AG, New York Branch (HVB) is offering a secured letter of credit facility to Max Re Ltd., a Bermuda-based reinsurance company. The facility, up to $100 million, is backed by investment collateral and supports Max Re’s reinsurance obligations. Letters of credit issued are clean, unconditional, and renewable annually, with a maximum term of one year. Max Re must reimburse any draws immediately, and fees apply based on usage and collateral type. The agreement includes options for facility expansion or reduction and is subject to specific collateral and eligibility requirements.

EX-10.12 9 dex1012.txt BAYERISCHE HYPO- UND VEREINSBANK AG COMMITMENT LTR EXHIBIT 10.12 Bayerische Hypo- und Vereinsbank AG, New York Branch COLLATERALIZED LETTER OF CREDIT FACILITY: SUMMARY OF TERMS - MAX RE - -------------------------------------------------------------------------------- SUMMARY: - -------------------------------------------------------------------------------- Bayerische Hypo- und Vereinsbank AG, New York Branch ("HVB") is considering a senior secured letter of credit facility designed to serve Bermuda-domiciled reinsurers. The facility will be supported by collateral which will be subject to specific eligibility, haircut, MTM, diversification and custodian requirements. Standby letters of credit issued under the Facility will support reinsurance liabilities of the Applicant. Each such letter of credit will have a maximum initial term of one year, be renewable annually, and be clean, unconditional and irrevocable. - -------------------------------------------------------------------------------- GENERAL TERMS - -------------------------------------------------------------------------------- General Description: A senior secured letter of credit facility (the "Facility"). - -------------------------------------------------------------------------------- Purpose: Standby letters of credit issued under the Facility will support reinsurance liability of the Applicant. Each such letter of credit will have a maximum initial term of one year, be renewable annually, and be clean, unconditional and irrevocable. Each letter of credit shall be in the form, and contain such terms, as may be required under the applicable rule and regulations for the beneficiary thereof to obtain financial statement credit. - -------------------------------------------------------------------------------- Applicant: Max Re Ltd., ("Max Re" or the "Applicant"), a Bermuda-domiciled insurance and reinsurance company which is a wholly-controlled subsidiary of Max Re Capital Ltd. ("Max Re Capital" or the "Guarantor"), a Bermuda holding company. - -------------------------------------------------------------------------------- Applicant Guarantor: Max Re Capital - -------------------------------------------------------------------------------- Beneficiaries: Counterparties with whom the Applicant enters into insurance and re-insurance arrangements. - -------------------------------------------------------------------------------- Administrative Agent/ HVB (also defined as the "Agent"). Letter of Credit Issuer: - -------------------------------------------------------------------------------- Sole Lead Arranger/Book Runner: HVB (also defined as the "Arranger"). - -------------------------------------------------------------------------------- Commitment: HVB will provide Letters of Credit with a face amount up to $100,000,000 in the aggregate. - -------------------------------------------------------------------------------- Lenders: Also, under terms mutually agreeable to HVB and the Applicant, HVB will arrange for additional commitments to expand the Facility from financial institutions acceptable to HVB and the Applicant (such institutions, together with HVB, collectively the "Lenders"). - -------------------------------------------------------------------------------- Expansion Option: Subject to additional Lender commitments begin obtained, the Facility may be expanded at any time prior to Final Maturity to an amount agreed upon between the parties. - -------------------------------------------------------------------------------- Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- Optional Facility Reduction: The Applicant may irrevocably cancel the unutilized portion of any commitment under the Facility in whole or in part at any time. - -------------------------------------------------------------------------------- Closing: The execution of definitive loan documentation, to occur on or after the establishment and funding of Grand Central Re Limited (the "Grand Central Closing"). - -------------------------------------------------------------------------------- Final Maturity: Final maturity of the Facility will be 364 days from the ate date of Closing. Letters of credit may be issued under the Facility until Final Maturity. - -------------------------------------------------------------------------------- LETTER OF CREDIT TERMS - -------------------------------------------------------------------------------- Letter of Credit Form: Each letter of credit will be fronted by HVB, and each Lender will be severally (but not jointly) obligated to fund its pro rata portion of any draw under such letter of credit. Draw requests under a letter of credit shall be presented to the Agent, which will remit drawn amounts to the related letter of credit beneficiary. Each letter of credit to be governed by ISP or UCP 500. - -------------------------------------------------------------------------------- Fronting Fee: To be determined by HVB - -------------------------------------------------------------------------------- Commitment Fee: A per annum fee of 0.15% of the unused portion of the Facility, payable quarterly in arrears. - -------------------------------------------------------------------------------- Letter of Credit A per annum fee of 0.40% of the average Commission: