Kestrel Group Ltd 8-K/A, filed Aug 15, 2025
Kestrel Group Ltd (KG)
About this 8-K/A
Kestrel Group Ltd filed this 8-K/A on August 15, 2025, reporting on events of May 27, 2025.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Explanatory Note
This Current Report on Form 8-K/A (this “Amendment”) is being filed by Kestrel Group Ltd, a Bermuda corporation (the “Company”), to amend the Current Report on Form 8-K (the “Prior 8-K”) filed with the Securities and Exchange Commission on May 30, 2025, in connection with the consummation on May 27, 2025 of the series of mergers contemplated by the combination agreement, dated December 29, 2024, by and between Maiden Holdings, Ltd., Kestrel Group LLC, a Delaware limited liability company (“Kestrel”), the equity holders of Kestrel, Ranger Bermuda Topco Ltd, a Bermuda exempted company limited by shares, and the other parties thereto.
The Company is filing this Amendment solely to provide (i) the unaudited condensed consolidated financial statements as of and for the three-month period ended March 31, 2025 and 2024, referred to in Item 9.01(a) below (ii) the historical audited restated consolidated financial statements of Kestrel for the years ended December 31, 2024 and 2023, referred to in Item 9.01(a) below and (iii) and the unaudited pro forma condensed consolidated combined financial statements as of and for the three-month period ended March 31, 2025 and for the year ended December 31, 2024 and the unaudited pro forma condensed consolidated combined financial statements as of and for the year ended December 31, 2024 (As Revised), referred to in Item 9.01(b) below.
Item 2.01. Completion of Acquisition or Disposition of Assets.
This Amendment amends the Prior 8-K to include Item 9.01(a) Financial Statements of Business Acquired and Item 9.01(b) Pro Forma Financial Information, which were not previously filed with the Prior 8-K and are permitted to be filed by amendment no later than 71 days after the date on which the Prior 8-K was required to be filed.
The above description does not purport to be complete and is qualified in its entirety by reference to the combination agreement and other agreements relating to this combination, copies of which were filed as exhibits to the Prior 8-K and are incorporated by reference into this Amendment. The required historical financial statements of Kestrel and the related pro forma financial information are contained herein under Item 9.01 of this Amendment.
Item 9.01 Financial Statement and Exhibits.
| (a) Financial Statements of Business Acquired. |
The unaudited condensed consolidated financial statements as of and for the three-month period ended March 31, 2025 and 2024 and the historical audited restated consolidated financial statements of Kestrel for the years ended December 31, 2024 and 2023, are attached hereto as Exhibit 99.1.
| (b) Pro Forma Financial Information. |
The unaudited pro forma condensed consolidated combined financial statements of as of and for the three-month period ended March 31, 2025 and for the year ended December 31, 2024 and the unaudited pro forma condensed consolidated combined financial statements of as of December 31, 2024 and for the year ended December 31, 2024, giving effect to the combination as if it had occurred on January 1, 2024, are attached hereto as Exhibit 99.2
| (d) Exhibits |
The following exhibits are filed herewith:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| KESTREL GROUP LTD | ||
| By: |
/s/ Bradford Luke Ledbetter | |
| Date: August 15, 2025 | Name: | Bradford Luke Ledbetter |
| Title: | Chief Executive Officer | |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference of our report dated March 10, 2025, except for the effects of the restatement disclosed in Note 2, as to which the date is August 14, 2025, with respect to the consolidated financial statements of Kestrel Group, LLC for the years ended December 31, 2024 and 2023, which are incorporated by reference in the Registration Statements on Form S-4/A and S-8 through this Form 8-K/A dated August 14, 2025.
/s/ Frazier & Deeter, LLC
Atlanta, Georgia
August 14, 2025
Exhibit 99.1
Kestrel Group, LLC
Unaudited Condensed Consolidated Financial Statements
March 31, 2025 and 2024
1
Contents
| Independent Auditor’s Report | 1 | |
| Unaudited Condensed Consolidated Financial Statements | ||
| Unaudited Condensed Consolidated Balance Sheets | 3 | |
| Unaudited Condensed Consolidated Statement of Operations | 4 | |
| Unaudited Condensed Consolidated Statement of Changes in Members’ Equity | 5 | |
| Unaudited Condensed Consolidated Statement of Cash Flows | 6 | |
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 |
2
Kestrel Group, LLC
Consolidated Balance Sheets
March 31, 2025 and December 31, 2024
| ASSETS | 03/31/25 | 12/31/24 | ||||||
| Current assets | (Unaudited) | (Audited) | ||||||
| Cash and cash equivalents | $ | 3,409,846 | $ | 4,286,280 | ||||
| Accounts receivable | 1,234,391 | 967,538 | ||||||
| Prepaids and other assets | 25,981 | 33,156 | ||||||
| Total current assets | 4,670,218 | 5,286,974 | ||||||
| Fixed assets | 9,910 | - | ||||||
| Right of use asset - operating lease | 205,834 | 223,461 | ||||||
| Total assets | $ | 4,885,962 | $ | 5,510,435 | ||||
| LIABILITIES AND MEMBERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 242,188 | $ | 298,651 | ||||
| Accrued compensation | 191,594 | 361,772 | ||||||
| Current portion of operating lease liabilities | 76,921 | 75,488 | ||||||
| Total current liabilities | 510,703 | 735,911 | ||||||
| Long-term operating lease liabilities, net of current portion | 148,766 | 168,630 | ||||||
| Total liabilities | 659,469 | 904,541 | ||||||
| Members' Equity | ||||||||
| Total members' equity | 4,226,493 | 4,605,894 | ||||||
| Total liabilities and members' equity | $ | 4,885,962 | $ | 5,510,435 | ||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
3
Kestrel Group, LLC
Consolidated Statement of Operations
For the three months ended March 31, 2025 and 2024
(Unaudited)
| 03/31/25 | 03/31/24 | |||||||
| Revenues | $ | 807,124 | $ | 1,180,221 | ||||
| Operating Expenses | ||||||||
| Salaries and benefits | 892,870 | 1,001,390 | ||||||
| Professional fees | 86,688 | 443,935 | ||||||
| Legal expenses | 21,670 | - | ||||||
| Rent expenses | 59,741 | 59,714 | ||||||
| Meals, entertainment and travel expense | 41,125 | 83,128 | ||||||
| Other operating expenses | 41,191 | 32,904 | ||||||
| Total Operating Expenses | 1,143,285 | 1,621,071 | ||||||
| Operating loss | (336,161 | ) | (440,850 | ) | ||||
| Other Income | ||||||||
| Interest income, net | 34,298 | 63,810 | ||||||
| Loss before taxes | (301,863 | ) | (377,040 | ) | ||||
| Provision for income taxes | $ | 92,462 | - | |||||
| Net loss | $ | (394,325 | ) | $ | (377,040 | ) | ||
| Net loss per Class A units outstanding (except share information) | $ | (394 | ) | $ | (377 | ) | ||
| Class A weighted-average units outstanding, basic and diluted | 1,000 | 1,000 | ||||||
| Class B weighted-average units outstanding, basic and diluted | 63 | 63 | ||||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
4
Kestrel Group, LLC
Consolidated Statement of Changes in Members' Equity
Years Ended December 31, 2024 and 2023 and March 31, 2025 and 2024
(Unaudited)
| Members' Equity | Accumulated Deficit | Total Members' Equity | ||||||||||
| Balance, December 31, 2023 | 10,074,151 | (4,237,064 | ) | 5,837,087 | ||||||||
| Net loss (as restated) | - | (377,040 | ) | (377,040 | ) | |||||||
| Equity-based compensation | 14,748 | - | 14,748 | |||||||||
| Balance, March 31, 2024 | $ | 10,088,899 | $ | (4,614,104 | ) | $ | 5,474,795 | |||||
| Balance, December 31, 2024 | $ | 10,133,852 | $ | (5,527,958 | ) | $ | 4,605,894 | |||||
| Net loss (as restated) | - | (394,325 | ) | (394,325 | ) | |||||||
| Equity-based compensation | 14,925 | - | 14,925 | |||||||||
| Balance, March 31, 2025 | $ | 10,148,777 | $ | (5,922,283 | ) | $ | 4,226,493 | |||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
5
Kestrel Group, LLC
Consolidated Statement of Cash Flows
For the three months ended March 31, 2025 and 2024
(Unaudited)
| 2025 | 2024 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (394,325 | ) | $ | (377,040 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Noncash operating lease expense | 17,628 | 16,980 | ||||||
| Equity-based compensation | 14,925 | 14,748 | ||||||
| Changes in: | ||||||||
| Accounts receivable | (266,853 | ) | 1,288,659 | |||||
| Prepaids and other assets | 7,174 | 11,258 | ||||||
| Accounts payable | (66,373 | ) | (1,514,287 | ) | ||||
| Accrued compensation | (170,178 | ) | (77,011 | ) | ||||
| Operating lease liabilities | (18,432 | ) | (17,050 | ) | ||||
| Net cash used in operating activities | (876,434 | ) | (653,744 | ) | ||||
| Net decrease in cash and cash equivalents | (876,434 | ) | (653,744 | ) | ||||
| Cash and Cash Equivalents Balance, Beginning of Year | 4,286,280 | 5,553,121 | ||||||
| Cash and Cash Equivalents Balance, End of Year | $ | 3,409,846 | $ | 4,899,377 | ||||
| Non-cash investing activities | ||||||||
| Purchase of Fixed Assets (included in Accounts Payable) | $ | 9,910 | $ | - | ||||
See accompanying notes to these Unaudited Condensed Consolidated Financial Statements
6
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1: Nature of Operations and Pending Merger Agreement
Nature of Operations
Kestrel Group, LLC (the "Company"), a Delaware-based limited liability company, specializes in providing services to insurance program managers, Managing General Agents (MGAs), reinsurers, and reinsurance brokers. The Company facilitates fronting insurance transactions utilizing its exclusive management contracts with four insurance carriers. These contracts enable the Company to offer both admitted and surplus lines, all of which have been rated “Excellent” by AM Best, a leading insurance industry credit rating agency, in addition to offering established and emerging products. The Company does not assume underwriting risks; instead, it earns a fee for granting access to these carriers. The Company produces lines that insure casualty, workers’ compensation, catastrophe-exposed property, and non-catastrophe-exposed property, with diverse risk durations, sizes, and product types, all within the United States. The Company is headquartered in Dallas, TX and was established in July 2022.
Basis of Presentation
The unaudited condensed consolidated interim financial statements (the "consolidated financial statements") presented herein, and as discussed below, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In accordance with those rules and regulations, certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of March 31, 2025 and the condensed consolidated statements of operations, condensed consolidated statements of members' equity for the three months ended March 31, 2025, and 2024 and condensed consolidated statements of cash flows for the three months ended March 31, 2025, and 2024 are unaudited. The condensed consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2024 and 2023 in the Registration Statement on Form S-4 filed with the SEC on March 10, 2025.
The accompanying consolidated financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
The consolidated financial statements include the accounts of the Kestrel Group, LLC and its wholly-owned subsidiaries, Kestrel Insurance Agency, LLC and Kestrel Service Corporation. All intercompany accounts and transactions have been eliminated in consolidation.
As discussed in Note 2 — Restatement of Previously Issued Financial Statements, the Company has restated its previously issued consolidated financial statements for the years ended December 31, 2024 and 2023 to correct an error in the timing of revenue recognition related to certain customer contracts. Accordingly, the accompanying consolidated financial statements as of and for the periods presented in this report have been revised from amounts previously reported.
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Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 2. Restatement of Previously Issued Financial Statements
Background of Restatement
The Company has restated its previously issued consolidated financial statements to correct an error in the timing of revenue recognition related to certain customer contracts. The error was identified in connection with management’s review of the Company’s revenue recognition practices under ASC Topic 606, Revenue from Contracts with Customers. As a result, certain prior year amounts have been revised for consistency with the current presentation.
Nature of the Error
The Company had previously recognized revenue when collected. Under ASC 606, these arrangements require recognition when the policy is written, rather than as collected. As a result, revenues were understated in 2023 and overstated in 2024.
Impacted Periods
The restatement affects the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023. The cumulative impact of the error was to increase previously reported retained earnings as of January 1, 2025 by approximately $813,594.
Effect of Restatement
The tables below present a reconciliation of the as-previously-reported amounts to the restated amounts for the affected line items in the consolidated balance sheets, consolidated statements of operations, consolidated statement of changes in members’ equity, consolidated statements of cash flows and the impact to earnings per share for each period presented.
Consolidated Balance Sheets
As of March 31, 2025
| Previously reported | Restatement | Restated | ||||
| Accounts receivable | $560,008 | $674,383 | $1,234,391 | |||
| Members’ Equity | $3,552,110 | $674,383 | $4,226,493 |
As of December 31, 2024
| Previously reported | Restatement | Restated | ||||
| Accounts receivable | $153,944 | $813,594 | $967,358 | |||
| Members’ Equity | $3,792,300 | $813,594 | $4,605,894 |
Consolidated Statements of Operations
For the three months ended March 31:
2025
| Previously reported | Restatement | Restated | ||||
| Revenue | $946,335 | ($139,211) | $807,124 | |||
| Net loss | ($255,114) | ($139,211) | ($394,325) | |||
| Net loss per share | ($255) | ($139) | ($394) |
8
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
2024
| Previously reported | Restatement | Restated | ||||
| Revenue | $2,498,879 | ($1,318,658) | $1,180,221 | |||
| Net income (loss) | $941,618 | ($1,318,658) | ($377,040) | |||
| Net income (loss) per share | $942 | ($1,319) | ($377) |
Consolidated Statement of Changes in Members’ Equity
For the three months ended March 31:
2025
| Previously reported | Restatement | As restated | ||||
| Members’ Equity | $3,552,110 | $674,383 | $4,226,493 |
For the year ended December 31:
| Previously reported | Restatement | As restated | ||||
| Members’ Equity | $3,792,300 | $813,594 | $4,605,894 |
Consolidated Statement of Cash Flows
For the three months ended March 31, 2025 and 2024 changes in:
2025
| Previously reported | Restatement | As restated | ||||
| Net loss | ($255,114) | ($139,211) | ($394,325) | |||
| Changes in Accounts receivable | ($406,064) | $139,211 | ($266,853) |
2024
| Previously reported | Restatement | As restated | ||||
| Net income (loss) | $941,618 | ($1,318,658) | ($377,040) | |||
| Changes in Accounts receivable | ($30,000) | $1,318,658 | $1,288,659 |
Merger Agreement
In December 2024, the Company and its equity unit holders entered into a combination agreement (“the Agreement”) with Maiden Holdings Ltd. (“Maiden”), Ranger U.S. NewCo LLC (“US NewCo”), Ranger Bermuda Merger Sub Ltd. (“Merger Sub Ltd”), Ranger Bermuda Topco Ltd. (“Bermuda NewCo”), and Ranger Merger Sub 2 LLC (“Merger Sub LLC”) (collectively, “the Parties”). Under the terms of the Agreement, the Company’s existing equity unit holders will contribute all of their interests in the Company to US NewCo in exchange for cash and equity units in US NewCo, and the right to receive additional equity units in US NewCo contingent upon the achievement of specified financial targets. The transaction is structured to qualify as a tax-free reorganization under U.S. federal income tax laws.
The transaction involved a series of mergers whereby the Company and Maiden will become wholly owned subsidiaries of Bermuda NewCo. The Company will operate separately from Maiden with its assets, liabilities, income, expenses and results of operations reported in the Insurance Programs segment of Bermuda NewCo’s periodic Securities and Exchange Act filings with the Securities and Exchange Commission. The Agreement is expected to bolster the Company’s market position by integrating complementary services and expanding its client base. The transaction closed on May 27, 2025.
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Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 3: Summary of Significant Accounting Principles
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, the valuation of deferred tax assets, the determination of lease liabilities, and the fair value of equity shares. Actual results could differ from those estimates and those differences could be material.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment. The Company offers a cohesive suite of products and services that are integrated and interdependent. Our revenue is highly concentrated because of the capacity distribution agreements with an individual customer. As a single reportable segment, our financial statements reflect the consolidated results of our operations. We do not allocate revenues, expenses, or assets to multiple segments, as our business activities are managed and evaluated on a company-wide basis.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. The Company does not consider uninvested cash held in investment accounts as cash or cash equivalents. At March 31, 2025 and December 31, 2024, cash equivalents consisted primarily of money market accounts.
At March 31, 2025 and December 31, 2024, the Company’s cash accounts exceeded federally insured limits by approximately $2,155,000 and $3,236,000 respectively.
Revenue Recognition
In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services to customers and is generally governed by a capacity distribution agreement as a specified percentage of the premium. These agreements outline the terms and conditions under which the Company provides access to write policies on its carriers in exchange for a fee. These agreements may also include other provisions, such as minimum fee arrangements or cancellation provisions, which may impact revenue recognition.
Capacity distribution fees are collected from program managers or MGAs for providing support services and granting contractual access to our insurance carrier network and are considered a single performance obligation. Support services provided for these insurance and reinsurance brokerage arrangements include compliance and regulatory reporting and administrative support which culminates in the placement of bound insurance coverage. The Company considers these arrangements a single revenue stream. See Note 5 for additional information about the Company’s revenue.
