8-KMaterial AgreementsFinancial EventsRegulation FD+1

ARCH CAPITAL GROUP LTD. 8-K Report, Material Agreement (Aug 16, 2016)

Filed August 16, 2016For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) announced a significant acquisition on August 15, 2016, entering into a Stock Purchase Agreement to acquire United Guaranty Corporation ("UG Corp") and AIG United Guaranty (Asia) Limited ("UG Asia") from American International Group, Inc. (AIG) for up to approximately $3.42 billion. This strategic move involves a combination of cash, convertible preferred shares, and potentially perpetual preferred shares as consideration. The acquisition is a material development for ACGL, positioning it to significantly expand its presence in the mortgage insurance market. The transaction is expected to close in the fourth quarter of 2016 or first quarter of 2017, subject to customary closing conditions including regulatory approvals and HSR Act clearance. AIG will provide customary covenants to ensure the ordinary course of business for United Guaranty between signing and closing. ACGL has secured a bridge credit facility of up to $1.375 billion to fund the cash portion of the acquisition. This 8-K filing details the material terms of the Stock Purchase Agreement, the related Investor Rights Agreement, and the Bridge Credit Agreement, providing crucial information for investors regarding the scope, financing, and conditions of this major transaction.

Key Highlights

  • 1ACGL to acquire United Guaranty Corporation and UG Asia from AIG for up to $3.42 billion.
  • 2Transaction consideration includes approximately $2.2 billion in cash, $975 million in convertible preferred shares, and an additional cash/perpetual preferred share component.
  • 3Acquisition significantly expands ACGL's footprint in the mortgage insurance sector.
  • 4Financing for the cash portion will be provided by a $1.375 billion bridge credit facility.
  • 5Closing is anticipated in Q4 2016 or Q1 2017, contingent on regulatory and HSR approvals.
  • 6An Investor Rights Agreement will govern the transfer of convertible preferred shares by AIG and includes registration rights.
  • 7AIG has agreed to customary covenants, including not engaging in US and Hong Kong primary private mortgage insurance for 24 months post-closing.

Frequently Asked Questions

This 8-K filing announces ACGL's entry into a material definitive agreement to acquire United Guaranty Corporation and AIG United Guaranty (Asia) Limited from AIG. It details the terms of the Stock Purchase Agreement, the financing arrangements through a Bridge Credit Agreement, and the governance of the share consideration through an Investor Rights Agreement.

The total consideration for the acquisition is up to approximately $3.42 billion. This will be financed through a combination of approximately $2.2 billion in cash, roughly $975 million in ACGL's convertible preferred shares, and another component involving cash or perpetual preferred shares. ACGL has secured a bridge credit facility of up to $1.375 billion to fund the cash portion of the transaction.

The transaction is subject to several closing conditions, including the expiration of the HSR Act waiting period, receipt of necessary regulatory approvals, the execution of an excess of loss agreement, and confirmation from the Board of Governors of the Federal Reserve System that ACGL and its subsidiaries will not be subject to 'Systemically Important Financial Institutions' rules.

An Investor Rights Agreement restricts the transfer of the convertible preferred shares by AIG for eighteen months post-closing. Specifically, no shares can be sold for the first six months, one-third can be sold between month six and twelve, and two-thirds can be sold between month six and eighteen. All shares can be sold after eighteen months, subject to certain exceptions. ACGL will also file a shelf registration statement for these shares.