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Catalina raises additional $700mn on Apollo deal completion

11 October 2018

Catrin Shi | 10 October 2018

Run-off acquirer Catalina has completed its buy-in from Apollo affiliates, entering another league in terms of the size of legacy transactions it is able to execute.

Through the buy-in, 10 Apollo affiliates – with backing from sovereign wealth and pension funds – committed $700mn of equity capital to Catalina.

This was in addition to the funds needed to buy out existing shareholders Caisse de dépôt et placement du Québec (CDPQ) and Ontario Teachers’ Pension Plan, making Apollo and its affiliates the majority stakeholders in Catalin

Together with existing committed and undrawn equity, the $700mn in new funds bring Catalina’s total available equity to back news deals to $850mn.

However, when accounting for Catalina’s ability to generate cash, this number is brought up to $1bn.

And when applying Catalina’s 50 percent leverage ratio, the amount of available resource for legacy deals could feasibly reach as high as $1.5bn.

“This new equity combined with our broader Apollo relationship elevates us from where we are at the top end of the legacy market and allows us to play in a different sphere. And there’s only one other player in that league.” Catalina CEO Chris Fagan told The Insurance Insider, in what is assumed to be a reference to Berkshire Hathaway.

“It doesn’t change our model – but it does allow us to do much, much larger deals and positions us extremely well for growth.”

As previously reported by this publication, Apollo-owned Bermuda start-up Acra Re is set to co-invest alongside Catalina in the acquisition of Zurich’s £1.6bn ($2.1bn) UK employers’ liability back book.

Catalina also has additional resources via its relationship with RenaissanceRe, which now holds a circa 5 percent stake in the legacy acquirer.

The strategic partnership between RenRe and Catalina may see the reinsurer work alongside the legacy acquirer on deals, either via quota shares or structures like adverse development covers.

Increased scale may put Catalina in a position to exercise pricing power when it comes to legacy transactions where Berkshire Hathaway has been the only available counterparty in the past.

The 10 limited partners which have committed the $700mn in equity – and the funds to pay out the two Canadian pension funds – are notably investors which demand a lower rate of return than the typical 20 percent demanded by private equity investors.

Following the buy-in, Apollo and its affiliates now hold an approximate 90 percent share of Catalina. The legacy carrier’s management own the remainder of shares not held by Apollo and RenRe.

“We believe the completion of this sizable equity financing, and the Apollo Funds becoming majority shareholders, are a significant milestone for Catalina,” said Gernot Lohr, senior partner at Apollo. “This transaction consolidates the company’s position as a leader in the non-life run-off industry.”

Apollo first invested in Catalina in 2013. Since then, Catalina has completed 16 transactions acquiring $3.8bn of non-life insurance and reinsurance liabilities, and as at 31 August 2018 had total assets of $4bn.

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