Trenwick unit Scheme of Arrangement approved; creditor distributions still in question

By Caroline Salls

Pittsburgh, May 3 - Trenwick Group Ltd. subsidiary LaSalle Re Ltd. received court and creditor approval of its proposed Scheme of Arrangement in Bermuda, but liquidation distributions to Trenwick's creditors are still not guaranteed, according to an 8-K report filed with the Securities and Exchange Commission.

According to the 8-K, Trenwick's liquidation cannot be completed until the earlier of the date that all possible realizations from LaSalle and other subsidiaries have been received or all of the company's creditors have been paid in full.

Given uncertainty surrounding the outcome of subsidiary Trenwick America Corp.'s reorganization, Trenwick said it is very difficult to determine whether Trenwick America will be able to make any distributions on its senior notes, and Trenwick's liquidators said it is likely that a portion of the company's letters of credit will be drawn down and the letter-of-credit bank group will be included as creditors of Trenwick and subsidiary LaSalle Re Holdings.

Although holders of LaSalle Re Holdings' series A preferred shares are entitled to receive a preference dividend of $25 per share, Trenwick's liquidators also said this dividend is only payable if there are assets remaining following the payment of LaSalle Re Holdings' liquidation expenses and the full satisfaction of claims against it.

However, LaSalle Re Holdings' series A preferred shareholders will have priority over its common shareholders for dividend payment.

Trenwick also said it will only receive dividends from LaSalle Re Holdings if there is a surplus of available funds following the payment of LaSalle Re Holdings' liquidation expenses and the full satisfaction of the claims and interests held by LaSalle Re Holdings' creditors and preference shareholders.

The liquidators said they are unsure whether Trenwick's common shareholders will receive any distribution from its liquidation.

According to a report to Trenwick shareholders that was included in the 8-K, LaSalle proposed the Scheme of Arrangement as an accelerated closure mechanism because it is not in compliance with Bermudian insurance solvency regulations and is not currently authorized to pay dividends to its parent until it extinguishes its insurance liabilities.

Trenwick's liquidators said in the shareholder report that the scheme is expected to terminate LaSalle Re's remaining insurance liabilities by the end of 2007, after which it should be possible to distribute LaSalle's shareholder surplus to Trenwick in the first half of 2008.

Trenwick said it currently has no unencumbered cash assets with which to cover its liquidation expenses and therefore the costs and expenses of the liquidation are being funded primarily by the company's creditors.

Trenwick Group is a of Bermuda-based insurance holding company that filed for bankruptcy on Aug. 20, 2003 in the U.S. Bankruptcy Court for the District of Delaware along with Trenwick America Corp. and LaSalle Re Holdings.

The case was dismissed in November 2004, and a Section 304 case was filed on April 26, 2005 in connection with the Bermuda bankruptcy proceedings.

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