Accounts Receivable
Accounts receivable are recorded at net realizable value. Accounts receivable are presented net of an allowance for doubtful accounts, which is an estimate of expected losses. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of significant customers based on known delinquent activity or disputes and ongoing credit evaluations in addition to evaluating the historical loss rate on the pool of receivables.
10
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Impairment of Long-Lived Assets
Long-lived assets, are tested for recoverability whenever events or changes in the business environment indicate that the carrying amount of the assets may not be fully recoverable. Factors considered by the Company when deciding when to perform an impairment review include significant underperformance of the business against expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows resulting from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. Management believes the carrying value of long-lived assets are recoverable and no impairments were recorded during the periods ended March 31, 2025 and December 31, 2024.
Income Taxes
The Company is not directly subject to income taxes under the provisions of the Internal Revenue Code and applicable state laws. Therefore, taxable income or loss is reported to the individual partners for inclusion in their respective tax returns.
Income taxes related to Kestrel Service Corporation are provided for the tax effects of transactions reported in the consolidated financial statements. Deferred tax assets and liabilities, if significant, are recognized for the estimated future tax effects attributed to temporary differences between the book and tax basis of assets and liabilities and carryforward items. The measurement of current and deferred tax assets and liabilities is based on enacted law. Deferred tax assets are reduced, if necessary, by a valuation allowance for the amount of tax benefits that may not be realized. As of March 31, 2025 and December 31, 2024, the Company has recorded a full valuation allowance for all deferred tax assets.
The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the positions will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more- likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. As of March 31, 2025 and December 31, 2024, the Company has not recognized liabilities for uncertain tax positions or associated interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is subject to examinations by tax authorities for years since inception.
Net Loss Per Unit
The company has structured its equity interests into two classes of units: Class A and Class B.
Class A consists of 1,000 units, with an initial capital contribution totaling $10 million. These units represent the primary equity investment in the company.
Class B consists of 63 units, which are subject to a 60% recoupment percent as of March 31, 2025 and December 31, 2024, respectively. Additionally, Class B units have a participation hurdle of $10 million. This hurdle must be met before Class B unit holders begin to participate in profit distributions.
Once the recoupment and participation threshold conditions are satisfied, profits will be distributed among all unit holders according to their respective interests. This structure ensures that initial investors are prioritized in profit distributions, while also providing an opportunity for Class B unit holders to participate in the Company's financial success once certain financial milestones are achieved. The Company does not have any dilutive equity instruments.
As neither the Company’s undistributed or distributed earnings have exceeded the B Units’ hurdles for any periods presented, no earnings were allocated to the B Units in the computation of earnings per unit.
Fair Value
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes a three-level hierarchy for fair value measurements based on the observability of inputs to the valuation of an asset or liability as of the measurement date.
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Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
· Level 1: Quoted prices in active markets for identical assets or liabilities.
· Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability, reflecting management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value of financial instruments is determined using various valuation techniques, including the market approach, income approach, and cost approach, as appropriate. Changes in fair value measurements are recorded in the period in which they occur.
Interest income
Interest income is recorded in the consolidated statements of operations in other income in the period in which it is earned and represents interest earned on the Company’s money market accounts.
Equity-Based Compensation
The Company estimates the fair value of equity-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the five-year vesting period using the straight-line attribution method. These amounts are reduced by an estimated forfeiture rate. The forfeiture rate is estimated based on actual cancellation experience and is applied to all equity-based awards. The rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2023-07: In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The updated accounting guidance requires expanded reportable segment disclosures, primarily related to significant segment expenses which are regularly provided to the Company’s Chief Operating Decision Maker (CODM). The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024. The Company has adopted the guidance retrospectively and it did not have a material impact to the company.
Accounting Standards Pending Adoption
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The updated accounting guidance requires disaggregated disclosure of specified expense categories. The guidance also requires disclosure of total selling expenses and how the Company defines selling expenses. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027. Prospective application is required, with retrospective application permitted. The Company is currently evaluating the effect the updated guidance will have on the Company's consolidated financial statement disclosures.
Note 4. Operating Lease
Under the provisions of ASC 842, the Company determines if an arrangement is a lease or contains a lease at inception. An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Leases result in the recognition of right-of-use (ROU) assets and lease liabilities on the accompanying consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date. The Company has elected not to record leases with an initial term of 12 months or less on the consolidated balance sheets.
12
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
The Company evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: (i) the lease has a purchase option that is reasonably certain of being exercised, (ii) the present value of the future cash flows is substantially all of the fair market value of the underlying asset, (iii) the lease term is for a significant portion of the remaining economic life of the underlying asset, (iv) the title to the underlying asset transfers at the end of the lease term, or (v) if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. The Company has determined that it does not have finance leases.
Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease ROU assets and liabilities are recognized based on the present value of the remaining lease payments over the lease term and excludes lease incentives. When the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company accounts for lease and non-lease components separately. The lease components consist of its office building, and non-lease components consist of common area and other maintenance costs and are expensed in the period incurred.
Lease Summary
The Company is party to one lease for a corporate office that expires in 2027. Lease payments have an escalating fee schedule, which range from 3% to 4% each year. Termination of the leases is generally prohibited unless there is a violation under the lease agreement.
Lease cost recognized on a straight-line basis was $19,748 for the three months ended March 31, 2025 and 2024. Other required information as of March 31, 2025 and December 31, 2024 are as follows:
| 2025 | 2024 | |||||||
| Other information related to operating lease: | ||||||||
| Operating cash flows from operating lease | 20,552 | 80,006 | ||||||
| Weighted-average remaining lease term (in years) | 2.67 | 2.92 | ||||||
| Weighted-average discount rate | 3.9% | 3.9% | ||||||
Future minimum lease payments and reconciliation to the consolidated balance sheet as of March 31, 2025 are as follows:
| 2025 | $ | 62,390 | ||||||
| 2026 | 85,878 | |||||||
| 2027 | 88,814 | |||||||
| Total undiscounted cash flows | 237,082 | |||||||
| Less present value discount | (11,395 | ) | ||||||
| Total operating lease liabilities | $ | 225,687 |
Note 5. Revenue from Contracts with Customers
In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer.
13
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services to customers and is generally governed by a capacity distribution agreement as a specified percentage of the premium. These agreements outline the terms and conditions under which the Company provides access to write policies on its carriers in exchange for a fee. These agreements may also include other provisions, such as minimum fee arrangements or cancellation provisions, which may impact revenue recognition.
Capacity distribution fees are collected from program managers or MGAs for providing support services and granting contractual access to our insurance carrier network and are considered a single performance obligation. Support services provided for these insurance and reinsurance brokerage arrangements include compliance and regulatory reporting and administrative support which culminates in the placement of bound insurance coverage. The Company considers these arrangements a single revenue stream.
For contractual arrangements with minimum annual fees, the Company amortizes the minimum fee over the contract period. For the three months ended March 31, 2025 and 2024, the Company recognized approximately $68,000 and $0 respectively, related to minimum fees for one individual customer. All other revenue recognized for the three months ended March 31, 2025 and 2024 was earned in accordance with the respective capacity distribution agreements.
Note 6. Retirement Savings Plan
The Company has a 401(k) retirement savings plan (the Plan) covering substantially all employees. Employees are eligible for the Plan after one month of service with the Company. Participants are 100% vested in their contributions. The Company matches 100% of the first 1% and 50% of the next 5% of employee contributions. Matching contributions totaled approximately $25,000 for the three months ended March 31, 2025 and 2024, respectively. These amounts are presented in Salaries and benefits in the unaudited consolidated statement of operations.
Note 7. Related-Party Transactions
As part of the July 26, 2022 Unit Purchase Agreement, AmTrust North America Inc. acquired a 30% minority interest in the Company with the option for the Company to purchase certain insurance carriers owned by AmTrust North America Inc. The Company also receives professional and administrative services through an expense reimbursement arrangement with AmTrust North America Inc. The Company incurred costs related to this agreement of approximately $148,000 and $440,000 during the three months ended March 31, 2025 and 2024, respectively. These amounts are presented in Professional fees in the unaudited consolidated statement of operations and generally include services such as statutory financial reporting, IT processing, legal contracting, and insurance company compliance functions. The Company also has an exclusive management contract with AmTrust North American Inc. to produce business through four insurance carriers: 1) Park National Insurance Company, 2) Rochdale Insurance Company, 3) Sierra Specialty Insurance Company, and 4) Republic Fire & Casualty Insurance Company (the “AmTrust Insurance Companies”). All fee revenue during the periods ended March 31, 2025 and 2024 were based on the net premiums associated with this agreement.
The Company reimburses certain executive officers for access to office space in Dallas, TX. These amounts are recorded in the consolidated statement of operations as Rent expense and is approximately $29,000 during the three months ended March 31, 2025 and 2024, respectively.
As of March 31, 2025, the Company had accounts receivable from a related party in the amount of approximately $348,000 related to transaction expenses for the Merger Agreement disclosed in Note 1.
Note 8. Members’ Equity
The Company is a limited liability company under the laws of the State of Delaware with a perpetual life. As of the three months ended March 31, 2025 and 2024 members’ equity, the Company had two classes of membership units. Membership Units consisted of Class A Units and Class B Units. The Class A Units have voting rights, while the Class B Units are non-voting.
At March 31, 2025, as defined in the Company’s LLC Agreement, distributions are to be made to members in the following order of priority:
| 1. | First, to the holders of Class A Units issued in connection with additional Capital Contributions, in proportion to their respective Unpaid Return as of such date, until the aggregate Unpaid Return with respect to all Class A Units is Zero Dollars. |
14
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
| 2. | Second, to the holders of Class A Units, in proportion to their respective Unreturned Capital Contributions as of such date, until the aggregate Unreturned Capital Contributions with respect to all Class A Units is Zero Dollars. |
| 3. | Third, to the holders of issued and outstanding Class A Units and Class B Units pro rata in proportion to their aggregate holdings of Class A Units and Class B Units treated as one class of Units. |
In connection with the Company’s LLC Agreement, certain employees of the Company were granted profits interests (i.e., Class B Units). The Company authorized 150 Class B units of which 63 units have been granted as of the three months ended March 31, 2025. The Company believes such awards better align the interests of its employees with those of its unitholders. All of the units granted vest based on five years of continuous service. The cost for the service-based awards is expected to be recognized over a straight-line basis over a five-year period. Equity-based compensation cost related to the service-based vesting awards was $14,925 and $14,748 for the three months ended March 31, 2025, and 2024 and is presented in salaries and benefits in the consolidated statement of operations. There is approximately $150,000 of unrecognized compensation expense which will be recognized over the next 2.75 years ending in December 2027.
The fair value of each award was estimated on the grant date using a Black-Scholes option pricing model that used the assumptions noted below and other valuation techniques.
| Risk-free interest rate | 3.2% to 4.3% | |
| Expected volatility | 44.7% | |
| Dividend yield | 0% | |
| Expected term (in years) | 6 |
Expected volatility was based on historical volatility for guideline public companies that operate in the Company’s industry plus a qualitative adjustment due to the start-up nature of the Company. The expected term of awards granted represents management’s estimate for the number of years until a liquidity event as of the grant date. The risk-free rate for the period of the expected term was based on the U.S. Treasury yield curve in effect at the time of the grants. The dividend yield was based on the Company having no expectations of dividends being paid out in the future. Management considered the distribution priority schedule or “waterfall calculation” in its estimation process.
Note 9. Commitments, Contingencies and Guarantees
As of March 31, 2025 and 2024, with the exception of the office lease, the company does not have any material guarantees, commitments or contingencies. There are no outstanding contractual obligations that could have a significant impact on the company's financial position or results of operations. The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
Note 10. Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain vulnerabilities due to concentrations.
Major Customers
For the three months ended March 31, 2025, the Company has an accounts receivable balance of approximately $212,000 related to a minimum fee amount due and $687,000 from two additional customers. As of March 31, 2024, the Company had an accounts receivable balance of approximately $1,110,000 related to one customer.
For the three months ended March 31, 2025, the Company had three customers that accounted for 100% of the Company’s total revenues. For the three months ended March 31, 2024, the Company had one customer that accounted for 100% of the Company’s total revenues. The loss of any of these customers, or a significant reduction in the amount of business conducted with these customers, could have a material adverse effect on the Company’s financial condition.
15
Kestrel Group, LLC
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 11. Subsequent Events
Subsequent events have been evaluated through August 14, 2025, which is the date the consolidated financial statements were issued. No events were identified other than the matters described in Note 2 related to the Merger Agreement.
16
Kestrel Group, LLC
Consolidated Financial Statements
December 31, 2024 and 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and Board of Managers of Kestrel Group, LLC
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Kestrel
Group, LLC (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes
in members' equity and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of
December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Restatement of Consolidated Financial Statements
As discussed in Note 2 to the consolidated financial statements, the financial statements have been restated to correct certain misstatements.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and auditing standards generally accepted in the United States of America (GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
1
Critical Audit Matters
Critical audit matters are matters arising from the current period
audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:
(1) relate to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Frazier & Deeter, LLC
We have served as the Company's auditor since 2025.
Atlanta, Georgia
March 10, 2025, except for the effects of the restatement disclosed in Note 2, as to which the date is August 14, 2025
2
Contents
| Independent Auditor’s Report | 1 | |
| Consolidated Financial Statements | ||
| Consolidated Balance Sheets | 4 | |
| Consolidated Statement of Operations | 5 | |
| Consolidated Statement of Changes in Members’ Equity | 6 | |
| Consolidated Statement of Cash Flows | 7 | |
| Notes to Consolidated Financial Statements | 8 |
3
Kestrel Group, LLC
Consolidated Balance Sheets
December 31, 2024 and 2023
| ASSETS | 2024 | 2023 | ||||||
| Current assets | (as restated) | (as restated) | ||||||
| Cash and cash equivalents | $ | 4,286,280 | $ | 5,553,121 | ||||
| Accounts receivable | 967,538 | 2,428,761 | ||||||
| Prepaids and other assets | 33,156 | 37,306 | ||||||
| Total current assets | 5,286,974 | 8,019,188 | ||||||
| Right of use asset - operating lease | 223,461 | 292,332 | ||||||
| Total assets | $ | 5,510,435 | $ | 8,311,520 | ||||
| LIABILITIES AND MEMBERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 298,651 | $ | 1,723,154 | ||||
| Accrued compensation | 361,772 | 437,277 | ||||||
| Current portion of operating lease liabilities | 75,488 | 69,884 | ||||||
| Total current liabilities | 735,911 | 2,230,315 | ||||||
| Long-term operating lease liabilities, net of current portion | 168,630 | 244,118 | ||||||
| Total liabilities | 904,541 | 2,474,433 | ||||||
| Members' Equity | ||||||||
| Total members' equity | 4,605,894 | 5,837,087 | ||||||
| Total liabilities and members' equity | $ | 5,510,435 | $ | 8,311,520 | ||||
See accompanying notes to these Consolidated Financial Statements
4
Kestrel Group, LLC
Consolidated Statement of Operations
Years Ended December 31, 2024 and 2023
| 2024 | 2023 | |||||||
| (as restated) | (as restated) | |||||||
| Revenues | $ | 3,634,420 | $ | 3,758,783 | ||||
| Operating Expenses | ||||||||
| Salaries and benefits | 3,401,784 | 3,525,272 | ||||||
| Professional fees | 1,076,527 | 1,184,073 | ||||||
| Legal expenses | - | 554,015 | ||||||
| Rent expenses | 235,773 | 236,820 | ||||||
| Meals, entertainment and travel expense | 248,309 | 168,872 | ||||||
| Other operating expenses | 145,432 | 106,186 | ||||||
| Total Operating Expenses | 5,107,825 | 5,775,238 | ||||||
| Operating loss | (1,473,405 | ) | (2,016,455 | ) | ||||
| Other Income | ||||||||
| Interest income, net | 212,550 | 229,805 | ||||||
| Loss before taxes | (1,260,855 | ) | (1,786,650 | ) | ||||
| Provision for income taxes | 30,039 | - | ||||||
| Net loss | $ | (1,290,894 | ) | $ | (1,786,650 | ) | ||
| Net loss per Class A units outstanding (except share information) | $ | (1,291 | ) | $ | (1,787 | ) | ||
| Class A weighted-average units outstanding, basic and diluted | 1,000 | 1,000 | ||||||
| Class B weighted-average units outstanding, basic and diluted | 63 | 63 | ||||||
See accompanying notes to these Consolidated Financial Statements
5
Kestrel Group, LLC
Consolidated Statement of Changes in Members' Equity
Years Ended December 31, 2024 and 2023
| Members' Equity | Accumulated Deficit | Total Members' Equity | ||||||||||
| Balance, December 31, 2022 | $ | 10,014,450 | $ | (2,450,414 | ) | $ | 7,564,036 | |||||
| Net loss (as restated) | - | (1,786,650 | ) | (1,786,650 | ) | |||||||
| Equity-based compensation | 59,701 | - | 59,701 | |||||||||
| Balance as restated, December 31, 2023 | 10,074,151 | (4,237,064 | ) | 5,837,087 | ||||||||
| Net loss (as restated) | - | (1,290,894 | ) | (1,290,894 | ) | |||||||
| Equity-based compensation | 59,701 | - | 59,701 | |||||||||
| Balance as restated, December 31, 2024 | $ | 10,133,852 | $ | (5,527,958 | ) | $ | 4,605,894 | |||||
See accompanying notes to these Consolidated Financial Statements
6
Kestrel Group, LLC
Consolidated Statement of Cash Flows
Years Ended December 31, 2024 and 2023
| 2024 | 2023 | |||||||
| (as restated) | (as restated) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (1,290,894 | ) | $ | (1,786,650 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Noncash operating lease expense | 68,872 | 66,405 | ||||||
| Equity-based compensation | 59,701 | 59,701 | ||||||
| Changes in: | ||||||||
| Accounts receivable | 1,461,223 | (2,428,761 | ) | |||||
| Prepaids and other assets | 4,150 | (4,325 | ) | |||||
| Accounts payable | (1,424,503 | ) | 1,705,786 | |||||
| Accrued compensation | (75,505 | ) | (33,003 | ) | ||||
| Operating lease liabilities | (69,885 | ) | (64,482 | ) | ||||
| Net cash used in operating activities | (1,266,841 | ) | (2,485,329 | ) | ||||
| Net decrease in cash and cash equivalents | (1,266,841 | ) | (2,485,329 | ) | ||||
| Cash and Cash Equivalents Balance, Beginning of Year | 5,553,121 | 8,038,450 | ||||||
| Cash and Cash Equivalents Balance, End of Year | $ | 4,286,280 | $ | 5,553,121 | ||||
7
Note 1: Nature of Operations, Basis of Presentation and Pending Merger Agreement
Nature of Operations
Kestrel Group, LLC (the "Company"), a Delaware-based limited liability company, specializes in providing services to insurance program managers, Managing General Agents (MGAs), reinsurers, and reinsurance brokers. The Company facilitates fronting insurance transactions utilizing its exclusive management contracts with four insurance carriers. These contracts enable the Company to offer both admitted and surplus lines, all of which have been rated “Excellent” by AM Best, a leading insurance industry credit rating agency, in addition to offering established and emerging products. The Company does not assume underwriting risks; instead, it earns a fee for granting access to these carriers. The Company produces lines that insure casualty, workers’ compensation, catastrophe-exposed property, and non-catastrophe-exposed property, with diverse risk durations, sizes, and product types, all within the United States. The Company is headquartered in Dallas, TX and was established in July 2022.
