New Stream seeks court OK of $2.1 million settlement of Spar claim

By Jim Witters

Wilmington, Del., Dec. 5 - New Stream Secured Capital, Inc. is seeking court approval of a $2.1 million agreement with Spar LP that would settle a $21.6 million claim, according to documents filed Friday with the U.S. Bankruptcy Court for the District of Delaware.

A hearing is scheduled for 4 p.m. ET on Dec. 15.

Spar dispute

In July 2004, the debtors entered into an agreement with Spar LP in which Spar was appointment to source and administer investment opportunities in life settlement assets for a special purpose account, known as Account 1.

Spar was entitled to a services fee and profit sharing.

In April 2007, Spar initiated a civil action in the U.S. District Court for the Southern District of New York alleging breach of the agreement. Spar claimed New Stream failed to pay fees or improperly calculated fees due.

Spar also alleged New Stream breached the agreement by circumventing Spar and buying life settlement assets through another provided, Secondary Life Capital LLC.

The parties resolved the lawsuit in a 2007 settlement agreement that called for the debtors to pay Spar about $1 million and terminated the 2004 agreement. Spar was to continue to receive the service fee and profit sharing.

In January, Spar filed another lawsuit alleging breach of the 2004 agreement the 2007 settlement. Spar claimed New Stream understated the fair market values of the fund's life settlement assets and underpaid Spar its fees and profit sharing.

In April, New Stream sought bankruptcy court approval to sell its insurance portfolio, including the life settlement assets sourced by Spar. In May, Spar filed proofs of claim seeking compensation for future unpaid service fees and profit shares had the assets remained in the fund until maturity.

The court approved the sale procedures in May, and the $185 million sale closed June 2.

The debtors disputed the claim and began negotiations.

The parties reached an agreement in principle on Nov. 10.

Settlement terms

The settlement agreement provides:

• Spar will receive an allowed unsecured claim of $2.1 million against the estate of debtor New Stream Insurance LLC, payable in cash not later than three business days after the plan confirmation date;

• All parties agree that they will not propose or support a plan that does not provide for the Spar distribution; and

• Upon payment of the $2.1 million, all Spar claims will be fully satisfied and discharged.

New Stream, a Ridgefield, Conn.-based investment fund, filed for bankruptcy on March 13, 2011. Its Chapter 11 case number is 11-10753.

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