A GP disposed of an entire portfolio to another fund it managed which had a mixture of existing and new investors. The selling fund (Fund 1) was unable to wind up on the basis there would be no recourse for the acquiring fund (Fund 2) in the event there was a breach of warranty contained in the acquisition agreement. 12 months following the disposal, Fund 1 took out a ‘sell-side’ W&I policy that provided cover for the warranties which Fund 2 could make a claim against if necessary.
The GP set up an SPV and Fund 1 novated the policy to the SPV which allowed Fund 1 to wind up whilst providing Fund 2 with recourse in the event of a breach. The administration cost saving of Fund 1 winding up 4 years earlier than it would otherwise have been able was many multiples of the premium paid. It also had the added benefit that in the event of a claim Fund 2 did not have to pursue Fund 1.*
*Case study 1 references a transaction that the BMS team advised on prior to joining BMS