The Financial Services Compensation Scheme (FSCS) will loan troubled Keydata-backer Lifemark $10m (£6.3m) to prevent its default and buy it time to start generating returns for investors and industry levy payers.
Lifemark's provisional administrator Eric Collard brokered the deal last week during a whirlwind trip to London from his base in Luxembourg, where the Lifemark fund is domiciled.
IFAonline understands the FSCS will agree to provide the $10m on condition that SEB bank, a major Lifemark creditor, agrees to allow the compensation scheme to rank equally with it as a senior bondholder.
These are the same terms Norwich & Peterborough (N&P) agreed with the bank when N&P provided a £1.5m loan facility to Lifemark last year.
The $10m is believed to be a short term buffer and a precursor to longer term funding for Lifemark from the FSCS of about $30m.
The Lifemark portfolio risked collapsing as early as August without the FSCS' intervention.
If Lifemark collapses, IFAs and fund managers are unlikely to ever be repaid back the huge interim levies totally £326m they were charged by the FSCS earlier this year, most of which covered the cost of compensating Lifemark investors.
The stopgap loan is likely to be financed in part from £28m the FSA forced N&P to repay to the FSCS after the scheme compensated 3,000 N&P investors mis-sold the product by the building society's IFAs.
One deal insider told IFAonline 2011 is a "touch and go year" for the Lifemark portfolio.
"Premiums on the policies will cost the fund $48m this year, and payouts into the fund from maturing policies are expected to be $48m, so that's just enough to break even.
"But generally there are fewer mortalities in summer than in winter," the person said.
However mortalities are predicted to be double premiums in 2012, which would see $100m paid into the fund, the source added.
The FSCS' move to wrench a return from Lifemark follows its warning it could bill investment advisers a further £30m after returning money to firms who miscalculated their levies, which were mainly related to compensation for Lifemark investors.
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