Basis of Presentation
These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Kestrel Group, LLC and its wholly-owned subsidiaries, Kestrel Insurance Agency, LLC and Kestrel Service Corporation. All intercompany accounts and transactions have been eliminated in consolidation.
As discussed in Note 2 — Restatement of Previously Issued Financial Statements, the Company has restated its previously issued consolidated financial statements for the years ended December 31, 2024 and 2023 to correct an error in the timing of revenue recognition related to certain customer contracts. Accordingly, the accompanying consolidated financial statements as of and for the periods presented in this report have been revised from amounts previously reported.
Note 2: Restatement of Previously Issued Financial Statements and Subsequent Events
Background of Restatement
The Company has restated its previously issued consolidated financial statements to correct an error in the timing of revenue recognition related to certain customer contracts. The error was identified in connection with management’s review of the Company’s revenue recognition practices under ASC Topic 606, Revenue from Contracts with Customers. As a result, certain prior year amounts have been revised for consistency with the current presentation.
Nature of the Error
The Company had previously recognized revenue when collected. Under ASC 606, these arrangements require recognition when the policy is written, rather than as collected. As a result, revenues were understated in 2023 and overstated in 2024.
Impacted Periods
The restatement affects the Company’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023. The cumulative impact of the error was to increase previously reported retained earnings as of January 1, 2025 by approximately $813,594.
8
Effect of Restatement
The tables below present a reconciliation of the as-previously-reported amounts to the restated amounts for the affected line items in the consolidated balance sheets, consolidated statements of operations, consolidated balance sheets, consolidated statement of change in members’ equity, consolidated statements of cash flows for each period presented and the impact to earnings per share.
Consolidated Balance Sheets
As of December 31, 2024
| Previously reported | Restatement | As restated | ||||
| Accounts receivable | 153,944 | 813,594 | 967,538 | |||
| Members’ Equity | 3,792,300 | 813,594 | 4,605,894 |
As of December 31, 2023
| Previously reported | Restatement | As restated | ||||
| Accounts receivable | - | 2,428,761 | 2,428,761 | |||
| Members’ Equity | 3,408,326 | 2,428,761 | 5,837,087 |
Consolidated Statements of Operations
For the year ended December 31, 2024 and 2023:
2024
| Previously reported | Restatement | As restated | ||||
| Revenue | $5,249,587 | ($1,615,167) | $3,634,420 | |||
| Net loss | $324,273 | ($1,615,167) | ($1,290,894) | |||
| Net income (loss) per share | $324 | ($1,615) | ($1,291) |
2023
| Previously reported | Restatement | As restated | ||||
| Revenue | $1,330,022 | $2,428,761 | $3,758,783 | |||
| Net loss | ($4,215,411) | $2,428,761 | ($1,786,650) | |||
| Net income (loss) per share | ($4,215) | $2,429 | ($1,787) |
Consolidated Statement of Changes in Members’ Equity
For the year ended December 31:
2024
| Previously reported | Restatement | As restated | ||||
| Members’ Equity | 3,792,300 | 813,594 | 4,605,894 |
2023
| Previously reported | Restatement | As restated | ||||
| Members’ Equity | 3,408,326 | 2,428,761 | 5,837,087 |
Consolidated Statement of Cash Flows
For the year ended December 31:
2024
| Previously reported | Restatement | As restated | ||||
| Net income (loss) | $324,273 | ($1,615,167) | ($1,290,894) | |||
| Changes in Accounts receivable | ($153,944) | $1,615,167 | $1,461,223 |
9
2023
| Previously reported | Restatement | As restated | ||||
| Net loss | ($4,215,411) | $2,428,761 | ($1,786,650) | |||
| Changes in Accounts receivable | - | ($2,428,761) | ($2,428,761) |
Merger Agreement
In December 2024, the Company and its equity unit holders entered into a combination agreement (“the Agreement”) with Maiden Holdings Ltd. (“Maiden”), Ranger U.S. NewCo LLC (“US NewCo”), Ranger Bermuda Merger Sub Ltd. (“Merger Sub Ltd”), Ranger Bermuda Topco Ltd. (“Bermuda NewCo”), and Ranger Merger Sub 2 LLC (“Merger Sub LLC”) (collectively, “the Parties”). Under the terms of the Agreement, the Company’s existing equity unit holders will contribute all of their interests in the Company to US NewCo in exchange for cash and equity units in US NewCo, and the right to receive additional equity units in US NewCo contingent upon the achievement of specified financial targets. The transaction is structured to qualify as a tax-free reorganization under U.S. federal income tax laws.
The transaction involved a series of mergers whereby the Company and Maiden will become wholly owned subsidiaries of Bermuda NewCo. The Company will operate separately from Maiden with its assets, liabilities, income, expenses and results of operations reported in the Insurance Programs segment of Bermuda NewCo’s periodic Securities and Exchange Act filings with the Securities and Exchange Commission. The Agreement is expected to bolster the Company’s market position by integrating complementary services and expanding its client base. The transaction was completed on May 27, 2025.
Note 3: Summary of Significant Accounting Principles
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, the valuation of deferred tax assets, the determination of lease liabilities, and the fair value of equity shares. Actual results could differ from those estimates and those differences could be material.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one reportable segment. The Company offers a cohesive suite of products and services that are integrated and interdependent. Our revenue is highly concentrated because of the capacity distribution agreements with an individual customer. As a single reportable segment, our financial statements reflect the consolidated results of our operations. We do not allocate revenues, expenses, or assets to multiple segments, as our business activities are managed and evaluated on a company-wide basis.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. The Company does not consider uninvested cash held in investment accounts as cash or cash equivalents. At December 31, 2024 and 2023, cash equivalents consisted primarily of money market accounts.
At December 31, 2024 and 2023, the Company’s cash accounts exceeded federally insured limits by approximately $3,236,000 and $4,515,000 respectively.
Revenue Recognition
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services to customers and is generally governed by a capacity distribution agreement as a specified percentage of the premium. These agreements outline the terms and conditions under which the Company provides access to write policies on its carriers in exchange for a fee. These agreements may also include other provisions, such as minimum fee arrangements or cancellation provisions, which may impact revenue recognition.
Capacity distribution fees are collected from program managers or MGAs for providing support services and granting contractual access to our insurance carrier network and are considered a single performance obligation. Support services provided for these insurance and reinsurance brokerage arrangements include compliance and regulatory reporting and administrative support which culminates in the placement of bound insurance coverage. The Company considers these arrangements a single revenue stream. See Note 5 for additional information about the Company’s revenue.
10
Accounts Receivable
Accounts receivable are recorded at net realizable value. Accounts receivable are presented net of an allowance for doubtful accounts, which is an estimate of expected losses. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of significant customers based on known delinquent activity or disputes and ongoing credit evaluations in addition to evaluating the historical loss rate on the pool of receivables.
Impairment of Long-Lived Assets
Long-lived assets, are tested for recoverability whenever events or changes in the business environment indicate that the carrying amount of the assets may not be fully recoverable. Factors considered by the Company when deciding when to perform an impairment review include significant underperformance of the business against expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows resulting from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its current fair value. Management believes the carrying value of long-lived assets are recoverable and no impairments were recorded during the years ended December 31, 2024 and 2023.
Income Taxes
The Company is not directly subject to income taxes under the provisions of the Internal Revenue Code and applicable state laws. Therefore, taxable income or loss is reported to the individual partners for inclusion in their respective tax returns.
Income taxes related to Kestrel Service Corporation are provided for the tax effects of transactions reported in the consolidated financial statements. Deferred tax assets and liabilities, if significant, are recognized for the estimated future tax effects attributed to temporary differences between the book and tax basis of assets and liabilities and carryforward items. The measurement of current and deferred tax assets and liabilities is based on enacted law. Deferred tax assets are reduced, if necessary, by a valuation allowance for the amount of tax benefits that may not be realized. As of December 31, 2024 and 2023, the Company has recorded a full valuation allowance for all deferred tax assets.
The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the positions will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more- likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. As of December 31, 2024 and 2023, the Company has not recognized liabilities for uncertain tax positions or associated interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is subject to examinations by tax authorities for years since inception.
Net Loss Per Unit
The company has structured its equity interests into two classes of units: Class A and Class B.
Class A consists of 1,000 units, with an initial capital contribution totaling $10 million. These units represent the primary equity investment in the company.
Class B consists of 63 units, which are subject to a 60% and 80% recoupment percent as of 2024 and 2023, respectively. Additionally, Class B units have a participation hurdle of $10 million. This hurdle must be met before Class B unit holders begin to participate in profit distributions.
Once the recoupment and participation threshold conditions are satisfied, profits will be distributed among all unit holders according to their respective interests. This structure ensures that initial investors are prioritized in profit distributions, while also providing an opportunity for Class B unit holders to participate in the Company's financial success once certain financial milestones are achieved. The Company does not have any dilutive equity instruments.
As neither the Company’s undistributed or distributed earnings have exceeded the B Units’ hurdles for any periods presented, no earnings were allocated to the B Units in the computation of earnings per unit.
11
Fair Value
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes a three-level hierarchy for fair value measurements based on the observability of inputs to the valuation of an asset or liability as of the measurement date.
· Level 1: Quoted prices in active markets for identical assets or liabilities.
· Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
· Level 3: Unobservable inputs for the asset or liability, reflecting management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value of financial instruments is determined using various valuation techniques, including the market approach, income approach, and cost approach, as appropriate. Changes in fair value measurements are recorded in the period in which they occur.
Advertising
Advertising costs are recorded in the consolidated statement of operations in the period in which they are incurred.
Interest income
Interest income is recorded in the consolidated statements of operations in other income in the period in which it is earned and represents interest earned on the Company’s money market accounts.
Equity-Based Compensation
The Company estimates the fair value of equity-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the five-year vesting period using the straight-line attribution method. These amounts are reduced by an estimated forfeiture rate. The forfeiture rate is estimated based on actual cancellation experience and is applied to all equity-based awards. The rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Recently Adopted Accounting Standards Updates (ASU)
ASU 2023-07: In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The updated accounting guidance requires expanded reportable segment disclosures, primarily related to significant segment expenses which are regularly provided to the Company’s Chief Operating Decision Maker (CODM). The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024. The Company has adopted the guidance retrospectively and it did not have a material impact to the company.
Accounting Standards Pending Adoption
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The updated accounting guidance requires expanded income tax disclosures, including the disaggregation of existing disclosures related to the tax rate reconciliation and income taxes paid. The guidance is effective for annual periods beginning after December 15, 2024. Prospective application is required, with retrospective application permitted.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The updated accounting guidance requires disaggregated disclosure of specified expense categories. The guidance also requires disclosure of total selling expenses and how the Company defines selling expenses. The guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within annual periods beginning after December 15, 2027. Prospective application is required, with retrospective application permitted. The Company is currently evaluating the effect the updated guidance will have on the Company's consolidated financial statement disclosures.
12
Note 4: Operating Lease
Under the provisions of ASC 842, the Company determines if an arrangement is a lease or contains a lease at inception. An arrangement is determined to be a lease at inception if it conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Leases result in the recognition of right-of-use (ROU) assets and lease liabilities on the accompanying consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date. The Company has elected not to record leases with an initial term of 12 months or less on the consolidated balance sheets.
The Company evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: (i) the lease has a purchase option that is reasonably certain of being exercised, (ii) the present value of the future cash flows is substantially all of the fair market value of the underlying asset, (iii) the lease term is for a significant portion of the remaining economic life of the underlying asset, (iv) the title to the underlying asset transfers at the end of the lease term, or (v) if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. The Company has determined that it does not have finance leases.
Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease ROU assets and liabilities are recognized based on the present value of the remaining lease payments over the lease term and excludes lease incentives. When the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company accounts for lease and non-lease components separately. The lease components consist of its office building, and non-lease components consist of common area and other maintenance costs and are expensed in the period incurred.
Lease Summary
The Company is party to one lease for a corporate office that expires in 2027. Lease payments have an escalating fee schedule, which range from 3% to 4% each year. Termination of the leases is generally prohibited unless there is a violation under the lease agreement.
Lease cost recognized on a straight-line basis was $78,992 for the years ended December 31, 2024 and 2023. Other required information for the years ended December 31, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||||
| Other information related to operating lease: | ||||||||
| Operating cash flows from operating lease | 80,006 | 77,070 | ||||||
| Weighted-average remaining lease term (in years) | 2.92 | 3.92 | ||||||
| Weighted-average discount rate | 3.9% | 3.9% | ||||||
Future minimum lease payments and reconciliation to the consolidated balance sheet as of December 31, 2024 are as follows:
| 2025 | $ | 82,942 | ||||||
| 2026 | 85,878 | |||||||
| 2027 | 88,814 | |||||||
| Total undiscounted cash flows | 257,634 | |||||||
| Less present value discount | (13,516 | ) | ||||||
| Total operating lease liabilities | $ | 244,118 |
13
Note 5: Revenue from Contracts with Customers
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, the Company recognizes revenue for each separately identifiable performance obligation in a contract representing a promise to transfer a distinct good or service to a customer.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services to customers and is generally governed by a capacity distribution agreement as a specified percentage of the premium. These agreements outline the terms and conditions under which the Company provides access to write policies on its carriers in exchange for a fee. These agreements may also include other provisions, such as minimum fee arrangements or cancellation provisions, which may impact revenue recognition.
Capacity distribution fees are collected from program managers or MGAs for providing support services and granting contractual access to our insurance carrier network and are considered a single performance obligation. Support services provided for these insurance and reinsurance brokerage arrangements include compliance and regulatory reporting and administrative support which culminates in the placement of bound insurance coverage. The Company considers these arrangements a single revenue stream.
For contractual arrangements with minimum annual fees, the Company amortizes the minimum fee over the contract period. For the year ended December 31, 2024, the Company recognized approximately $234,000 related to minimum fees for two individual customers. All other revenue recognized for the years ended December 31, 2024 and 2023 was earned in accordance with the respective capacity distribution agreements.
Note 6: Income Taxes
Income taxes related to Kestrel Service Corporation are provided for the tax effects of transactions reported in the consolidated financial statements. The provision for income taxes for the years ended December 31, 2024 and 2023 consists of the following:
| 2024 | 2023 | |||||||
| Current income taxes | ||||||||
| Federal | $ | 15,734 | $ | - | ||||
| State | 14,305 | - | ||||||
| Total current | 30,039 | - | ||||||
| Deferred income taxes | ||||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Total deferred | - | - | ||||||
| Provision for income taxes | $ | 30,039 | $ | - | ||||
A valuation allowance must be established for any portion of the deferred tax asset which is believed not to be realizable. Management reviews the need for a valuation allowance based on anticipated future earnings, reversal of future taxable differences, the available carryback and carryforward periods, and tax planning strategies that are prudent and feasible. In management’s opinion, it is more likely than not that the Company will not realize the benefit of our deferred taxes and therefore recorded a valuation allowance of $108,857 at December 31, 2024 and $170,326 at December 31, 2023.