amount of letters of credit outstanding that are secured by Non Alternative Investments and a per annum fee of 0.90% of the average amount letters of credit outstanding that are secured by Alternative Investments, payable quarterly in arrears. Fee to be pro-rated for letters of credit outstanding that are secured by both Non Alternative Investments and Alternative Investments. - -------------------------------------------------------------------------------- Letter of Credit Upon any draw under any letter of credit, Borrowing Rate: the Applicant will immediately reimburse in full HVB on behalf of the Lenders. In the event that HVB is not immediately reimbursed in full, the reimbursement obligation will bear interest from the date of such draw until the date of payment at a rate per annum equal to the Alternate Base Rate (as defined below) plus 2.00%. The Alternate Base Rate is the higher of (i) USD one-month LIBOR calculated on an actual/360 day count basis, and (ii) the Federal Funds rate plus 0.50% calculated on the basis of actual days in a 365/366 day year - -------------------------------------------------------------------------------- Calculation of Interest and Fees: All interest, commissions and fees shall be calculated on an actual/360 day count basis, except where the Alternate Base Rate is based on Federal Funds - -------------------------------------------------------------------------------- Payments Net of Withholding: All payments, whether by the Applicant or by the Guarantor, of or on account of fees and interest to be net of and without deduction for any withholding or similar taxes. - -------------------------------------------------------------------------------- 2 Bayerische Hypo- und Vereinsbank AG, New York Branch COLLATERAL TERMS: - -------------------------------------------------------------------------------- Collateral: The facility will be secured by a first priority, perfected security interest in certain of the Applicant's investment securities and funds in favor of HVB for the benefit of the Lenders, which meet all the requirements for Eligible Investments. The aggregate face amount of letters of credit to be issued under the Facility shall never exceed the Borrowing Base. - -------------------------------------------------------------------------------- Eligible Investments: Eligible Investments shall consist of Non Alternative Investments and Alternative Investments subject to the conditions and limitations and the minimum eligibility requirements set forth below in this section. HVB reserves the right to waive certain requirements at its sole discretion. General Eligibility. Eligible Investments -------------------- must: o Be capable of being marked-to-market (Fair Market Value or Net Asset Value ("NAV"), as applicable) on a daily basis for Non Alternative Investments, on a monthly basis for Alternative Investments (other than the Moore Japan Restructuring Fund) and on a quarterly basis for the Moore Japan Restructuring Fund, which for Alternative Investments must be supported by annual unqualified audited financial statements from accounting firms acceptable to the Lenders. o Be capable of being pledged or otherwise transferred to HVB such that HVB can have a perfected security interest in the investment o Be held by a custodian acceptable to HVB. Diversification Requirements Additionally, ----------------------------- Eligible Investments will be subject to diversification requirements to be mutually agreed upon, including but not limited to the following: Single Issuer-Issue-Fund Limit. Initially, ------------------------------- the Eligible Investments shall not be concentrated in any one issuer, any one issue, or any one fund (except that there shall be no limitation on US Treasury Securities, U.S. Agency securities or securities directly guaranteed by the U.S. Government, other than structured notes of a government-backed U.S. Agency), in a percentage greater than 5% of the collateral pool making up the Borrowing Base for the Facility. - -------------------------------------------------------------------------------- 3 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- Weighted Average Requirement. The weighted ---------------------------- average credit quality rating of Non Alternative Eligible Investments must be maintained at or above a minimum of AA-/Aa3 according to Moody's and S&P with the lower rating applicable. Alternative Investment Aggregate Limit. The -------------------------------------- Alternative Investment Amount (as defined below) shall at no time exceed 50% of the Borrowing Base. Alternative Investment Strategies Limit. ------------------------------------------ The Alternative Investments will be subject to concentration requirements according to investment strategies. The eligible investments strategies may include: o Commodity Trading Advisers o Macro o Directional Equity o Short o High Yield, Convertible, Distressed Securities o Market Neutral, Statistical Arbitrage o Fixed Income Arbitrage, MBS Arbitrage o Index Arbitrage o Merger Arbitrage, Regulation D Not single eligible investment strategy may account for in excess of 33% of the aggregate Alternative Investment Amount of all Alternative Investments. - -------------------------------------------------------------------------------- Non Alternative Investments: Non Alternative Investments may include the following asset classes: o Cash and cash equivalents (including time deposits and repurchase agreements, money market funds, and short term asset management accounts) o Commercial paper of one year or less maturity and rated at least A-1/P-1 by Moody's and S&P (with the lower rating applicable). o U.S. Government and Agency securities o Mortgage backed securities and collateralized mortgage obligations and rated Baa3/BBB- or better. o Asset Backed Securities rated both Baa3/BBB- or better (or the