Fleming ordered to proceed with JRG Re purchase
Bermuda-based re/insurer Fleming Insurance Holdings has been ordered to complete its pending acquisition of JRG Reinsurance, with a court ruling that there are no valid grounds to delay the closing.
Fleming agreed to buy JRG Re, a subsidiary of Bermuda-based James River, for $277 million last November. But it later tried to withdraw from the deal.
James River agreed to sell the Bermuda-based casualty reinsurer after losing $152.8 million for the most recent quarter, and in January it dissolved its Bermuda-based subsidiary, Carolina Re.
In December 2023, AM Best lowered the financial strength rating (FSR) of JRG Reinsurance Company from A- to B++ and placed its credit ratings under review with negative ratings. Last year, the company said it had misstated some details of its earnings.
The dispute between James River and Fleming went to litigation in the New York County Supreme Court last month. The court ruled that Fleming had no valid grounds to delay the closing, stating that “there is no breach” to justify its claim against James River.
The Bermuda-based re/insurer announced yesterday that the New York County Supreme Court’s Commercial Division has granted a preliminary injunction against Altamont Capital Partners-backed Fleming Intermediate Holdings. The court ordered Fleming to complete its acquisition of third-party casualty reinsurer JRG Re by April 16, 2024.
The Stock Purchase Agreement (SPA) between the two companies was executed on November 8, 2023, under which Fleming was to acquire JRG Re for $277 million, consisting of a $139 million pre-closing dividend and a $138 million cash payment.
However, Fleming failed to appear at the closing and instead sent a letter on March 2, 2024 demanding a $78 million concession as a condition to close, according to the court document. Fleming argued that JRG Re’s reserves were below historical levels, requiring JRGH to inject additional funds for liquidity to cover three months of claim payments and operating expenses.
Judge Andrea Masley stated that the breaches alleged by Fleming were “contrived and contrary” to the clear terms of the SPA.
“There is no breach for Fleming to rely on to delay the closing,” she ruled. “Based on the SPA, the court finds that the breaches Fleming asserts against JRGH are not breaches at all. Rather, in the absence of a breach by JRGH, Fleming is in breach.”
Consequently, Masley granted James River’s motion for a mandatory injunction directing Fleming to close the deal immediately at the contract price specified in the SPA, without any concession in price.
“JRGH has more than satisfied the traditional elements and established the additional requirements for a mandatory injunction: a clear right under the traditional criteria and extraordinary circumstances,” she said.
In her ruling, Masley noted that Fleming had the opportunity to negotiate a certain level of reserves but failed to do so.
“Fleming could have, but did not, negotiate a certain level of reserves. Fleming cannot use this court to rewrite the SPA,” she said.
Frank D’Orazio, James River chief executive officer, commented on the decision: “We are pleased that the Court has granted James River’s request for a preliminary injunction, compelling Fleming to complete the acquisition of JRG Re in accordance with the Stock Purchase Agreement that the parties negotiated together and executed on November 8, 2023. We look forward to finalizing the transaction.”
There was no comment from Fleming, which is led by chief executive officer Eric Haller and is a portfolio company of Altamont Capital Partners.
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