14
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2024 and 2023, respectively are as follows:
| Deferred tax assets | 2024 | 2023 | ||||||
| Compensation and benefit accrual | $ | 33,664 | $ | 32,858 | ||||
| Net operating loss carryforward | 75,231 | 138,166 | ||||||
| Lease liability | 51,265 | 65,940 | ||||||
| Total deferred tax assets | 160,160 | 236,964 | ||||||
| Deferred tax liabilities | ||||||||
| Right of use asset | (46,927 | ) | (61,390 | ) | ||||
| Prepaid expenses | (4,376 | ) | (5,248 | ) | ||||
| Total deferred tax liabilities | (51,303 | ) | (66,638 | ) | ||||
| Net deferred tax assets before valuation allowance | 108,857 | 170,326 | ||||||
| Change in valuation allowance | (108,857 | ) | (170,326 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
A reconciliation of the differences between the effective tax rate and the federal statutory tax rate from continuing operations for the years ended December 31, 2024 and 2023 are as follows:
| 2024 | 2023 | |||||||
| Federal income taxes | 21.0% | 21.0% | ||||||
| State income taxes | 4.0% | 0.0% | ||||||
| Permanent differences | 1.4% | -0.8% | ||||||
| Valuation allowance and passthrough losses | -17.9% | -20.2% | ||||||
| Provision for income taxes | 8.5% | 0.0% | ||||||
The Company incurred passthrough losses of $107,700 and $3,689,785 for the years ended December 31, 2024 and 2023, respectively, which are not reflected in the NOL carryforward table but may impact the individual tax situations of the owners.
The following reflects the remaining net operating loss carryforwards of the Company as of December 31, 2024 and 2023, which do not have an expiration date:
| Year | Beginning NOL Carryforward | NOL Utilized | NOL Expired | Ending NOL Carryforward | |||||||||||||
| 2022 | $ | 387,179 | $ | (299,689 | ) | $ | - | $ | 87,490 | ||||||||
| 2023 | 270,755 | - | - | 270,755 | |||||||||||||
| Total | 657,934 | (299,689 | ) | - | 358,245 | ||||||||||||
Note 7: Retirement Savings Plan
The Company has a 401(k) retirement savings plan (the Plan) covering substantially all employees. Employees are eligible for the Plan after one month of service with the Company. Participants are 100% vested in their contributions. The Company matches 100% of the first 1% and 50% of the next 5% of employee contributions. Matching contributions totaled approximately $64,000 and $60,000 for the years ended December 31, 2024 and 2023, respectively. These amounts are presented in Salaries and benefits in the consolidated statement of operations.
Note 8: Related-Party Transactions
As part of the July 26, 2022 Unit Purchase Agreement, AmTrust North America Inc. acquired a 30% minority interest in the Company with the option for the Company to purchase certain insurance carriers owned by AmTrust North America Inc. The Company also receives professional and administrative services through an expense reimbursement arrangement with AmTrust North America Inc. The Company incurred costs related to this agreement of approximately $826,000 and $1,150,000 during the years ended December 31, 2024 and 2023, respectively. These amounts are presented in Professional fees in the consolidated statement of operations and generally include services such as statutory financial reporting, IT processing, legal contracting, and insurance company compliance functions. The Company also has an exclusive management contract with AmTrust North American Inc. to produce business through four insurance carriers: 1) Park National Insurance Company, 2) Rochdale Insurance Company, 3) Sierra Specialty Insurance Company, and 4) Republic Fire & Casualty Insurance Company (the “AmTrust Insurance Companies”). All fee revenue during the years ended December 31, 2024 and 2023 were based on the net premiums associated with this agreement.
15
The Company incurred legal fees in 2023 of approximately $554,000 related to a non-competition agreement matter involving the Company and certain individuals of the Company. Of this amount, approximately $524,000 was initially paid by certain company executives and subsequently reimbursed by the Company. The Company recorded a liability in the amount of approximately $524,000 for this matter as of December 31, 2023 and the obligation was settled in 2024.
The Company reimburses certain executive officers for access to office space in Dallas, TX. These amounts are recorded in the consolidated statement of operations as Rent expense and is approximately $111,000 and $112,000 during the years ended December 31, 2024 and 2023, respectively.
Note 9: Members’ Equity
The Company is a limited liability company under the laws of the State of Delaware with a perpetual life. As of December 31, 2024 and 2023 members’ equity, the Company had two classes of membership units. Membership Units consisted of Class A Units and Class B Units. The Class A Units have voting rights, while the Class B Units are non-voting.
At December 31, 2024, as defined in the Company’s LLC Agreement, distributions are to be made to members in the following order of priority:
| 1. | First, to the holders of Class A Units issued in connection with additional Capital Contributions, in proportion to their respective Unpaid Return as of such date, until the aggregate Unpaid Return with respect to all Class A Units is Zero Dollars ($0). |
| 2. | Second, to the holders of Class A Units, in proportion to their respective Unreturned Capital Contributions as of such date, until the aggregate Unreturned Capital Contributions with respect to all Class A Units is Zero Dollars ($0). |
| 3. | Third, to the holders of issued and outstanding Class A Units and Class B Units pro rata in proportion to their aggregate holdings of Class A Units and Class B Units treated as one class of Units. |
In connection with the Company’s LLC Agreement, certain employees of the Company were granted profits interests (i.e., Class B Units). The Company authorized 150 Class B units of which 63 units have been granted as of the year ended December 31, 2024. The Company believes such awards better align the interests of its employees with those of its unitholders. All of the units granted vest based on five years of continuous service. The cost for the service-based awards is expected to be recognized over a straight-line basis over a five-year period. Equity-based compensation cost related to the service-based vesting awards was $59,701 for the years ended December 31, 2024, and 2023 and is presented in salaries and benefits in the consolidated statement of operations. There is approximately $165,000 of unrecognized compensation expense which will be recognized over the next three years ending in December 2027.
The fair value of each award was estimated on the grant date using a Black-Scholes option pricing model that used the assumptions noted below and other valuation techniques.
| Risk-free interest rate | 3.2% to 4.3% | |
| Expected volatility | 44.7% | |
| Dividend yield | 0% | |
| Expected term (in years) | 6 |
Expected volatility was based on historical volatility for guideline public companies that operate in the Company’s industry plus a qualitative adjustment due to the start-up nature of the Company. The expected term of awards granted represents management’s estimate for the number of years until a liquidity event as of the grant date. The risk-free rate for the period of the expected term was based on the U.S. Treasury yield curve in effect at the time of the grants. The dividend yield was based on the Company having no expectations of dividends being paid out in the future. Management considered the distribution priority schedule or “waterfall calculation” in its estimation process.
16
Class B Units | Weighted- Average Grant-date Fair Value | |||||||
| Nonvested, beginning of year, January 1, 2023 | 63 | $ | 4,776 | |||||
| Granted | - | - | ||||||
| Vested | (13 | ) | 4,776 | |||||
| Forfeited | - | - | ||||||
| Nonvested, end of year, December 31, 2023 | 50 | 4,776 | ||||||
| Nonvested, beginning of year, January 1, 2024 | 50 | $ | 4,776 | |||||
| Granted | - | - | ||||||
| Vested | (13 | ) | 4,776 | |||||
| Forfeited | - | - | ||||||
Nonvested, end of year, December 31, 2024 | 37 | $ | 4,776 | |||||
Note 10: Commitments and Contingencies
As of December 31, 2024 and 2023, with the exception of the office lease, the company does not have any material guarantees, commitments or contingencies. There are no outstanding contractual obligations that could have a significant impact on the company's financial position or results of operations. The Company is not a party to any claims or litigation to its business.
Note 11: Concentrations
Accounting principles generally accepted in the United States of America require disclosure of certain vulnerabilities due to concentrations.
Major Customers
For the year ended December 31, 2024, the Company has an accounts receivable balance of approximately $762,000 related to one customer. As of December 31, 2023, the Company had an accounts receivable balance of approximately $2,429,000 related to one customer.
For the years ended December 31, 2024 and 2023, the Company had one customer in each year that accounted for 90% or more of the Company’s total fee revenue. The loss of this customer, or a significant reduction in the amount of business conducted with this customer, could have a material adverse effect on the Company’s financial condition.
Note 12: Subsequent Events
Subsequent events have been evaluated through August 14, 2025, which is the date the consolidated financial statements were issued. No events were identified other than the matters described in Note 2 related to the Merger Agreement.
17
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated combined financial statements are provided to aid you in your analysis of the financial aspects of the transaction. The unaudited pro forma condensed consolidated combined financial statements are based on the Maiden historical consolidated financial statements and the restated Kestrel historical consolidated financial statements as adjusted to give effect to the transaction. The unaudited pro forma condensed consolidated combined balance sheet gives pro forma effect to the transaction as if it had been consummated on March 31, 2025. The unaudited pro forma condensed consolidated combined statement of operations for the three months ended March 31, 2025 and for the year ended December 31, 2024 gives effect to the transaction as if it had been consummated on January 1, 2024.
The unaudited pro forma condensed consolidated combined financial statements have been derived from and should be read in conjunction with:
| · | the accompanying notes to the unaudited pro forma condensed consolidated combined financial statements; |
| · | the historical restated unaudited consolidated financial statements of Kestrel as of and for the three months ended March 31, 2025 and the related notes included elsewhere in this Form 8-K/A; |
| · | the historical restated audited consolidated financial statements of Kestrel as of and for the years ended December 31, 2024 and 2023, and the related notes, included elsewhere in this Form 8-K/A; |
| · | the historical unaudited consolidated financial statements of Maiden as of and for three months ended March 31, 2025 and the related notes, included in the previously filed Form 8-K; |
| · | the historical audited consolidated financial statements of Maiden as of and for the years ended December 31, 2024 and 2023, and the related notes; and |
| · | the other information relating to Kestrel and Maiden included in the previously filed proxy statement/prospectus. |
Kestrel has restated its previously issued historical audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023. Accordingly, the accompanying unaudited pro forma condensed consolidated combined financial statements incorporate the effects of the restatement, as further described in Note 7. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 has been derived from Kestrel’s restated consolidated statement of operations for the year ended December 31, 2024.
The unaudited pro forma condensed consolidated combined financial statements are provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the transaction been consummated on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.
The pro forma adjustments are preliminary and have been made solely for informational purposes. The actual results reported by the combined company in periods following the transaction may differ significantly from those reflected in this unaudited pro forma condensed consolidated combined financial information for a number of reasons, including but not limited to changes in market conditions, cost savings from operating efficiencies, synergies and the impact of costs incurred in integrating the two companies. As a result, the unaudited pro forma condensed consolidated combined financial information is not intended to represent and is not necessarily indicative of what the combined company’s financial condition and results of operations would have been had the transaction been completed on the applicable dates of this unaudited pro forma condensed consolidated combined financial information. In addition, the unaudited pro forma condensed consolidated combined financial information does not purport to project the future financial condition and results of operations of the combined company.
| 1 |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET AS OF MARCH 31, 2025
(in thousands)
| Historical | Transaction Accounting | Pro Forma | ||||||||||||||||
| Kestrel | Maiden | Adjustments | Balance Sheet | |||||||||||||||
| 5(A) | 5(B) | |||||||||||||||||
| Assets | ||||||||||||||||||
| Fixed maturities, available-for-sale, at fair value | $ | - | $ | 202,460 | $ | - | $ | 202,460 | ||||||||||
| Equity securities, at fair value | - | 11,850 | (73 | ) | 5(g) | 11,777 | ||||||||||||
| Equity method investment | - | 78,841 | 38,860 | 5(g) | 30,639 | |||||||||||||
| (14,347 | ) | 5(g) | ||||||||||||||||
| (72,715 | ) | 5(g) | ||||||||||||||||
| Other investments | - | 163,558 | (37,224 | ) | 5(g) | 160,797 | ||||||||||||
| 72,715 | 5(g) | |||||||||||||||||
| (38,252 | ) | 5(h) | ||||||||||||||||
| Total investments | - | 456,709 | (51,036 | ) | 405,673 | |||||||||||||
| Cash and cash equivalents | 3,410 | 28,706 | (1 | ) | 5(m) | 25,115 | ||||||||||||
| 33,000 | 5(h) | |||||||||||||||||
| (40,000 | ) | 5(n) | ||||||||||||||||
| Restricted cash and cash equivalents | - | 15,562 | 15,562 | |||||||||||||||
| Accrued investment income | - | 3,741 | 3,741 | |||||||||||||||
| Reinsurance balances receivable, net | - | 9,103 | 9,103 | |||||||||||||||
| Reinsurance recoverable on unpaid losses | - | 549,350 | 549,350 | |||||||||||||||
| Loan to related party | - | 128,118 | (21,008 | ) | 5(f) | 107,110 | ||||||||||||
| Deferred commission and other acquisition expenses, net | - | 5,524 | (5,524 | ) | 5(c) | - | ||||||||||||
| Intangible assets | - | - | 2,207 | 5(b) | 9,927 | |||||||||||||
| 7,720 | 5(a) | |||||||||||||||||
| Funds withheld receivable | - | 12,606 | (558 | ) | 5(k) | 12,048 | ||||||||||||
| Other assets | 1,476 | 5,527 | 601 | 5(i) | 21,951 | |||||||||||||
| 14,347 | 5(g) | |||||||||||||||||
| 388 | 5(m) | |||||||||||||||||
| (388 | ) | 5(m) | ||||||||||||||||
| Assets held for sale | - | 19,638 | 19,638 | |||||||||||||||
| Total Assets | $ | 4,886 | $ | 1,234,584 | $ | (60,252 | ) | $ | 1,179,218 | |||||||||
| Liabilities | ||||||||||||||||||
| Reserve for loss and loss adjustment expenses | - | 757,286 | - | 5(a) | 757,286 | |||||||||||||
| Unearned premiums | - | 26,196 | 26,196 | |||||||||||||||
| Deferred gain on retroactive reinsurance | - | 106,268 | (106,268 | ) | 5(d) | - | ||||||||||||
| Liability for securities purchased | - | - | - | |||||||||||||||
| Earn out liability | - | - | 2,564 | 5(n) | 2,564 | |||||||||||||
| Accrued expenses and other liabilities | 659 | 51,818 | 20,034 | 5(j) | 72,747 | |||||||||||||
| 179 | 5(o) | |||||||||||||||||
| 388 | 5(m) | |||||||||||||||||
| (388 | ) | 5(m) | ||||||||||||||||
| 57 | 5(i) | |||||||||||||||||
| Senior notes - principal amount | - | 262,361 | (88,692 | ) | 5(e) | 173,669 | ||||||||||||
| Less: unamortized debt issuance costs | - | 7,563 | (7,563 | ) | 5(e) | - | ||||||||||||
| Senior notes, net | - | 254,798 | (81,129 | ) | 173,669 | |||||||||||||
| Liabilities held for sale | - | 645 | - | 645 | ||||||||||||||
| Total Liabilities | $ | 659 | $ | 1,197,011 | $ | (164,563 | ) | $ | 1,033,107 | |||||||||
| Commitments and Contingencies | ||||||||||||||||||
| Equity | ||||||||||||||||||
| Owners equity (Kestrel) | 10,000 | - | (10,000 | ) | 5(n) | - | ||||||||||||
| Common shares | - | 1,513 | (1,513 | ) | 5(l) | 99 | ||||||||||||
| 72 | 5(m) | |||||||||||||||||
| 27 | 5(n) | |||||||||||||||||
| Additional paid-in capital | 149 | 888,575 | (888,575 | ) | 5(l) | 176,661 | ||||||||||||
| 115,537 | 5(m) | |||||||||||||||||
| 166,539 | 5(m) | |||||||||||||||||
| (115,537 | ) | 5(m) | ||||||||||||||||
| 9,973 | 5(n) | |||||||||||||||||
| Accumulated other comprehensive loss | - | (31,930 | ) | 31,930 | 5(l) | - | ||||||||||||
| Accumulated deficit | (5,922 | ) | (696,559 | ) | 721,845 | 5(l) | (48,665 | ) | ||||||||||
| (20,034 | ) | 5(j) | ||||||||||||||||
| (179 | ) | 5(o) | ||||||||||||||||
| (5,252 | ) | 5(h) | ||||||||||||||||
| (42,564 | ) | 5(n) | ||||||||||||||||
| Bargain purchase gain | - | - | 7,720 | 5(a) | 69,479 | |||||||||||||
| 2,207 | 5(b) | |||||||||||||||||
| (5,524 | ) | 5(c) | ||||||||||||||||
| 106,268 | 5(d) | |||||||||||||||||
| 81,129 | 5(e) | |||||||||||||||||
| (21,008 | ) | 5(f) | ||||||||||||||||
| 1,563 | 5(g) | |||||||||||||||||
| 544 | 5(i) | |||||||||||||||||
| (558 | ) | 5(k) | ||||||||||||||||
| 12,287 | 5(l) | |||||||||||||||||
| (115,149 | ) | 5(m) | ||||||||||||||||
| Treasury shares, at cost | - | (124,026 | ) | 124,026 | 5(l) | (51,463 | ) | |||||||||||
| (51,463 | ) | 5(m) | ||||||||||||||||
| Total Shareholders’ Equity | 4,227 | 37,573 | 104,311 | 146,111 | ||||||||||||||
