Business Context and Reporting Period
This Form 8-K filing by Greenlight Capital Re, Ltd. reports on events occurring on January 1, 2014. The filing details the entry into a Second Amended and Restated Agreement and a new Investment Advisory Agreement (IAA) involving the Company, Greenlight Reinsurance, Ltd., Greenlight Reinsurance Ireland, Ltd., DME Advisors, LLC, and DME Advisors, LP. These agreements govern the management of jointly held assets and the investment strategy for "The Venture."
Key Financial Metrics
The filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures for the reporting period. It focuses exclusively on the terms of the new management agreements. Key financial terms established in the agreements include:
- Management Fee: DME Advisors, LP (DMELP) receives a monthly payment based on an annual rate of 1.5% of the capital account balance of each Participant.
- Performance Allocation: DME Advisors, LLC (DME) receives 20% of net profits calculated per annum.
- Loss Carry Forward: If a Participant incurs a loss, DME's performance allocation is reduced to 10% on subsequent profits until losses are recouped plus an additional 150% of the loss amount.
- Zero Performance Fee: DME is not entitled to a performance allocation in any year where the investment portfolio incurs a loss.
Material Changes Versus Prior Period
The new agreements amend and restate the Prior Agreement dated August 31, 2010. The primary material changes include:
- Participant Substitution: DME Advisors, LLC replaces DME Advisors, LP (DMELP) as a Participant in the management agreement, while DMELP enters a separate Investment Advisory Agreement.
- Term Extension: The agreement term is set from January 1, 2014, through December 21, 2016, replacing the prior term which ended December 31, 2013.
- Automatic Renewal: The agreement now includes a provision for automatic renewal for successive three-year periods unless terminated with 90 days' notice.
- Exclusivity: Participants are restricted from engaging investment advisors other than DME or DMELP (or affiliates) during the term.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook: The filing indicates a continued reliance on David Einhorn-controlled entities (DME and DMELP) for asset management. The agreements mandate that subsidiaries use commercially reasonable efforts to join similar arrangements.
Risks and Contingencies:
- Withdrawal Rights: Participants may withdraw "for cause" with 90 days' notice prior to term expiration if DME/DMELP commits material violations of law, gross negligence, willful misconduct, or uncured breaches of investment guidelines.
- Performance-Based Withdrawal: Greenlight Reinsurance Ireland, Ltd. (GRIL) retains the right to withdraw prior to expiration if the Board determines DME or DMELP's long-term performance is unsatisfactory.
- Indemnification: Participants have agreed to indemnify DME and its affiliates against liabilities arising from the agreements, subject to exceptions for gross negligence or willful misconduct. Conversely, DME/DMELP indemnify the Participants against certain liabilities.
Important Facts for Investor Verification
- Verify the exact capital account balances to calculate the 1.5% management fee liability.
- Confirm the current status of any "loss carry forward" provisions that might reduce the 20% performance fee to 10%.
- Review the specific investment guidelines referenced in the agreement to understand the scope of "material breach" for withdrawal rights.
- Monitor the automatic renewal clause to ensure timely notice is given if the Company wishes to terminate the relationship before the next three-year cycle.
- Examine the attached Exhibits 10.1 and 10.2 for the full legal text of the indemnification clauses and exclusivity restrictions.