Keydata Crisis: $20m Lifemark loan puts compensation in doubt

The prospect of a $20 million (£13 million) loan to Lifemark, the troubled Luxembourg group in which many customers of Keydata, the Reading-based investment group which collapsed last year, has cast more doubt over whether they will receive a full pay-out from the Financial Services Compensation Scheme (FSCS).

As we reported last week a consortium led by Keydata founder Stewart Ford is considering making a $20 million loan to help keep Lifemark afloat. Although details of the loan have not yet been disclosed, if it in any way resembles a previous proposal from US hedge fund CarVal Investors, investors will face a long wait for their money.

It could also muddy the FSCS’s deliberations over compensation to the 25,000 investors who put £350 million into Lifemark via Keydata, which are due to conclude this month.

The key question

The FSCS decision will boil down to one question: did Lifemark investors suffer a loss which Keydata directors are legally liable for?

Determining the loss that investors have incurred will prove difficult for the FSCS. While Lifemark investors have suffered a loss of income payments, they have not yet suffered a capital loss. Quantifying the investors’ loss appears to be impossible until all the troubled life settlement vehicle’s policies mature or are sold.

A $20 million loan to keep Lifemark going prolongs the uncertainty over just how much investors stand to lose. Lifemark teetered on the brink of liquidation earlier this year but the sale of $11 million worth of policies will help stabilise it for a few months.

Conflicting opinions

That averted a disastrous fire sale, but Lifemark will still need an additional £20 million to £40 million in loans to maintain the premium payments on its policies, according to a source close to the company.

A statement issued on behalf of Ford said that the consortium could both reinstate income payments to investors and pay back previous suspended payments, but a source close to Lifemark has cast doubt on those claims.

‘They say that the portfolio is so good it will pay out back interest, future interest and their full capital investment but if it is so good why is it not doing this at this stage?’ said the source.

Ford would almost certainly be excluded from the consortium, according to the source, arguing that his inclusion would potentially enrage Lifemark investors, who would need to vote on any restructuring proposal.

Ford earned £38 million alone from a single commission agreement which paid him 10% upfront of all money invested into Lifemark. Ford also stood to collect £200 million from the assets left in Lifemark after investors were repaid if it had performed according to plan.

‘Currently I feel that a proposal funded by Ford will be rejected by bond holders. It is stupid to put forward something that will be stillborn,’ said the source.