| Total Equity | 4,227 | 37,573 | 104,311 | 146,111 | ||||||||||||||
| Total Liabilities and Equity | $ | 4,886 | $ | 1,234,584 | $ | (60,252 | ) | $ | 1,179,218 | |||||||||
| 2 |
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED COMBINED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025
(in thousands, except per share amounts)
| Historical | Discontinued | Maiden | Transaction Accounting | Pro Forma Statement of | |||||||||||||||||||||||
| Kestrel | Maiden | operations | Proforma | Adjustments | Operations | ||||||||||||||||||||||
| 6(A) | 6(B) | 6(C) | 6(D) | ||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||
| Gross premiums written | $ | - | $ | 4,074 | $ | - | $ | 4,074 | $ | - | $ | 4,074 | |||||||||||||||
| Net premiums written | - | 4,049 | - | 4,049 | - | 4,049 | |||||||||||||||||||||
| Change in unearned premiums | - | 3,635 | - | 3,635 | - | 3,635 | |||||||||||||||||||||
| Net premiums earned | - | 7,684 | - | 7,684 | - | 7,684 | |||||||||||||||||||||
| Other insurance (expense) revenue | - | - | - | - | - | - | |||||||||||||||||||||
| Net investment income | 34 | 3,034 | (28 | ) | 3,006 | - | 3,040 | ||||||||||||||||||||
| Net realized and unrealized gains on investment | - | 3,331 | - | 3,331 | - | 3,331 | |||||||||||||||||||||
| Fee revenue | 807 | - | - | - | - | 807 | |||||||||||||||||||||
| Total revenues | $ | 841 | $ | 14,049 | $ | (28 | ) | $ | 14,021 | $ | - | $ | 14,862 | ||||||||||||||
| Expenses | - | ||||||||||||||||||||||||||
| Net loss and loss adjustment expenses | - | (7,623 | ) | - | (7,623 | ) | (5,888 | ) | 6(d) | (13,511 | ) | ||||||||||||||||
| Commission and other acquisition expenses | - | 4,558 | - | 4,558 | 210 | 6(b) | 2,141 | ||||||||||||||||||||
| (2,593 | ) | 6(c) | |||||||||||||||||||||||||
| (34 | ) | 6(h) | |||||||||||||||||||||||||
| General and administrative expenses | 1,143 | 10,773 | (1,007 | ) | 9,766 | (26 | ) | 6(g) | 11,531 | ||||||||||||||||||
| 648 | 6(a) | ||||||||||||||||||||||||||
| Interest and amortization expenses | - | 4,818 | - | 4,818 | (42 | ) | 6(e) | 4,147 | |||||||||||||||||||
| 337 | 6(e) | ||||||||||||||||||||||||||
| (966 | ) | 6(f) | |||||||||||||||||||||||||
| Foreign exchange and other gains (losses) | - | 7,434 | (93 | ) | 7,341 | 7,341 | |||||||||||||||||||||
| Other income | - | - | - | - | - | ||||||||||||||||||||||
| Total expenses | $ | 1,143 | $ | 19,960 | $ | (1,100 | ) | $ | 18,860 | $ | (8,354 | ) | $ | 11,649 | |||||||||||||
| Income (loss) before income taxes and interest in income of equity method investments | (302 | ) | (5,911 | ) | 1,072 | (4,839 | ) | 8,354 | 3,213 | ||||||||||||||||||
| Less: income tax (benefit) expense | 92 | 12 | - | 12 | - | 6(n) | 104 | ||||||||||||||||||||
| Interest in (loss) income of equity method investments | - | (2,722 | ) | - | (2,722 | ) | - | (2,722 | ) | ||||||||||||||||||
| Net income (loss) | $ | (394 | ) | $ | (8,645 | ) | $ | 1,072 | $ | (7,573 | ) | $ | 8,354 | $ | 387 | ||||||||||||
| Basic and diluted income (loss) per share attributable to common shareholders | $ | (394.00 | ) | $ | (0.09 | ) | $ | 0.05 | 6(o) | ||||||||||||||||||
| Weighted average number of common shares - basic and diluted | 1,000 | 99,120,644 | 7,734,084 | ||||||||||||||||||||||||
| 3 |
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2024
(in thousands, except per share amounts)
| Historical | |||||||||||||||||||||||||||
| Kestrel (as restated - Note 7) | Maiden | Discontinued operations | Maiden Proforma | Transaction Accounting Adjustments | Pro Forma Statement of Operations | ||||||||||||||||||||||
| 6(A) | 6(B) | 6(C) | 6(D) | ||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||
| Gross premiums written | $ | - | $ | 33,196 | $ | - | $ | 33,196 | $ | - | $ | 33,196 | |||||||||||||||
| Net premiums written | - | 33,063 | - | 33,063 | - | 33,063 | |||||||||||||||||||||
| Change in unearned premiums | - | 16,411 | - | 16,411 | - | 16,411 | |||||||||||||||||||||
| Net premiums earned | - | 49,474 | - | 49,474 | - | 49,474 | |||||||||||||||||||||
| Other insurance (expense) revenue | - | (24,194 | ) | - | (24,194 | ) | - | (24,194 | ) | ||||||||||||||||||
| Net investment income | 213 | 25,546 | (423 | ) | 25,123 | - | 25,336 | ||||||||||||||||||||
| Net realized and unrealized gains on investment | - | 5,610 | - | 5,610 | (5,252 | ) | 6(k) | 358 | |||||||||||||||||||
| Fee revenue | 3,634 | - | - | - | - | 3,634 | |||||||||||||||||||||
| Total revenues | $ | 3,847 | $ | 56,436 | $ | (423 | ) | $ | 56,013 | $ | (5,252 | ) | $ | 54,608 | |||||||||||||
| Expenses | |||||||||||||||||||||||||||
| Net loss and loss adjustment expenses | - | 186,127 | - | 186,127 | (4,099 | ) | 6(d) | 182,028 | |||||||||||||||||||
| Commission and other acquisition expenses | - | 24,310 | - | 24,310 | 938 | 6(b) | 15,681 | ||||||||||||||||||||
| (9,385 | ) | 6(c) | |||||||||||||||||||||||||
| - | (182 | ) | 6(h) | ||||||||||||||||||||||||
| General and administrative expenses | 5,108 | 35,348 | (4,376 | ) | 30,972 | ||||||||||||||||||||||
| 2,592 | 6(a) | 59,175 | |||||||||||||||||||||||||
| 290 | 6(g) | ||||||||||||||||||||||||||
| 20,034 | 6(j) | ||||||||||||||||||||||||||
| 179 | 6(m) | ||||||||||||||||||||||||||
| Interest and amortization expenses | - | 19,266 | - | 19,266 | (160 | ) | 6(e) | 15,649 | |||||||||||||||||||
| - | 1,262 | 6(e) | |||||||||||||||||||||||||
| - | (4,719 | ) | 6(f) | ||||||||||||||||||||||||
| Foreign exchange and other (losses) gains | - | (7,001 | ) | 137 | (6,864 | ) | (6,864 | ) | |||||||||||||||||||
| Earnout liability expense | - | - | - | - | 2,564 | 6(i) | 2,564 | ||||||||||||||||||||
| Bargain purchase gain | - | - | - | - | (69,479 | ) | 6(l) | (69,479 | ) | ||||||||||||||||||
| Total expenses | $ | 5,108 | $ | 258,050 | $ | (4,239 | ) | $ | 253,811 | $ | (60,165 | ) | $ | 198,754 | |||||||||||||
| Income (loss) before income taxes and interest in income of equity method investments | (1,261 | ) | (201,614 | ) | 3,816 | (197,798 | ) | 54,913 | (144,146 | ) | |||||||||||||||||
| Less: income tax (benefit) expense | 30 | 1,055 | (1,040 | ) | 15 | - | 6(n) | 45 | |||||||||||||||||||
| Interest in income of equity method investments | - | 1,700 | - | 1,700 | - | 1,700 | |||||||||||||||||||||
| Net income (loss) | $ | (1,291 | ) | $ | (200,969 | ) | $ | 4,856 | $ | (196,113 | ) | $ | 54,913 | $ | (142,491 | ) | |||||||||||
| Basic and diluted income (loss) per share attributable to common shareholders | $ | (1,291.00 | ) | $ | (2.01 | ) | $ | (18.42 | ) | 6(o) | |||||||||||||||||
| Weighted average number of common shares - basic and diluted | 1,000 | 99,902,695 | 7,734,084 | ||||||||||||||||||||||||
| 4 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINE FINANCIAL STATEMENTS
1. Description of the Transaction
On December 29, 2024, Maiden Holdings, Ltd., a Bermuda exempted company limited by shares, entered into a combination agreement, subsequently amended on March 24, 2025, with Kestrel Group, LLC, a Delaware limited liability company, the Kestrel equityholders, Ranger U.S. Newco LLC, a Delaware limited liability company, Ranger Bermuda Merger Sub Ltd, a Bermuda exempted company limited by shares and a direct wholly owned subsidiary of US NewCo, Ranger Bermuda Topco Ltd, a Bermuda exempted company limited by shares, and Ranger Merger Sub 2 LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Bermuda NewCo.
In accordance with the combination agreement, Maiden and Kestrel completed a transaction to combine their respective businesses through: (a) the contribution of all of the Class A units and Class B units of Kestrel owned by each Kestrel equityholder to US NewCo, (b) the merger of Merger Sub I with and into Maiden, with Maiden surviving the First Merger as a direct wholly owned subsidiary of US NewCo and (c) the merger of Merger Sub II with and into US NewCo, with US NewCo surviving the Second Merger as a wholly owned subsidiary of Bermuda NewCo. Upon the consummation of the Mergers, Maiden and Kestrel became wholly owned subsidiaries of Bermuda NewCo, which was rebranded as Kestrel Group and renamed “Kestrel Group Ltd” following the closing of the transaction.
In connection with the transaction, each issued and outstanding common share of Maiden, par value $0.01 per share, other than any Maiden share that is subject to any Maiden options or restricted share award, were automatically canceled and converted into and, at the closing of the transaction, thereafter represented the right to receive one-twentieth (0.05) of Kestrel Group Ltd. In addition, as consideration for the Kestrel contribution, the Kestrel equityholders, at the closing, received an aggregate of $40,000,000 in cash and 2,749,996 shares of Kestrel Group Ltd. In addition, the Kestrel equityholders are entitled to receive, in contingent consideration, up to the lesser of 2,749,996 shares of Kestrel Group Ltd and an aggregate number of Kestrel Group Ltd shares equal to $45,000,000 divided by certain volume weighted average prices of such shares (as calculated pursuant to the terms of the combination agreement), which will be payable upon the achievement of certain EBITDA milestones by the businesses that Kestrel and its subsidiaries conducted as of immediately prior to the closing. In connection with the transaction, former Maiden shareholders and former Kestrel equityholders own approximately 64% and 36% of Kestrel Group Ltd, respectively, at the closing (excluding shares of Kestrel Group Ltd that are owned by Maiden Reinsurance Ltd., an affiliate and wholly owned subsidiary of Maiden, and the potential contingent consideration payable to Kestrel equityholders).
Upon the completion of the transaction, (i) each outstanding option to purchase Maiden shares was converted into an option to purchase one-twentieth (0.05) Kestrel Group Ltd shares, on substantially the same terms and conditions, including the vesting schedule and per share exercise price (adjusted by dividing the original exercise price by 0.05 and rounded up to the nearest whole cent), as applied to such Maiden option immediately prior to the effective time of the First Merger, and (ii) each outstanding Maiden share that is unvested and/or subject to a risk of forfeiture converted automatically into one-twentieth (0.05) Kestrel Group Ltd share that is unvested and/or subject to a risk of forfeiture, on substantially the same terms and conditions (including vesting schedule) as applied to such Maiden restricted share.
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed consolidated combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and only presents Transaction Accounting Adjustments in the unaudited pro forma condensed consolidated combined financial information. The adjustments presented in the unaudited pro forma condensed consolidated combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company after the consummation of the transaction.
| 5 |
The unaudited pro forma condensed consolidated combined financial statements are based on the Maiden historical consolidated financial statements and the Kestrel historical consolidated financial statements, as adjusted to give effect to the transaction. The unaudited pro forma condensed consolidated combined balance sheet gives pro forma effect to the transaction as if it had been consummated on March 31, 2025. The unaudited pro forma condensed consolidated combined statement of operations for the three months ended March 31, 2025 for the year ended December 31, 2024 gives effect to the transaction as if it had occurred on January 1, 2024.
The unaudited pro forma condensed consolidated combined financial statements were prepared using the acquisition method of accounting with Kestrel being considered the accounting acquirer of Maiden. Under the acquisition method of accounting, the purchase price was allocated to the underlying Maiden assets acquired and liabilities assumed based on their respective fair market values. The excess of the estimated fair values of the net assets acquired over the purchase price was recorded as a gain on a bargain purchase. Refer below to Note 3 “Accounting Treatment for the Transaction.”
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. The pro forma adjustments reflecting the transaction are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, the actual results reported by the combined company in periods following the transaction may differ significantly from these unaudited pro forma condensed consolidated combined financial statements. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the transaction based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated combined financial statements.
The unaudited pro forma condensed consolidated combined financial statements do not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the transaction. Maiden and Kestrel have not had any historical relationship in the periods presented. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
Restatement of Historical Amounts
Kestrel restated its previously issued consolidated financial statements for the years ended December 31, 2024 and 2023 to correct an error in the timing of revenue recognition related to certain customer contracts. Accordingly, these unaudited pro forma condensed consolidated combined financial statements reflect the effects of the restatement, as described in Note 7. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 was prepared based on Kestrel’s restated consolidated statement of operations for the year ended December 31, 2024.
Discontinued Operations Adjustments
On November 29, 2024, Maiden Holdings Ltd. entered into an agreement to sell its Swedish subsidiaries, Maiden GF and Maiden LF (the “Proposed Swedish Subsidiaries Sale”), to a group of international insurance and reinsurance companies headquartered in the United Kingdom. Maiden GF and Maiden LF were the principal operating subsidiaries of the Company’s International Insurance Solutions (“IIS”) platform. The transaction was subject to customary regulatory approvals. In June 2025, the Swedish Financial Supervisory Authority (“SFSA”) declined to approve the sale of Maiden GF and Maiden LF. The proposed acquirer, whose application was denied by the SFSA, has indicated its intent to proceed with the acquisition of Maiden GF only at the previously agreed valuation and believes it will satisfactorily address the deficiencies identified by the SFSA in its June 2025 decision. Maiden and the proposed acquirer are currently in the process of finalizing the terms of an amended sale agreement and this transaction is subject to customary regulatory approvals. The sale will continue to be an all-cash transaction and pursuant to the proposed terms of the agreement, certain existing staff of Maiden GF will transition to the proposed acquirer. In the wake of the decision of the SFSA, management continues to evaluate strategic alternatives for that business, including a possible sale to a different third-party or a possible run-off and liquidation of the entity. Maiden LF and Maiden GF are not writing any new business and their non-insurance related assets and liabilities are represented as held-for-sale in our condensed consolidated financial statements.
| 6 |
Although Maiden GF and Maiden LF currently comprised a substantial portion of the Diversified Reinsurance segment, Maiden has concluded that the sale did not constitute discontinued operations as of March 31, 2025 as it did not represent a strategic shift that will have a major effect on its ongoing operations and financial results. Pursuant to the terms of the Swedish Subsidiaries Sale agreement, any remaining historic business upon closing was fully retroceded to Maiden, and thus there is continuing involvement regarding the historical reinsurance operations. Pursuant to the terms of the Swedish Subsidiaries Sale, this transaction met the relevant held for sale criteria as of March 31, 2025 and accordingly, any non-underwriting related assets and liabilities related to the sale consideration are classified as held-for-sale on the consolidated balance sheet as of March 31, 2025.
Under the accounting guidance contained in Accounting Standards Codification Topic 205, a business that, upon acquisition, meets the held-for-sale criteria is not analyzed under the strategic shift test. Instead, it is reported in discontinued operations automatically based on its held-for-sale classification. The strategic shift test does not apply because the acquired businesses were not previously part of the acquiring entity and would be classified as held-for-sale on the acquisition date. As the historical audited consolidated statement of operations of Maiden for the three months ended March 31, 2025 and for the year ended December 31, 2024 and include the operations of Maiden GF and Maiden LF for the full period presented, pro forma adjustments were added to exclude the operations of Maiden GF and Maiden LF for the three months ended March 31, 2025 and for the year ended December 31, 2024. The unaudited pro forma condensed consolidated combined financial statements exclude the non-insurance results of operations of Maiden GF and Maiden LF because those businesses were not considered part of acquiring entity’s continuing operations.
3. Accounting Treatment for the Transaction
Kestrel Group Ltd is the legal acquiror of Kestrel. However, for accounting purposes, the transaction was treated as a reverse acquisition and accounted for using the acquisition method in accordance with Accounting Standards Codification Topic 805, Business Combinations. As such, Maiden was treated as the “acquired” company for accounting purposes. This determination is primarily based on the fact that, subsequent to the consummation of the transaction, former Kestrel equityholders have a majority of the voting rights of the combined company assuming the shares held by Maiden Re treated as controlled by the Kestrel Group Ltd board of directors and former Kestrel equityholders nominated a majority of the members of the board of directors of the combined company.