equivalent), including securitizations of auto loans, credit card receivables, manufactured housing, home equity loans and commercial real - -------------------------------------------------------------------------------- 4 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- estate. Asset backed securities all must be S&P and Moody's with the lower rating applicable). o Publicly traded U.S. securities issued by Industrial Companies, Utilities, Banks, and other-non Bank Financial Companies and rated at least Baa3/BBB- or better (or the equivalent). Public securities must be rated by both Moody's and S&P, with the lower rating applicable. o Other AA/Aa or better rated G-7 securities. - -------------------------------------------------------------------------------- Alternative Investments: Alternative Investments may include Funds ("Hedge Funds") that are neither registered under the Investment Company Act of 1940 (the "Act") nor traded on an internationally recognized exchange, or whose leverage, defined as the ration of total debt to net assets, exceeds the maximum of 33% specified in the Act. Alternative Investments shall include investments owned by Applicant, provided that the Lenders reserve the rights to restrict or limit such additional Alternative Investments based on reasonable consideration. Specifically, the Moore Japan Restructuring Fund may qualify as a permitted Alternative Investment in a concentration up to 5% of the utilized portion of the Alternative Investment Amount. - -------------------------------------------------------------------------------- Borrowing Base: On any date, an amount equal to the sum of the non Alternative Investment Amount and the Alternative Investment Amount as defined below: (1) The Non Alternative Investment Amount, defined as the sum of the Fair Market Value or NAV, as applicable, or each such investment times the applicable Advance Rate (as set forth in the Appendix with a maximum advance rate of 98% per Investment), provided that, if there is no applicable Advance Rate, the Advance Rate is zero. (2) The Alternative Investment Amount, defined as the sum of the Fair Market Value or NAV, applicable, or each such investment times the applicable advance rate as set forth below based on a fund's maximum period between liquidation notice and expected redemption, provided that (a) the applicable advance rate for the Moore Japan Restructuring Fund shall be 50% of the current NAV, and (b) the excess of (i) the Fair Market Value or NAV, as applicable, of any single investment or eligible investment strategy to which the single investment is allocable over (ii) any Diversification Requirement applicable to such investment shall be deemed to be zero: Days to Redemption % of NAV 0 - 60 days 61.0% 61- 120 days 56.0% Over 120 days 00.0% - -------------------------------------------------------------------------------- 5 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- Collateral Maintenance: (a) The Applicant is required at all times to maintain collateral levels such that on any day the face amount of letters of credit outstanding under the facility does not exceed the Borrowing Base by an amount greater than the Applicant's Threshold Amount. The Threshold Amount shall be zero. (b) In the event that the face amount of letters of credit outstanding shall at any time exceed the Borrowing base by more than $500,000, the Applicant shall, within one Business Day, post sufficient additional Eligible investments as collateral such that the Borrowing Base shall exceed the face amount of letters of credit outstanding. - -------------------------------------------------------------------------------- ADDITIONAL TERMS - -------------------------------------------------------------------------------- Conditions Precedent Standard conditions precedent, including, To Closing: without limitation, the following: o No material adverse change in the facts presented to the Lenders with respect to management, the financial condition, business operations or prospects of the Applicant, as determined in the reasonable opinion of the Lenders, o Receipt of final approvals from HVB internal credit and risk controlling departments, o Grand Central Closing and signing of the Max Re Insurance Management Agreement for Grand Central Re Limited shall have occurred. o Completion of documentation (including, without limitation, master letter of credit agreement, security agreement, account control agreement, financing statements, corporate resolutions, incumbency certificates, compliance certificates, attorneys' opinions and filing searches, all as applicable) satisfactory to HVB and its counsel. o All necessary governmental, creditor, shareholder and third party approvals in connection with the transactions contemplated herein shall have been obtained and shall remain in effect, and all applicable waiting periods shall have expired without, in all such cases, any action being taken by any competent authority that restrains, prevents, imposes materially adverse conditions upon the consummation of such transactions. o Delivery by Applicant of Federal Reserve Form FR U-1 (margin regulation form relating to non-purpose credit). - -------------------------------------------------------------------------------- Conditions Precedent Standard conditions precedent, to Lending including, without limitation, the following: - -------------------------------------------------------------------------------- 6 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- o No Event of Default or event that, with notice or lapse of time, or both, could become an Event of Default, and o All representations and warranties shall be repeated and be true and correct in all material respects as of the date of issuance of each letter of credit under the Facility. - -------------------------------------------------------------------------------- Representations & All representations and warranties shall be Warranties: true and correct in all material respects, and shall include such representations and warranties as are customarily found in letter of credit agreements for similar transactions and such additional representations and warranties as are appropriate under the circumstances as requested by the Lenders. - -------------------------------------------------------------------------------- Events of Default: Standard events of default for facilities of this nature and others deemed appropriate for this specific transaction to be agreed to by the Applicant and HVB, including, without limitation: o Withdraw or downgrading of the Applicant's current credit ratings below BBB or equivalent by all applicable rating agencies; o Nonpayment of principal, interest, fees or commissions; o Violations of covenants; o Material inaccuracy of representations and warranties; o Bankruptcy and other insolvency events of the Applicant; o Failure by the Applicant to post additional collateral; o Cross default to payment and covenant defaults under any other indebtedness of the Applicant with a principal amount of $10 million or more; o Final judgment(s) which in an aggregate exceed $10 million. - -------------------------------------------------------------------------------- Cure Period: There will be no Cure Period for an unreimbursed draw payment default, breach of net worth covenant, breach of any negative covenant, Event of Default rating withdraw or downgrade, bankruptcy or cross default. Cure Period will be 3 New York Business Days for collateral calls, breach of rating downgrade covenant and payment default other than an reimbursed draw. Cure Period will be 30 calendar days for breaches of other Covenants and Representation or Warranty, to the extent curable. - -------------------------------------------------------------------------------- Remedies: Upon an Event of Default, standard remedies for secured facilities of this nature including, without limitation: o Commitment to issue further letters of credit terminates; o Outstanding letters of credit may, at the option of the Lenders, not be renewed; o Lenders may demand that Alternative Investments be replaced with Non Alternative Investments; o Lenders may immediately liquidate and convert to cash any non-cash collateral including, without limitation, the delivery of redemption notices for any Alternative Investments. - -------------------------------------------------------------------------------- 7 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- Covenants/Other Terms The documentation will include covenants customarily found in letter of credit agreements for similar transactions, including, but not limited to: Minimum US GAAP consolidated net worth of Max Re of not less than USD 400 million. Maintain credit ratings at or above A-rating, by one of the Best, Fitch, Moody's and S&P credit rating agencies; Other affirmative covenants including, without limitation, reporting requirements (including without limitation (1) quarterly unaudited and annual audited financial statements, and (2) reports to HVB or its designee on Fair Market Value and NAV, as applicable, of Eligible Investments on a monthly basis (and at such other times as reasonably requested by HVB)) and compliance with applicable laws, payment of all applicable taxes and maintenance of existence. Additionally, the agreement would include appropriate negative covenants limiting change of control. - -------------------------------------------------------------------------------- Assignments: Each Lender will be permitted to make assignments in acceptable minimum amounts to other financial institutions subject to approval by the Agent and, so long as no event of default under the Facility or any incipient default has occurred and in continuing, to approval by the Applicant which approvals shall be unreasonably withheld. Lenders will be permitted freely to sell participations with voting rights limited to significant matters such as changes in amount, rate and maturity date. An assignment fee of $3,500 shall be payable by the assigning Lender to the Agent upon the effectiveness of any such assignment (including, but not limited to, an assignment by a Lender to another Lender). - -------------------------------------------------------------------------------- Expenses: Regardless of whether the Facility closes, the Applicant will pay reasonable attorneys' fees (including reasonable costs and expenses of outside counsel), (a) incurred to document and close the Facility, (b) incurred at any time by the Agent and the Arranger in the ongoing administration of the Facility, (c) in establishing third party administration/custody arrangements in connection with the collateral, and (d) in maintaining third party administration/custody arrangements in connection with the collateral, provided that, if the Facility closes, all costs and expenses in items (a) will be shared equally between the Applicant and Grand Central Re Limited. In addition, the Applicant will pay all reasonable costs and expenses, including legal costs, incurred by the Lenders in enforcing any loan document, whether or not a lawsuit is commenced. - -------------------------------------------------------------------------------- Waiver and Consents: Waiver of jury trial and consent to jurisdiction of Federal and State courts in New York. - -------------------------------------------------------------------------------- 8 Bayerische Hypo- und Vereinsbank AG, New York Branch - -------------------------------------------------------------------------------- Governing Law: New York. - -------------------------------------------------------------------------------- Expiration Date: This term sheet expires on August 31, 2001 - -------------------------------------------------------------------------------- 9