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A brief history of ARC, METEOR, NDFA and DRL

Four UK firms created and promoted mass-market Lehman-backed structured products for the UK. Two of the businesses (ARC and Meteor) were, in their own way, legacies of the controversial Eurolife/NVesta firm that had failed several years earlier with similar products. The other two firms (NDFA and DRL) were effectively sister companies. ARC, NDFA and DRL were closed down in 2009 with mis-selling liabilities. Meteor is still trading.

Lehman-backed bonds were also marketed directly through private banks and wealth management firms.

ARC Capital & Income

Arc Fund Management Holdings PLC (ARC), an AIM-listed company, acquired Eurolife / NVesta's £120m structured product book in 2007 for £410k cash. Then followed a series of IFA business acquisitions: Throgmorton Asset Management (£150 million funds under advice), Investment Associates Limited (IIA) IFA (£150 million funds under advice) and Throgmorton Financial Services Limited (with £85m funds under advice) bringing the total business to around £500m of funds managed/advised. During that same year, Lord Ashcroft (the then Deputy Chairman of the Conservative Party) acquired 21.23%of ARC.

ACI launched a series of plans almost immediately, such as Bricks & Mortar Plan linking returns to the housing market. During the first year ACI raised a total of £17 million and become an important contributor to the group.

In 2008, ACI sold an estimated £6m of Lehman-backed plans to 600 customers. Just a few months later, Lehman collapsed. The parent company ARC dropped the structured product business and got a new identity.

Merchant Capital

Following a period of administration at Arc Capital and Income, the Lehman-backed products were stripped out and the structured products business with over £100m of plans on its books was sold to Merchant Capital for £70k. Mr Gracey became Merchant Capital's director for structured products. Merchant then acquired £300m of Keydata plans and within a short timespan was operating around 200 different structured products with 28,000 customers. According to Mr Gracey in July 2010: "Our aim is to be the largest independent structured product provider in the UK retail market and a provider of innovative but straightforward structured products offering savers a real alternative to other plans in the market". Merchant has been building its own product distribution capabilities too, having signed up 120 former Clarkson Hill IFAs following that firm's enforced closure in December 2010.

Meteor Asset Management

Meteor was established following the demise of Eurolife / NVesta in 2006. Meteor acquired 20,000 customers with 70 non-Lehman NDFA/DRL plans in March 2010 and operates structured products for Gilliat, Macquarie and CBW. Meteor has also grown its own-branded structured product business organically with 70+ plans now in issue.

Meteor was established by Graham Devile, Phil Saunders, Sue Valler and Simon Bottomley. They each own one quarter of the business.

The business was originally funded by two Yorkshire businessmen, but that funding arrangement was discontinued one month after the Lehman collapse. Product administration (Meteor Investment Management Limited) was split out from product management and marketing (Meteor Asset Management Limited). Administration fees relating to Meteor's product sales would be ring fenced in the administration company. Similarly, assets managed on behalf of third parties were to be kept separate from Meteor's plan management and marketing business. According to announcements at the time, this was designed to allow the product administration business to continue trading in the event of the plan management business failing. Meteor established a Guernsey operation in June 2010 offering life settlement funds from EEA, and has a 50% JV stake with Cashcade (the online gambling company) which acts as an appointed representative for Meteor.

Financials

The consolidated accounts for the year to April 2010 show: Group turnover £10m; cost of sales £5.8m; administration expenses £3.8m; pre-tax profit £0.5m; shareholder funds £677k (grown by about £300k since the previous year). There were 18 employees. The four directors took average £457k in emoluments that year. No dividend was paid. Recent (February 2011) statements of capital filed at Companies House show: Meteor Investment Management Ltd 300k; Meteor Asset Management Ltd £540k and Meteor Capital Group Ltd £100k.

NDFA, DRL, Synergy and OPAL

NDF Administration Limited (NDFA) and Defined Returns Limited (DRL) were the two companies that between them sold the largest number of retail Lehman-backed structured products in the UK in the run up to Lehman's collapse in 2008. They were technically separate companies but were under common control and ownership along with Outsourced Professional Administration Limited (“OPAL”) and Synergy Financial Products Limited. They operated with inter-company service contracts, shared premises and resourcing. The companies qualified as 'related parties' under Financial Reporting Standard 8.

NDFA and DRL were taken into administration in 2009 following advice they received from legal counsel that both types of product (CAR and CS) were mis-sold. The FSA investigated and confirmed that view. The companies recognised potential contingent liabilities to 3500 customers of £59m (Grant Thorton has since filed claims for £72m against the Lehman estate on behalf of DRL and NDFA, so the figure is uncertain). The two companies had total assets of £1.6m at that time.

Business background

The business can trace it roots back to 1984 when New Direction Finance Limited (now called Synergy) was established by actuary Nigel Elliott, then aged 34. NDF Agencies (now NDFA) was the product development and sales front-end whilst New Direction Finance Product Administration (now OPAL) operated the administrative back-end. The business did well in a structured product (SCARP / "precipice bond") boom around the turn of the millennium.

NDFA was demerged from Synergy and the administrative back-end was transferred to a new holding company OPAL (UK) Holdings Limited. Synergy continued developing and offering insurance-related products and NDFA continued developing, marketing and administering structured products with various counterparties, including Lehman Brothers. OPAL had become well established as a product administration outsourcer for high street financial names. DRL was incorporated as a separate entity and pioneered a business model which allowed upfront administration fees to go directly to OPAL. DRL's turnover from 2006-2008 was just £106k and the business made a loss of £3k, despite selling £23m worth of Lehman-backed plans.

In November 2008, Tony Collins Chief Executive at OPAL issued a press release calling on advisers to target the over-50s market: "the over 50s sector shows greater resilience to the economic crisis, with recent research showing that the over 50s is an increasingly influential sector of society, which now enjoys a combined wealth of £560 billion and spending power of £175 billion". The following month, OPAL issued another press release predicting a boom in structured products: "A low interest environment and continued stock market volatility is set to create a boom in structured product sales in 2009. Many of these companies are looking to launch income products targeting savers who are suffering in the current low interest rate environment."

The remaining business (OPAL and SYNERGY) continued to trade, offering 'white label' products and outsourced administration services for structured products, regular savings plans, bonds, ISAs, unit trusts, annuities, term assurance, life cover, accident sickness, unemployment insurance, mortgage payment protection and critical illness cover. OPAL's clients are said to include Investec, LV, RBS, Lloyds, HBOS, Direct Line, Tesco Personal Finance, HSBC, Standard Life, Barclays, Deutsche Bank, and AXA. They employ 100 staff in St Albans and administer 700,000 plans.

The year to June 2010 was one of the most profitable since the precipice bond boom seven years ago..

Company Ownership

Directors

Business Performance

Sources

These profiles were sourced in March/April 2011 through desk-based research of information generally available to the public from internet sources believed to be reliable. No representation or warranty can be given with respect to the accuracy or completeness of the information. We do not undertake to update this information.

©missoldinvesments 2011