Accordingly, for financial reporting purposes, the net assets of Kestrel were stated at historical carrying values and its consolidated financial statements were presented as the predecessor to the combined company in the historical financial statements following the consummation of the transaction. The assets and liabilities of Maiden were recorded at their fair values measured as of the acquisition date. The excess of the estimated fair values of the net assets acquired over the purchase price was recorded as a gain on bargain purchase. The results of Maiden were presented within the consolidated results of Kestrel from the date of acquisition going forward.
4. Purchase Price and Purchase Price Allocation
Management performed a preliminary estimation of fair values of the Maiden assets and liabilities as of acquisition date. As of the date of this Form 8-K/A, Kestrel is still in the process of evaluating the various assumptions of the valuation studies necessary to arrive at the required estimates of the fair value of the Maiden assets to be acquired and the liabilities to be assumed and the related purchase price allocation. The preliminary fair value estimates are subject to change based on the final valuations. The estimated preliminary fair values of the Maiden assets and liabilities are based on discussions with Maiden’s management, preliminary valuation studies, the transaction due diligence, and information presented in Maiden’s public filings. The final purchase price and purchase price allocation may be different than the information that is presented herein, and such differences could be material.
Purchase Price
The following table summarizes the purchase price (in thousands, except shares and per share price):
| 7 |
| Kestrel Group Ltd shares issued at Closing | 7,221,621 | |||
| Kestrel Group Ltd share price (1) | $ | 23.00 | ||
| Gross equity portion of consideration transferred at Closing | $ | 166,097 | ||
| Kestrel Group Ltd shares retained as treasury shares by Maiden Reinsurance at Closing | (2,237,533 | ) | ||
| Kestrel Group Ltd share price (1) | $ | 23.00 | ||
| Equity portion of consideration transferred to Maiden Reinsurance | $ | (51,463 | ) | |
| Net equity portion of consideration transferred at Closing | $ | 114,634 | ||
| Cash | $ | 1 | ||
| Portion of the Maiden awards attributable to pre-combination service | $ | 514 | ||
| Intercompany settlement | $ | 388 | ||
| Total estimated consideration transferred | $ | 115,537 | ||
(1) The final purchase price was based on the fair value of the issued and outstanding common shares at the closing date of May 27, 2025.
Preliminary Estimated Purchase Price Allocation
The following table summarizes allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):
| Fixed maturities, available-for-sale, at fair value | $ | 202,460 | ||
| Equity securities, at fair value | 11,777 | |||
| Equity method investments | 30,639 | |||
| Other investments | 160,797 | |||
| Cash and cash equivalents | 61,706 | |||
| Restricted cash and cash equivalents | 15,562 | |||
| Accrued investment income | 3,741 | |||
| Reinsurance balances receivable, net | 9,103 | |||
| Reinsurance recoverable on unpaid losses | 549,350 | |||
| Loan to related party | 107,110 | |||
| Intangible assets (1) | 9,927 | |||
| Funds withheld receivable | 12,048 | |||
| Other assets | 20,475 | |||
| Assets held for sale | 19,638 | |||
| Reserve for loss and loss adjustment expenses | (757,286 | ) | ||
| Unearned premiums | (26,196 | ) | ||
| Liability for securities purchased | - | |||
| Accrued expenses and other liabilities | (71,521 | ) | ||
| Senior notes - principal amount | (173,669 | ) | ||
| Liabilities held for sale | (645 | ) | ||
| Net assets | 185,016 | |||
| Bargain purchase gain | (69,479 | ) | ||
| Total consideration effectively transferred | $ | 115,537 |
| (1) | Includes the net fair value adjustment of $7.7 million to net loss and loss adjustment expenses as of closing, which was made up of a $63.6 million decrease to the reinsurance recoverable on unpaid losses and an $71.3 million decrease to the reserve for loss and loss adjustment expenses. |
5. Adjustments to Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet
The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
| 8 |
Pro forma notes
| (A) | Derived from the unaudited consolidated balance sheet of Kestrel as of March 31, 2025 and the restated audited statement of operations of Kestrel for the year ended December 31, 2024. |
| (B) | Derived from the audited consolidated balance sheet of Maiden as of March 31, 2025. |
| (C) | The historical audited consolidated financial statements of Maiden are inclusive of Maiden GF and Maiden LF. The discontinued operations adjustments are presented to exclude Maiden GF and Maiden LF’s results of operations. |
Pro forma Transaction Accounting Adjustments
| (a) | Reflects the pro forma adjustment of $7.7 million to historical amounts to record the estimated fair value of reserve for loss and loss adjustment expenses, which reflects a decrease related to the present value of the net loss and loss adjustment expenses based on the estimated payout pattern, partially offset by an increase in net loss and loss adjustment expenses to the estimated market-based risk margin. The risk margin represents the estimated cost of capital required by a market participant to assume the net loss and loss adjustment expenses. The fair value of the net reserve for loss and loss adjustment expenses was determined using certain key assumptions, including the estimated cost of capital and investment yield. This will be amortized based on the claims settlement and reinsurance recovery timing. |
| (b) | Reflects the pro forma adjustment to record the value of acquired business (“VOBA”) at the estimated fair value of $2.2 million, which represents the present value of the expected underwriting profit within the unearned premiums liability, net of reinsurance, less costs to service the related policies and a risk premium. The fair value of VOBA was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio and related expenses. The adjustment for VOBA will be amortized in line with the earning pattern of unearned premiums (see Note 6(b) below). |
| (c) | Reflects the pro forma adjustment to eliminate the deferred commissions and other acquisition costs of $5.5 million (see Note 6(c) below). |
| (d) | Reflects the pro forma adjustment to eliminate the deferred gain on the retroactive reinsurance balance of $106.3 million (see Note 6(d) below). |
| (e) | Reflects a pro forma adjustment to record the senior notes at the estimated fair value of $173.7 million. The historical deferred debt issuance costs balance of $7.6 million was eliminated (see Note 6(e) below). |
| (f) | Reflects the pro forma adjustment to historical amounts to record the loan to a related party at the estimated fair value of $107.1 million (see Note 6(f) below). |
| (g) | Reflects the pro forma adjustment to: (1) record Private Equity Asset No. 1 at its fair value of $14.3 million and reclassify it from equity method investments to other assets, as it represented a receivable as of the acquisition date; (2) record a less than $0.1 million decrease to the fair value of equity securities; and (3) record Real Estate Asset No. 3 at its fair value of $46.0 million, Alternative Asset No. 1 at its fair value of $3.9 million, Alternative Asset No. 2 at its fair value of $4.0 million, and Alternative Asset No. 3 at its fair value of $18.9 million. For these investments, the fair value option was elected and they were reclassified from equity method investments to other investments. |
| (h) | Reflects a pro forma adjustment to record a sale of Canopius investment as a derecognition of the investment balance of $38.3 million, an increase in cash and cash equivalents of $33.0 million, and the recognition of a loss of $5.3 million (See Note 6(k) below). |
| (i) | Reflects a pro forma adjustment to record the right of use assets and lease liability at $2.0 million based on the estimated incremental borrowing rate as of acquisition date (See Note 6(g) below). |
| 9 |
| (j) | Reflects a pro forma adjustment for $20.0 million of Maiden estimated transaction costs to be incurred, consisting of advisory, legal, accounting and auditing fees and other professional fees. The adjustment has been recorded as an increase to the Accrued expenses and other liabilities and increase to the Accumulated deficit of $20.0 million (see Note 6(j) below). |
| (k) | Reflects the pro forma adjustment to record the funds withheld receivable at the estimated fair value of $12.0 million (see Note 6(h) below). |
| (l) | Reflects a pro forma adjustment to eliminate the Maiden historical common shares of $1.5 million, treasury shares of $124.0 million, additional paid-in capital of $888.6 million, accumulated deficit of $721.8 million, accumulated other comprehensive loss of $31.9 million. |
| (m) | Reflects a pro forma adjustment to record the gross consideration transferred of $115.5 million, which includes $72.0 million in common stock representing the issuance of 7,221,621 shares of Kestrel Ltd., settlement of a preexisting relationship valued at $0.3 million as of the acquisition date, additional paid-in capital of $166.5 million, and $0.5 million related to Maiden awards attributable to pre-combination service. The common shares issued to Maiden Reinsurance of $51.5 million are presented as treasury shares and are excluded from the net consideration transferred of $115.5 million. |
| (n) | Reflects a pro forma adjustment to record the recapitalization of Kestrel, pursuant to the combination agreement, through the issuance of 2,749,996 shares of Kestrel Group Ltd, cash payments of $40.0 million and assumed liabilities of $2.6 million related to the fair value of earnout consideration and to present the recast of the Kestrel’s historical equity of $10.0 million to reflect the capital structure of Kestrel Group Ltd (see Note 6(i) below). |
| (o) | Reflects a pro forma adjustment to record the acceleration of Kestrel’ stock compensation cost of $0.2 million, as measured at the original grant dates, due to the repurchase of Kestrel stock-based compensation awards (see Note 6(m) below). |
| (p) | Based on the preliminary estimated fair values of the assets acquired and liabilities assumed, a bargain purchase gain of $69.5 million will be recognized in this transaction (see Note 4 above). |
6. Adjustments to Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations
The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Pro forma Transaction Accounting Adjustments
| (a) | Reflects a pro forma adjustment to record reserves amortization based on fair value (see Note 5(a) above). |
| (b) | Reflects a pro forma adjustment to record VOBA amortization in line with the earning pattern of unearned premiums (see Note 5(b) above). |
| (c) | Reflects a pro forma adjustment to eliminate the historical deferred commission expense (see Note 5(c) above). |
| (d) | Reflects a pro forma adjustment to eliminate the historical deferred gain on retroactive reinsurance expense (see Note 5(d) above). |
| (e) | Reflects a pro forma adjustment to eliminate the historical deferred debt issuance costs amortization and to record amortization of the senior notes fair value adjustment over the remaining life of the notes (see Note 5(e) above). |
| (f) | Reflects a pro forma adjustment to record amortization of the loan to a related party and the premium repayment loan fair value adjustments over the remaining lives of the loans (see Note 5(f) above). |
| 10 |
| (g) | Reflects a pro forma adjustment to eliminate the historical lease expense and record lease expense based on the incremental borrowing rate as of the acquisition date (see Note 5(i) above). |
| (h) | Reflects a pro forma adjustment to record amortization of the funds withheld receivable (see Note 5(k) above). |
| (i) | Reflects a pro forma adjustment to record the recognition of earn out liability of $2.6 million (see Note 5(n) above). |
| (j) | Reflects a pro forma adjustment to record the estimated transaction costs to be incurred of $20.0 million (see Note 5(j) above). |
| (k) | Reflects a pro forma adjustment to record a loss from the sale of Canopius investment of $5.3 million (see Note 5(h) above). |
| (l) | Reflects a pro forma adjustment to record the bargain purchase gain of $75.1 million (see Note 4 above). |
| (m) | Reflects a pro forma adjustment to record Kestrel’ stock compensation cost of $0.2 million (see Note 5(o) above). |
| (n) | Kestrel Group Ltd does not expect to recognize current or deferred tax expense upon consummation of the transaction and therefore no income tax provision impact related to the transaction accounting adjustments is reflected. The U.S. deferred tax balances are offset by a full valuation allowance. |
| (o) | The pro forma basic and diluted number of shares presented in the unaudited pro forma condensed consolidated combined statement of operations are based upon the number of Kestrel Group Ltd’s shares outstanding as if the transaction occurred on January 1, 2024. The calculation of weighted average shares outstanding for pro forma basic and diluted net income per share assumes that the shares issuable in connection with the transaction have been outstanding for the entirety of the period presented. |
Pro forma weighted average common shares outstanding presented in the unaudited pro forma condensed consolidated combined statement of operations for three months ended March 31, 2025 and for the year ended December 31, 2024 - basic and diluted are calculated as follows:
| Kestrel Group Ltd shares issued at Closing | 7,221,621 | |||
| Kestrel Group Ltd shares retained as treasury shares by Maiden Reinsurance at Closing | (2,237,533 | ) | ||
| Common shares issued to Kestrel equityholders | 2,749,996 | |||
| Total numbers of shares | 7,734,084 |
Since treasury shares are not considered outstanding for share count purposes, the common shares held by Maiden Reinsurance are excluded from the average number of common shares outstanding for basic and diluted earnings per share.
7. Restatement
Kestrel has restated its previously issued consolidated financial statements to correct an error in the timing of revenue recognition related to certain customer contracts. The unaudited pro forma condensed consolidated combined financial statements have been adjusted to reflect the restatements of Kestrel for the periods presented.
| 11 |
The error was identified in connection with management’s review of Kestrel’s revenue recognition practices under ASC Topic 606, Revenue from Contracts with Customers. Specifically, the Kestrel notes that the revenue recognized initially was based on a basis not prescribed by ASC 606 as there are no additional performance obligations once the premium is written and control is transferred to the customer. As a result, certain prior year amounts have been revised for consistency with the current presentation.
Nature of the Error
Kestrel had previously recognized revenue when collected. Under ASC 606, these arrangements require recognition when the policy is written, or upon completion of all performance obligations, rather than as collected. As a result, revenues were understated in 2023 and overstated in 2024.
Impacted Periods
The restatement affects Kestrel’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023, and the interim periods within those years. The cumulative impact of the error was to increase previously reported retained earnings as of January 1, 2025 by approximately $0.8 million.
Effect of Restatement
The tables below present a reconciliation of the as-previously-reported amounts to the restated amounts for the affected line items in the consolidated statements of operations and balance sheets for each period presented.
| As of December 31, 2024 | ||||||||||||
| Consolidated Balance Sheets | Previously reported | Restatement | Restated | |||||||||
| (in thousands) | ||||||||||||
| Accounts receivable | $ | 154 | $ | 814 | $ | 968 | ||||||
| Members' equity | $ | 3,792 | $ | 814 | $ | 4,606 | ||||||
| As of December 31, 2023 | ||||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands) | ||||||||||||
| Accounts receivable | - | $ | 2,429 | $ | 2,429 | |||||||
| Members' equity | $ | 3,408 | $ | 2,429 | $ | 5,837 | ||||||
| Consolidated Statements of Operations | 2024 | |||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenue | $ | 5,250 | $ | (1,615 | ) | $ | 3,634 | |||||
| Net income | $ | 324 | $ | (1,615 | ) | $ | (1,291 | ) | ||||
| Net income (loss) per share | $ | 324 | $ | (1,615 | ) | $ | (1,291 | ) | ||||
| 2023 | ||||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenue | $ | 1,330 | $ | 2,429 | $ | 3,759 | ||||||
| Net income | $ | (4,215 | ) | $ | 2,429 | $ | (1,787 | ) | ||||
| Net income (loss) per share | $ | (4,215 | ) | $ | 2,429 | $ | (1,787 | ) | ||||
| 12 |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated combined financial statements are provided to aid you in your analysis of the financial aspects of the transaction. The unaudited pro forma condensed consolidated combined financial statements are based on the Maiden historical consolidated financial statements and the Kestrel historical consolidated financial statements as adjusted to give effect to the transaction. The unaudited pro forma condensed consolidated combined balance sheet gives pro forma effect to the transaction as if it had been consummated on December 31, 2024. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 gives effect to the transaction as if it had been consummated on January 1, 2024.
The unaudited pro forma condensed consolidated combined financial statements have been derived from and should be read in conjunction with:
| · | the accompanying notes to the unaudited pro forma condensed consolidated combined financial statements; |
| · | the restated historical audited consolidated financial statements of Kestrel as of and for the years ended December 31, 2024 and 2023, and the related notes, included elsewhere in this Form 8-K/A; |
| · | the historical audited consolidated financial statements of Maiden as of and for the years ended December 31, 2024 and 2023, and the related notes; and |
| · | the other information relating to Kestrel and Maiden included in the previously filed proxy statement/prospectus. |
Kestrel has restated its previously issued historical audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023. The unaudited pro forma financial statements, originally included in Kestrel’s Form S-4 filed with the Securities and Exchange Commission (“SEC”) on March 10, 2024, have been revised solely to reflect corrections to certain previously reported unaudited pro forma information resulting from the restatement of Kestrel’s historical audited consolidated financial statements.
Accordingly, the accompanying unaudited pro forma condensed consolidated combined financial statements incorporate the effects of the restatement, as further described in Note 7. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 has been derived from Kestrel’s restated consolidated statement of operations for the year ended December 31, 2024. The unaudited pro forma condensed consolidated combined balance sheet as of December 31, 2024 has been derived from Kestrel’s restated consolidated balance sheet as of December 31, 2024.
The unaudited pro forma condensed consolidated combined financial statements are provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the transaction been consummated on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.
