Ernst & Young (E&Y) has been forced to file a huge range of valuations with potential rescuers of Lifemark, because the fund's final worth is so unpredictable.
The valuations are in a confidential report detailing Lifemark's potential future losses. E&Y has given the dossier to parties interested in a rescue deal for the life settlements vehicle, which underpinned Keydata plans.
US hedge fund CarVal, which is currently undergoing due diligence on the Lifemark, is understood to have received a copy.
However, the report only offers a wide range of valuations of Lifemark, not a final value, according to sources close to the situation.
Based on a complex financial model, the E&Y report resembles a decision tree designed to gauge the fund's worth, depending on projections of its financial future.
The fund's assumed value in the eyes of a potential investor depends on future cash flow minus discounts levelled against the troubled fund which relate to the cost of maintaining its underlying assets.
E&Y has presented potential rescuers of Lifemark with a range of discounts, depending on projections of its future cash flows.
The range of discounts and therefore the spectrum of valuations is huge, according to the source.
Lifemark's cash outflows will fall as the original life policyholders die and policies mature, as will it no longer need to pay these premiums.
At the same time, its cash inflows will improve as it collects the final settlement payout on the policies.
However, if the original policyholders live longer than expected, Lifemark faces liquidity problems caused by the need for short term funding to cover the costs of maintaining the premiums.
Lifemark recently repaid CarVal a £3.5m bridging loan which the US hedge fund had provided to stave off the fund's liquidation. It was able to repay the CarVal loan after receiving pay-outs from maturing life policies.
CarVal remains the front-runner in a deal to rescue Lifemark, according to the source.
However, investors have criticised the terms of its offer, which could involve loan interest payments of 20%.
Lifemark ran bonds backing Keydata plans owned by 23,000 customers who invested £350m.
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation