Business Context and Reporting Period
This Form 8-K filing by Greenlight Capital Re, Ltd. reports on events occurring on September 30, 2016. The filing details the entry into material definitive agreements regarding the management of jointly held assets among the Company, Greenlight Reinsurance, Ltd., Greenlight Reinsurance Ireland, and DME Advisors.
Key Financial Metrics
This filing does not contain financial statements, revenue, profit, cash flow, or liquidity data. It focuses exclusively on contractual terms and fee structures.
- Management Fee: DME Advisors, LP (DMELP) receives a monthly payment based on an annual rate of 1.5% of the capital balance of each Participant.
- Performance Allocation: DME Advisors receives 20% of net profits calculated per annum.
- Loss Carry Forward: In years following a Participant's loss, the performance allocation is reduced to 10% until losses are recouped plus an additional 150% of the loss amount.
- Debt and Liquidity: The filing text does not provide a clear value for debt or liquidity positions.
Material Changes Versus Prior Period
The Company entered into a Third Amended and Restated Agreement and an Amended and Restated Investment Advisory Agreement (IAA), effective January 1, 2017, replacing prior agreements effective January 1, 2014. Key changes include:
- Term Extension: The new term runs from January 1, 2017, through December 31, 2019, with automatic renewal for successive three-year periods unless terminated with 90 days' notice.
- Additional Covenants: New requirements for DME to comply with all applicable laws and to avoid "principal transactions" under the U.S. Investment Advisers Act of 1940 without prior written consent.
- Withdrawal Rights: GRIL may withdraw prior to term expiration due to unsatisfactory long-term performance of DME/DMELP, as determined solely by GRIL's Board of Directors.
Guidance, Outlook, and Risks
Management Commentary: The agreements grant DMELP full discretion in managing trading, investment transactions, and borrowing activities for the Venture. The Company, Greenlight Re, and GRIL have agreed to indemnify DME and its affiliates against liabilities arising from the agreements, subject to exceptions for gross negligence, willful misconduct, or reckless disregard.
Risks and Contingencies:
- Termination for Cause: Participants may withdraw for cause if DME/DMELP commits a material violation of law, gross negligence, willful misconduct, or a material breach of investment guidelines not cured within 15 days.
- Performance Risk: DME is not entitled to a performance allocation in any year where the investment portfolio incurs a loss.
Important Facts for Investor Verification
- Verify the effective date of the new fee structure (January 1, 2017) and its impact on future expense ratios.
- Confirm the specific definition of "unsatisfactory long-term performance" under which GRIL may withdraw early.
- Review the attached Exhibits 10.1 and 10.2 for the full text of the indemnification clauses and investment guidelines.
- Monitor the capital balance of the Participants to calculate the 1.5% management fee liability.