The pro forma adjustments are preliminary and have been made solely for informational purposes. The actual results reported by the combined company in periods following the transaction may differ significantly from those reflected in this unaudited pro forma condensed consolidated combined financial information for a number of reasons, including but not limited to changes in market conditions, cost savings from operating efficiencies, synergies and the impact of costs incurred in integrating the two companies. As a result, the unaudited pro forma condensed consolidated combined financial information is not intended to represent and is not necessarily indicative of what the combined company’s financial condition and results of operations would have been had the transaction been completed on the applicable dates of this unaudited pro forma condensed consolidated combined financial information. In addition, the unaudited pro forma condensed consolidated combined financial information does not purport to project the future financial condition and results of operations of the combined company.
| 1 |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED BALANCE SHEET AS OF DECEMBER 31, 2024
(in thousands)
| Historical | ||||||||||||||||||
| Kestrel (as restated - Note 7) |
Maiden | Transaction Accounting Adjustments |
ProForma Balance Sheet |
|||||||||||||||
| Assets | 5(A) | 5(B) | ||||||||||||||||
| Fixed maturities, available-for-sale, at fair value | $ | - | $ | 232,613 | $ | - | $ | 232,613 | ||||||||||
| Equity securities, at fair value | - | 13,147 | (360 | ) | 5(g) | 12,787 | ||||||||||||
| Equity method investment | - | 81,287 | 35,816 | 5(g) | 30,041 | |||||||||||||
| (14,347 | ) | 5(g) | ||||||||||||||||
| (72,715 | ) | 5(g) | ||||||||||||||||
| Other investments | - | 157,016 | (34,933 | ) | 5(g) | 159,079 | ||||||||||||
| (35,719 | ) | 5(h) | ||||||||||||||||
| 72,715 | 5(g) | |||||||||||||||||
| Total investments | - | 484,063 | (49,543 | ) | 434,520 | |||||||||||||
| Cash and cash equivalents | 4,286 | 25,651 | 33,000 | 5(h) | 22,936 | |||||||||||||
| (1 | ) | 5(m) | ||||||||||||||||
| (40,000 | ) | 5(n) | ||||||||||||||||
| Restricted cash and cash equivalents | - | 9,084 | 9,084 | |||||||||||||||
| Accrued investment income | - | 3,346 | 3,346 | |||||||||||||||
| Reinsurance balances receivable, net | - | 8,159 | 8,159 | |||||||||||||||
| Reinsurance recoverable on unpaid losses | - | 571,331 | 571,331 | |||||||||||||||
| Loan to related party | - | 167,975 | (40,804 | ) | 5(f) | 127,171 | ||||||||||||
| Deferred commission and other acquisition expenses, net | - | 8,102 | (8,102 | ) | 5(c) | - | ||||||||||||
| Intangible assets | - | - | 2,207 | 5(b) | 9,006 | |||||||||||||
| 6,799 | 5(a) | |||||||||||||||||
| Funds withheld receivable | - | 12,650 | (633 | ) | 5(k) | 12,017 | ||||||||||||
| Other assets | 1,225 | 4,830 | 615 | 5(i) | 21,017 | |||||||||||||
| 14,347 | 5(g) | |||||||||||||||||
| (388 | ) | 5(m) | ||||||||||||||||
| 388 | 5(m) | |||||||||||||||||
| Assets held for sale | - | 20,815 | 20,815 | |||||||||||||||
| Total Assets | $ | 5,511 | $ | 1,316,006 | $ | (82,115 | ) | $ | 1,239,402 | |||||||||
| Liabilities | ||||||||||||||||||
| Reserve for loss and loss adjustment expenses | - | 793,679 | 793,679 | |||||||||||||||
| Unearned premiums | - | 29,793 | 29,793 | |||||||||||||||
| Deferred gain on retroactive reinsurance | - | 107,255 | (107,255 | ) | 5(d) | - | ||||||||||||
| Liability for securities purchased | - | 6,480 | 6,480 | |||||||||||||||
| Earn out liability | - | - | 2,564 | 5(n) | 2,564 | |||||||||||||
| Accrued expenses and other liabilities | 905 | 77,966 | 20,041 | 5(j) | 94,955 | |||||||||||||
| 62 | 5(i) | |||||||||||||||||
| 179 | 5(o) | |||||||||||||||||
| (4,198 | ) | 5(f) | ||||||||||||||||
| Senior notes - principal amount | - | 262,361 | (88,692 | ) | 5(e) | 173,669 | ||||||||||||
| Less: unamortized debt issuance costs | - | 7,604 | (7,604 | ) | 5(e) | - | ||||||||||||
| Senior notes, net | - | 254,757 | (81,088 | ) | 173,669 | |||||||||||||
| Liabilities held for sale | - | 883 | - | 883 | ||||||||||||||
| Total Liabilities | $ | 905 | $ | 1,270,813 | $ | (169,695 | ) | $ | 1,102,023 | |||||||||
| Commitments and Contingencies | ||||||||||||||||||
| Equity | ||||||||||||||||||
| Owners equity (Kestrel) | 10,000 | - | (10,000 | ) | 5(n) | - | ||||||||||||
| Common shares | - | 1,503 | (1,503 | ) | 5(l) | 99 | ||||||||||||
| 72 | 5(m) | |||||||||||||||||
| 27 | 5(n) | |||||||||||||||||
| Additional paid-in capital | 134 | 888,067 | (888,067 | ) | 5(l) | 176,646 | ||||||||||||
| 166,539 | 5(m) | |||||||||||||||||
| 9,973 | 5(n) | |||||||||||||||||
| Accumulated other comprehensive loss | - | (32,733 | ) | 32,733 | 5(l) | - | ||||||||||||
| Accumulated deficit | (5,528 | ) | (687,914 | ) | 710,674 | 5(l) | 12,096 | |||||||||||
| (2,719 | ) | 5(h) | ||||||||||||||||
| (179 | ) | 5(o) | ||||||||||||||||
| 60,367 | 5(n) | |||||||||||||||||
| (42,564 | ) | 5(n) | ||||||||||||||||
| (20,041 | ) | 5(j) | ||||||||||||||||
| Treasury shares, at cost | - | (123,730 | ) | 123,730 | 5(l) | (51,463 | ) | |||||||||||
| (51,463 | ) | 5(m) | ||||||||||||||||
| Total Shareholders’ Equity | 4,606 | 45,193 | 87,579 | 137,378 | ||||||||||||||
| Total Equity | 4,606 | 45,193 | 87,579 | 137,378 | ||||||||||||||
| Total Liabilities and Equity | $ | 5,511 | $ | 1,316,006 | $ | (82,115 | ) | $ | 1,239,402 | |||||||||
| 2 |
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2024
(in thousands, except per share amounts)
| Historical | |||||||||||||||||||||||||||
| Kestrel (as restated - Note 7) | Maiden | Discontinued operations | Maiden Proforma | Transaction Accounting Adjustments | Pro Forma Statement of Operations | ||||||||||||||||||||||
| 6(A) | 6(B) | 6(C) | |||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||
| Gross premiums written | $ | - | $ | 33,196 | $ | - | $ | 33,196 | $ | - | $ | 33,196 | |||||||||||||||
| Net premiums written | - | 33,063 | - | 33,063 | - | 33,063 | |||||||||||||||||||||
| Change in unearned premiums | - | 16,411 | - | 16,411 | - | 16,411 | |||||||||||||||||||||
| Net premiums earned | - | 49,474 | - | 49,474 | - | 49,474 | |||||||||||||||||||||
| Other insurance (expense) revenue | - | (24,194 | ) | - | (24,194 | ) | - | (24,194 | ) | ||||||||||||||||||
| Net investment income | 213 | 25,546 | (423 | ) | 25,123 | - | 25,336 | ||||||||||||||||||||
| Net realized and unrealized gains on investment | - | 5,610 | - | 5,610 | (2,719 | ) | 6(k) | 2,891 | |||||||||||||||||||
| Fee revenue | 3,634 | - | - | - | - | 3,634 | |||||||||||||||||||||
| Total revenues | $ | 3,847 | $ | 56,436 | $ | (423 | ) | $ | 56,013 | $ | (2,719 | ) | $ | 57,141 | |||||||||||||
| Expenses | - | - | - | ||||||||||||||||||||||||
| Net loss and loss adjustment expenses | - | 186,127 | - | 186,127 | 4,099 | 6(d) | 190,226 | ||||||||||||||||||||
| Commission and other acquisition expenses | - | 24,310 | - | 24,310 | 938 | 6(b) | 15,691 | ||||||||||||||||||||
| (9,385 | ) | 6(c) | |||||||||||||||||||||||||
| (172 | ) | 6(h) | |||||||||||||||||||||||||
| General and administrative expenses | 5,108 | 35,348 | (4,376 | ) | 30,972 | ||||||||||||||||||||||
| 2,283 | 6(a) | 58,873 | |||||||||||||||||||||||||
| 290 | 6(g) | ||||||||||||||||||||||||||
| 20,041 | 6(j) | ||||||||||||||||||||||||||
| 179 | 6(n) | ||||||||||||||||||||||||||
| Interest and amortization expenses | - | 19,266 | - | 19,266 | (160 | ) | 6(e) | 15,649 | |||||||||||||||||||
| 1,262 | 6(e) | ||||||||||||||||||||||||||
| (4,719 | ) | 6(f) | |||||||||||||||||||||||||
| Foreign exchange and other gains (losses) | - | (7,001 | ) | 137 | (6,864 | ) | (6,864 | ) | |||||||||||||||||||
| Earn out liability expense | - | - | - | - | 2,564 | 6(i) | 2,564 | ||||||||||||||||||||
| Other income | - | (60,367 | ) | 6(l) | (60,367 | ) | |||||||||||||||||||||
| Total expenses | $ | 5,108 | $ | 258,050 | $ | (4,239 | ) | $ | 253,811 | $ | (43,147 | ) | $ | 215,772 | |||||||||||||
| Income (loss) before income taxes and interest in income of equity method investments | (1,261 | ) | (201,614 | ) | 3,816 | (197,798 | ) | 40,428 | (158,631 | ) | |||||||||||||||||
| Less: income tax (benefit) expense | 30 | 1,055 | (1,040 | ) | 15 | - | 6(o) | 45 | |||||||||||||||||||
| Interest in income of equity method investments | - | 1,700 | - | 1,700 | (778 | ) | 6(m) | 922 | |||||||||||||||||||
| Net income (loss) | $ | (1,291 | ) | $ | (200,969 | ) | $ | 4,856 | $ | (196,113 | ) | $ | 39,650 | $ | (157,754 | ) | |||||||||||
| Basic and diluted income (loss) per share attributable to common shareholders | $ | (1,291.00 | ) | $ | (2.01 | ) | $ | (20.40 | ) | 6(p) | |||||||||||||||||
| Weighted average number of common shares - basic and diluted | 1,000 | 99,902,695 | 7,734,084 | ||||||||||||||||||||||||
| 3 |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED COMBINED FINANCIAL STATEMENTS
1. Description of the Transaction
On December 29, 2024, Maiden Holdings, Ltd., a Bermuda exempted company limited by shares, entered into a combination agreement, subsequently amended on March 24, 2025, with Kestrel Group, LLC, a Delaware limited liability company, the Kestrel equityholders, Ranger U.S. Newco LLC, a Delaware limited liability company, Ranger Bermuda Merger Sub Ltd, a Bermuda exempted company limited by shares and a direct wholly owned subsidiary of US NewCo, Ranger Bermuda Topco Ltd, a Bermuda exempted company limited by shares, and Ranger Merger Sub 2 LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Bermuda NewCo.
In accordance with the combination agreement, Maiden and Kestrel completed a transaction to combine their respective businesses through: (a) the contribution of all of the Class A units and Class B units of Kestrel owned by each Kestrel equityholder to US NewCo, (b) the merger of Merger Sub I with and into Maiden, with Maiden surviving the First Merger as a direct wholly owned subsidiary of US NewCo and (c) the merger of Merger Sub II with and into US NewCo, with US NewCo surviving the Second Merger as a wholly owned subsidiary of Bermuda NewCo. Upon the consummation of the Mergers, Maiden and Kestrel became wholly owned subsidiaries of Bermuda NewCo, which was rebranded as Kestrel Group and renamed “Kestrel Group Ltd” following the closing of the transaction.
In connection with the transaction, each issued and outstanding common share of Maiden, par value $0.01 per share, other than any Maiden share that is subject to any Maiden options or restricted share award, were automatically canceled and converted into and, at the closing of the transaction, thereafter represented the right to receive one-twentieth (0.05) of Kestrel Group Ltd. In addition, as consideration for the Kestrel contribution, the Kestrel equityholders, at the closing, received an aggregate of $40,000,000 in cash and 2,749,996 shares of Kestrel Group Ltd. In addition, the Kestrel equityholders are entitled to receive, in contingent consideration, up to the lesser of 2,749,996 shares of Kestrel Group Ltd and an aggregate number of Kestrel Group Ltd shares equal to $45,000,000 divided by certain volume weighted average prices of such shares (as calculated pursuant to the terms of the combination agreement), which will be payable upon the achievement of certain EBITDA milestones by the businesses that Kestrel and its subsidiaries conducted as of immediately prior to the closing. In connection with the transaction, former Maiden shareholders and former Kestrel equityholders own approximately 64% and 36% of Kestrel Group Ltd, respectively, at the closing (excluding shares of Kestrel Group Ltd that are owned by Maiden Reinsurance Ltd., an affiliate and wholly owned subsidiary of Maiden, and the potential contingent consideration payable to Kestrel equityholders).
Upon the completion of the transaction, (i) each outstanding option to purchase Maiden shares was converted into an option to purchase one-twentieth (0.05) Kestrel Group Ltd shares, on substantially the same terms and conditions, including the vesting schedule and per share exercise price (adjusted by dividing the original exercise price by 0.05 and rounded up to the nearest whole cent), as applied to such Maiden option immediately prior to the effective time of the First Merger, and (ii) each outstanding Maiden share that is unvested and/or subject to a risk of forfeiture converted automatically into one-twentieth (0.05) Kestrel Group Ltd share that is unvested and/or subject to a risk of forfeiture, on substantially the same terms and conditions (including vesting schedule) as applied to such Maiden restricted share.
2. Basis of Pro Forma Presentation
The unaudited pro forma condensed consolidated combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and only presents Transaction Accounting Adjustments in the unaudited pro forma condensed consolidated combined financial information. The adjustments presented in the unaudited pro forma condensed consolidated combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company after the consummation of the transaction.
| 4 |
The unaudited pro forma condensed consolidated combined financial statements are based on the Maiden historical consolidated financial statements and the restated Kestrel historical consolidated financial statements, as adjusted to give effect to the transaction. The unaudited pro forma condensed consolidated combined balance sheet gives pro forma effect to the transaction as if it had been consummated on December 31, 2024. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 gives effect to the transaction as if it had occurred on January 1, 2024.
The unaudited pro forma condensed consolidated combined financial statements were prepared using the acquisition method of accounting with Kestrel being considered the accounting acquirer of Maiden. Under the acquisition method of accounting, the purchase price was allocated to the underlying Maiden assets acquired and liabilities assumed based on their respective fair market values. The excess of the estimated fair values of the net assets acquired over the purchase price was recorded as a gain on a bargain purchase. Refer below to Note 3 “Accounting Treatment for the Transaction.”
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. The pro forma adjustments reflecting the transaction are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, the actual results reported by the combined company in periods following the transaction may differ significantly from these unaudited pro forma condensed consolidated combined financial statements. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the transaction based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated combined financial statements.
The unaudited pro forma condensed consolidated combined financial statements do not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the transaction. Maiden and Kestrel have not had any historical relationship in the periods presented. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
Restatement of Historical Amounts
Kestrel restated its previously issued consolidated financial statements for the years ended December 31, 2024 and 2023 to correct an error in the timing of revenue recognition related to certain customer contracts. Accordingly, these unaudited pro forma condensed consolidated combined financial statements reflect the effects of the restatement, as described in Note 7. The unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 was prepared based on Kestrel’s restated consolidated statement of operations for the year ended December 31, 2024. The unaudited pro forma condensed consolidated combined balance sheet as of December 31, 2024 was prepared based on Kestrel’s restated consolidated balance sheet as of as of December 31, 2024.
Discontinued Operations Adjustments
On November 29, 2024, Maiden Holdings Ltd. entered into an agreement to sell its Swedish subsidiaries, Maiden GF and Maiden LF (the “Proposed Swedish Subsidiaries Sale”), to a group of international insurance and reinsurance companies headquartered in the United Kingdom. Maiden GF and Maiden LF were the principal operating subsidiaries of the Company’s Insurance Infrastructure Solutions (“IIS”) platform. The transaction was subject to customary regulatory approvals. In June 2025, the Swedish Financial Supervisory Authority (“SFSA”) declined to approve the sale of Maiden GF and Maiden LF. The proposed acquirer, whose application was denied by the SFSA, has indicated its intent to proceed with the acquisition of Maiden GF only at the previously agreed valuation and believes it will satisfactorily address the deficiencies identified by the SFSA in its June 2025 decision. Maiden and the proposed acquirer are currently in the process of finalizing the terms of an amended sale agreement and this transaction is subject to customary regulatory approvals. The sale will continue to be an all-cash transaction and pursuant to the proposed terms of the agreement, certain existing staff of Maiden GF will transition to the proposed acquirer. In the wake of the decision of the SFSA, management continues to evaluate strategic alternatives for that business, including a possible sale to a different third-party or a possible run-off and liquidation of the entity. Maiden LF and Maiden GF are not writing any new business and their non-insurance related assets and liabilities are represented as held-for-sale in our condensed consolidated financial statements.
