Residual Value Insurance

Residual Value Insurance (RVI) is an insurance product that has been in the markets for a number of years, guaranteeing that a properly-managed asset can be realised at a minimum agreed value, at a given future date. It has traditionally only been written only by a small handful of insurers, covering very narrowly defined types of assets such as marine vessels, aircraft, and vehicle fleets. RVI covers have been useful in supporting large-scale leasing programs for these capital-intensive assets, but the markets previously have not generally broadened beyond this scope.

Matrix is at the forefront of leading the RVI sector toward a much broader and deeper functionality. By using the underlying concept of RVI and applying it to a range of different asset types and coverage structures, we can assist companies in raising capital more efficiently and managing their asset value risks in new ways. RVI can also offer benefits related to accounting treatment, capital optimisation and cashflow improvement.

When used creatively, RVI can ‘harden’ asset values to make them suitable for use as collateral on debt or highly-structured financings when lenders may otherwise be unwilling to loan at a reasonable Loan-to-value ratio against those assets. It can also higher support LTV levels than uninsured assets, closing the gap in leveraged capital stacks.

Underlying assets potentially available to be insured include:

• Commercial real estate (low LTV levels only)
• Intangible assets such as Intellectual Property
• Industrial equipment including mining/drilling equipment, power assets, plant and machinery & construction equipment
• Commercial vessels and offshore assets
• Rolling stock, trains, trams, buses and other transportation
• Non-traditional assets, for example commercial lease portfolios, energy reserves
• Financial assets, for example, illiquid bonds, thinly traded commodities

In one recent example, the Matrix team partnered with an expert in Intellectual Property (IP) valuations and monetization, in response to a strong interest by high-growth companies to be able to use the intangible value of IP on their balance sheet, as a source of collateral for debt financing.

In response, our team developed an insurance coverage that indemnified a lender against the risk of loss by wrapping a company’s IP assets with a policy limit of $10 million, to be paid in the event of a default on the loan during its two year maturity.

The IP in question was appraised to be worth $25mm in the event of an orderly liquidation, but had no value as debt collateral on a stand-alone basis, due to its illiquidity and inherent difficulty to value.

Based on this cover, an asset-based lender loaned $10mm to the pre-revenue company owning the IP assets, bringing permanent funding for a major production facility. This product has since been scaled to include covering debt financing for multiple high-growth companies in a wide range of industries.