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Although Maiden GF and Maiden LF currently comprised a substantial portion of the Diversified Reinsurance segment, Maiden has concluded that the sale did not constitute discontinued operations as of December 31, 2024 as it did not represent a strategic shift that will have a major effect on its ongoing operations and financial results. Pursuant to the terms of the Swedish Subsidiaries Sale agreement, any remaining historic business upon closing was fully retroceded to Maiden, and thus there is continuing involvement regarding the historical reinsurance operations. Pursuant to the terms of the Proposed Swedish Subsidiaries Sale, this transaction met the relevant held for sale criteria as of December 31, 2024 and accordingly, any non-underwriting related assets and liabilities related to the sale consideration are classified as held-for-sale on the consolidated balance sheet as of December 31, 2024.
Under the accounting guidance contained in Accounting Standards Codification Topic 205, a business that, upon acquisition, meets the held-for-sale criteria is not analyzed under the strategic shift test. Instead, it is reported in discontinued operations automatically based on its held-for-sale classification. The strategic shift test does not apply because the acquired businesses were not previously part of the acquiring entity and would be classified as held-for-sale on the acquisition date. As the historical audited consolidated statement of operations of Maiden for the year ended December 31, 2024 and include the operations of Maiden GF and Maiden LF for the full period presented, pro forma adjustments were added to exclude the operations of Maiden GF and Maiden LF for the year ended December 31, 2024. The unaudited pro forma condensed consolidated combined financial statements exclude the non-insurance results of operations of Maiden GF and Maiden LF because those businesses were not considered part of acquiring entity’s continuing operations.
3. Accounting Treatment for the Transaction
Kestrel Group Ltd is the legal acquiror of Kestrel. However, for accounting purposes, the transaction was treated as a reverse acquisition and accounted for using the acquisition method in accordance with Accounting Standards Codification Topic 805, Business Combinations. As such, Maiden was treated as the “acquired” company for accounting purposes. This determination is primarily based on the fact that, subsequent to the consummation of the transaction, former Kestrel equityholders have a majority of the voting rights of the combined company assuming the shares held by Maiden Re treated as controlled by the Kestrel Group Ltd board of directors and former Kestrel equityholders nominated a majority of the members of the board of directors of the combined company.
Accordingly, for financial reporting purposes, the net assets of Kestrel were stated at historical carrying values and its consolidated financial statements were presented as the predecessor to the combined company in the historical financial statements following the consummation of the transaction. The assets and liabilities of Maiden were recorded at their fair values measured as of the acquisition date. The excess of the estimated fair values of the net assets acquired over the purchase price was recorded as a gain on bargain purchase. The results of Maiden were presented within the consolidated results of Kestrel from the date of acquisition going forward.
4. Purchase Price and Purchase Price Allocation
Management performed a preliminary estimation of fair values of the Maiden assets and liabilities as of acquisition date. As of the date of this Form 8-K/A, Kestrel is still in the process of evaluating the various assumptions of the valuation studies necessary to arrive at the required estimates of the fair value of the Maiden assets to be acquired and the liabilities to be assumed and the related purchase price allocation. The preliminary fair value estimates are subject to change based on the final valuations. The estimated preliminary fair values of the Maiden assets and liabilities are based on discussions with Maiden’s management, preliminary valuation studies, the transaction due diligence, and information presented in Maiden’s public filings. The final purchase price and purchase price allocation may be different than the information that is presented herein, and such differences could be material.
Purchase Price
The following table summarizes the purchase price (in thousands, except shares and per share price):
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| Kestrel Group Ltd shares issued at Closing | 7,221,621 | |||
| Kestrel Group Ltd share price (1) | $ | 23.00 | ||
| Gross equity portion of consideration transferred at Closing | $ | 166,097 | ||
| Kestrel Group Ltd shares retained as treasury shares by Maiden Reinsurance at Closing | (2,237,533 | ) | ||
| Kestrel Group Ltd share price (1) | $ | 23.00 | ||
| Equity portion of consideration transferred to Maiden Reinsurance | $ | (51,463 | ) | |
| Net equity portion of consideration transferred at Closing | $ | 114,634 | ||
| Cash | $ | 1 | ||
| Portion of the Maiden awards attributable to pre-combination service | $ | 514 | ||
| Intercompany settlement | $ | 388 | ||
| Total estimated consideration transferred | $ | 115,537 |
(1) The final purchase price was based on the fair value of the issued and outstanding common shares at the closing date of May 27, 2025.
Preliminary Estimated Purchase Price Allocation
The following table summarizes allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):
| Fixed maturities, available-for-sale, at fair value | $ | 232,613 | ||
| Equity securities, at fair value | 12,787 | |||
| Equity method investments | 30,041 | |||
| Other investments | 159,079 | |||
| Cash and cash equivalents | 58,651 | |||
| Restricted cash and cash equivalents | 9,084 | |||
| Accrued investment income | 3,346 | |||
| Reinsurance balances receivable, net | 8,159 | |||
| Reinsurance recoverable on unpaid losses | 571,331 | |||
| Loan to related party | 127,171 | |||
| Intangible assets (1) | 9,006 | |||
| Funds withheld receivable | 12,017 | |||
| Other assets | 19,792 | |||
| Assets held for sale | 20,815 | |||
| Reserve for loss and loss adjustment expenses | (793,679 | ) | ||
| Unearned premiums | (29,793 | ) | ||
| Liability for securities purchased | (6,480 | ) | ||
| Accrued expenses and other liabilities | (93,483 | ) | ||
| Senior notes - principal amount | (173,669 | ) | ||
| Liabilities held for sale | (883 | ) | ||
| Net assets | 175,904 | |||
| Bargain purchase gain | (60,367 | ) | ||
| Total consideration effectively transferred | $ | 115,537 |
| (1) | Includes the net fair value adjustment of $6.8 million to net loss and loss adjustment expenses as of closing, which was made up of a $79.8 million decrease to the reinsurance recoverable on unpaid losses and an $86.6 million decrease to the reserve for loss and loss adjustment expenses. |
5. Adjustments to Unaudited Pro Forma Condensed Consolidated Combined Balance Sheet
The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
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Pro forma notes
| (A) | Derived from the restated audited consolidated balance sheet of Kestrel as of December 31, 2024. |
| (B) | Derived from the audited consolidated balance sheet of Maiden as of December 31, 2024. |
| (C) | The historical audited consolidated financial statements of Maiden are inclusive of Maiden GF and Maiden LF. The discontinued operations adjustments are presented to exclude Maiden GF and Maiden LF’s results of operations. |
Pro forma Transaction Accounting Adjustments
| (a) | Reflects the pro forma adjustment of $6.8 million to historical amounts to record the estimated fair value of reserve for loss and loss adjustment expenses, which reflects a decrease related to the present value of the net loss and loss adjustment expenses based on the estimated payout pattern, partially offset by an increase in net loss and loss adjustment expenses to the estimated market-based risk margin. The risk margin represents the estimated cost of capital required by a market participant to assume the net loss and loss adjustment expenses. The fair value of the net reserve for loss and loss adjustment expenses was determined using certain key assumptions, including the estimated cost of capital and investment yield. This will be amortized based on the claims settlement and reinsurance recovery timing. |
| (b) | Reflects the pro forma adjustment to record the value of acquired business (“VOBA”) at the estimated fair value of $2.2 million, which represents the present value of the expected underwriting profit within the unearned premiums liability, net of reinsurance, less costs to service the related policies and a risk premium. The fair value of VOBA was determined after taking into consideration certain key assumptions, including the estimated cost of capital, investment yield, loss ratio and related expenses. The adjustment for VOBA will be amortized in line with the earning pattern of unearned premiums (see Note 6(b) below). |
| (c) | Reflects the pro forma adjustment to eliminate the deferred commissions and other acquisition costs of $8.1 million (see Note 6(c) below). |
| (d) | Reflects the pro forma adjustment to eliminate the deferred gain on the retroactive reinsurance balance of $107.3 million (see Note 6(d) below). |
| (e) | Reflects a pro forma adjustment to record the senior notes at the estimated fair value of $173.7 million. The historical deferred debt issuance costs balance of $7.6 million was eliminated (see Note 6(e) below). |
| (f) | Reflects the pro forma adjustment to historical amounts to record the loan to a related party at the estimated fair value of $127.2 million and the premium repayment loan at the estimated fair value of $20.1 million (see Note 6(f) below). |
| (g) | Reflects the pro forma adjustment to: (1) record Private Equity Asset No. 1 at its fair value of $14.3 million and reclassify it from equity method investments to other assets, as it represented a receivable as of the acquisition date; (2) record a $0.4 million decrease to the fair value of equity securities; and (3) record Real Estate Asset No. 3 at its fair value of $46.0 million, Alternative Asset No. 1 at its fair value of $3.9 million, Alternative Asset No. 2 at its fair value of $4.0 million, and Alternative Asset No. 3 at its fair value of $18.9 million. For these investments, the fair value option was elected and they were reclassified from equity method investments to other investments. |
| (h) | Reflects a pro forma adjustment to record a sale of Canopius investment as a derecognition of the investment balance of $35.7 million, an increase in cash and cash equivalents of $33.0 million, and the recognition of a loss of $2.7 million (See Note 6(k) below). |
| (i) | Reflects a pro forma adjustment to record the right of use assets and lease liability at $2.0 million based on the estimated incremental borrowing rate as of acquisition date (See Note 6(g) below). |
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| (j) | Reflects a pro forma adjustment for $20.0 million of Maiden estimated transaction costs to be incurred, consisting of advisory, legal, accounting and auditing fees and other professional fees. The adjustment has been recorded as an increase to the Accrued expenses and other liabilities and increase to the Accumulated deficit of $20.0 million (see Note 6(j) below). |
| (k) | Reflects the pro forma adjustment to record the funds withheld receivable at the estimated fair value of $12.0 million (see Note 6(h) below). |
| (l) | Reflects a pro forma adjustment to eliminate the Maiden historical common shares of $1.5 million, treasury shares of $124.0 million, additional paid-in capital of $888.6 million, accumulated deficit of $710.7 million, accumulated other comprehensive loss of $32.7 million. |
| (m) | Reflects a pro forma adjustment to record the gross consideration transferred of $115.5 million, which includes $72.0 million in common stock representing the issuance of 7,221,621 shares of Kestrel Ltd., settlement of a preexisting relationship valued at $0.3 million as of the acquisition date, additional paid-in capital of $166.5 million, and $0.5 million related to Maiden awards attributable to pre-combination service. The common shares issued to Maiden Reinsurance of $51.5 million are presented as treasury shares and are excluded from the net consideration transferred of $115.5 million. |
| (n) | Reflects a pro forma adjustment to record the recapitalization of Kestrel, pursuant to the combination agreement, through the issuance of 2,749,996 shares of Kestrel Group Ltd, cash payments of $40.0 million and assumed liabilities of $2.6 million related to the fair value of earnout consideration and to present the recast of the Kestrel’s historical equity of $10.0 million to reflect the capital structure of Kestrel Group Ltd (see Note 6(i) below). |
| (o) | Reflects a pro forma adjustment to record the acceleration of Kestrel’ stock compensation cost of $0.2 million, as measured at the original grant dates, due to the repurchase of Kestrel stock-based compensation awards (see Note 6(i) below). |
| (p) | Based on the preliminary estimated fair values of the assets acquired and liabilities assumed, a bargain purchase gain of $69.5 million will be recognized in this transaction (see Note 4 above). |
6. Adjustments to Unaudited Pro Forma Condensed Consolidated Combined Statement of Operations
The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Pro forma Transaction Accounting Adjustments
| (a) | Reflects a pro forma adjustment to record reserves amortization based on fair value (see Note 5(a) above). |
| (b) | Reflects a pro forma adjustment to record VOBA amortization in line with the earning pattern of unearned premiums (see Note 5(b) above). |
| (c) | Reflects a pro forma adjustment to eliminate the historical deferred commission expense (see Note 5(c) above). |
| (d) | Reflects a pro forma adjustment to eliminate the historical deferred gain on retroactive reinsurance expense (see Note 5(d) above). |
| (e) | Reflects a pro forma adjustment to eliminate the historical deferred debt issuance costs amortization and to record amortization of the senior notes fair value adjustment over the remaining life of the notes (see Note 5(e) above). |
| (f) | Reflects a pro forma adjustment to record amortization of the loan to a related party and the premium repayment loan fair value adjustments over the remaining lives of the loans (see Note 5(f) above). |
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| (g) | Reflects a pro forma adjustment to eliminate the historical lease expense and record lease expense based on the incremental borrowing rate as of the acquisition date (see Note 5(i) above). |
| (h) | Reflects a pro forma adjustment to record amortization of the funds withheld receivable (see Note 5(k) above). |
| (i) | Reflects a pro forma adjustment to record the recognition of earn out liability of $2.6 million (see Note 5(n) above). |
| (j) | Reflects a pro forma adjustment to record the estimated transaction costs to be incurred of $20.0 million (see Note 5(j) above). |
| (k) | Reflects a pro forma adjustment to record a loss from the sale of Canopius investment of $2.7 million (see Note 5(h) above). |
| (l) | Reflects a pro forma adjustment to record the bargain purchase gain of $60.4 million (see Note 4 above). |
| (m) | Reflects a pro forma adjustment to eliminate the interest in income of equity method investments of $0.8 million (see Note 5(g) above). |
| (n) | Reflects a pro forma adjustment to record Kestrel’ stock compensation cost of $0.2 million (see Note 5(o) above). |
| (o) | Kestrel Group Ltd does not expect to recognize current or deferred tax expense upon consummation of the transaction and therefore no income tax provision impact related to the transaction accounting adjustments is reflected. The U.S. deferred tax balances are offset by a full valuation allowance. |
| (p) | The pro forma basic and diluted number of shares presented in the unaudited pro forma condensed consolidated combined statement of operations are based upon the number of Kestrel Group Ltd’s shares outstanding as if the transaction occurred on January 1, 2024. The calculation of weighted average shares outstanding for pro forma basic and diluted net income per share assumes that the shares issuable in connection with the transaction have been outstanding for the entirety of the period presented. |
Pro forma weighted average common shares outstanding presented in the unaudited pro forma condensed consolidated combined statement of operations for the year ended December 31, 2024 - basic and diluted are calculated as follows:
| Kestrel Group Ltd shares issued at Closing | 7,221,621 | |
| Kestrel Group Ltd shares retained as treasury shares by Maiden Reinsurance at Closing | (2,237,533) | |
| Common shares issued to Kestrel equityholders | 2,749,996 | |
| Total numbers of shares | 7,734,084 |
Since treasury shares are not considered outstanding for share count purposes, the common shares held by Maiden Reinsurance are excluded from the average number of common shares outstanding for basic and diluted earnings per share.
7. Restatement
Kestrel has restated its previously issued consolidated financial statements to correct an error in the timing of revenue recognition related to certain customer contracts. The unaudited pro forma condensed consolidated combined financial statements have been adjusted to reflect the restatements of Kestrel for the periods presented.
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The error was identified in connection with management’s review of Kestrel’s revenue recognition practices under ASC Topic 606, Revenue from Contracts with Customers. Specifically, the Kestrel notes that the revenue recognized initially was based on a basis not prescribed by ASC 606 as there are no additional performance obligations once the premium is written and control is transferred to the customer. As a result, certain prior year amounts have been revised for consistency with the current presentation.
Nature of the Error
Kestrel had previously recognized revenue when collected. Under ASC 606, these arrangements require recognition when the policy is written, or upon completion of all performance obligations, rather than as collected. As a result, revenues were understated in 2023 and overstated in 2024.
Impacted Periods
The restatement affects Kestrel’s consolidated financial statements for the fiscal years ended December 31, 2024 and 2023, and the interim periods within those years. The cumulative impact of the error was to increase previously reported retained earnings as of January 1, 2025 by approximately $0.8 million.
Effect of Restatement
The tables below present a reconciliation of the as-previously-reported amounts to the restated amounts for the affected line items in the consolidated statements of operations and balance sheets for each period presented.
| As of December 31, 2024 | ||||||||||||
| Consolidated Balance Sheets | Previously reported | Restatement | Restated | |||||||||
| (in thousands) | ||||||||||||
| Accounts receivable | $ | 154 | $ | 814 | $ | 968 | ||||||
| Members' equity | $ | 3,792 | $ | 814 | $ | 4,606 | ||||||
| As of December 31, 2023 | ||||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands) | ||||||||||||
| Accounts receivable | - | $ | 2,429 | $ | 2,429 | |||||||
| Members' equity | $ | 3,408 | $ | 2,429 | $ | 5,837 | ||||||
| Consolidated Statements of Operations | 2024 | |||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenue | $ | 5,250 | $ | (1,615 | ) | $ | 3,634 | |||||
| Net income | $ | 324 | $ | (1,615 | ) | $ | (1,291 | ) | ||||
| Net income (loss) per share | $ | 324 | $ | (1,615 | ) | $ | (1,291 | ) | ||||
| 2023 | ||||||||||||
| Previously reported | Restatement | Restated | ||||||||||
| (in thousands, except per share amounts) | ||||||||||||
| Revenue | $ | 1,330 | $ | 2,429 | $ | 3,759 | ||||||
| Net income | $ | (4,215 | ) | $ | 2,429 | $ | (1,787 | ) | ||||
| Net income (loss) per share | $ | (4,215 | ) | $ | 2,429 | $ | (1,787 | ) | ||||
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