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Description of Business
9 Months Ended
Jun. 30, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business
Description of Business
HRG Group, Inc. (“HRG” and collectively with its respective subsidiaries, the “Company”) is a diversified holding company focused on owning businesses that the Company believes can, in the long term, generate sustainable free cash flow or attractive returns on investment. HRG’s shares of common stock trade on the New York Stock Exchange (“NYSE”) under the symbol “HRG.”
The Company’s reportable business segments are organized in a manner that reflects how HRG’s management views those business activities. Accordingly, the Company currently operates its business in four reporting segments: (i) Consumer Products, (ii) Insurance, (iii) Energy, and (iv) Asset Management. For the results of operations by segment, and other segment data, see Note 15, Segment Data.
Consumer Products Segment
The Consumer Products segment represents the Company’s 57.8% controlling interest in Spectrum Brands Holdings, Inc. (“Spectrum Brands”). Spectrum Brands is a diversified global branded consumer products company with positions in seven major product categories: consumer batteries, small appliances, global pet supplies, home and garden control products, personal care products, hardware and home improvement products and global auto care.
Insurance Segment
As of June 30, 2016, the Company’s insurance operations were conducted through Front Street Re (Delaware) Ltd., (“Front Street”) and its Bermuda and Cayman-based wholly-owned life and annuity reinsurers, Front Street Re Ltd. (“Front Street Bermuda”) and Front Street Re (Cayman) Ltd. (“Front Street Cayman”), respectively.
During the three months ended June 30, 2016, Front Street was provided information on a recapture notice of a reinsurance agreement between third parties covering a block of long-term care business. The original reinsurance agreement was entered into on a funds withheld modified coinsurance basis and the assuming company had retroceded 74.9% of the assumed business to Ability Reinsurance (Bermuda) which was subsequently merged with Front Street Cayman upon the acquisition of Ability Reinsurance (Bermuda) in 2014. As a result of the recapture notice, during the three and nine months ended June 30, 2016, Front Street’s funds withheld receivables and insurance reserves decreased by approximately $83.0.
The Company also owns 80.4% of Fidelity & Guaranty Life, (“FGL”). Through its wholly-owned subsidiaries, Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) and Fidelity & Guaranty Life Insurance Company of New York, FGL is a provider of various types of fixed annuities and life insurance products in the U.S.
As discussed further in Note 4, Divestitures, on November 8, 2015, Anbang Insurance Group Co., Ltd., a joint-stock insurance company established in the People’s Republic of China (“Anbang”), AB Infinity Holding, Inc., a wholly-owned subsidiary of Anbang (“AB Infinity”), and AB Merger Sub, Inc., a wholly-owned subsidiary of AB Infinity (“Merger Sub”), entered into a definitive merger agreement (the “FGL Merger Agreement” and such merger, the “FGL Merger”) to acquire FGL for $26.80 per share. As a result of the FGL Merger Agreement, as of June 30, 2016, the Company’s ownership interest in FGL has been classified as held for sale in the accompanying Condensed Consolidated Balance Sheets and FGL’s operations were classified as discontinued operations in the accompanying Condensed Consolidated Statements of Operations and the accompanying Condensed Consolidated Statements of Cash Flows and reported separately for all periods presented. Prior to the transaction, FGL was included in the Company’s Insurance segment. As a result of classifying FGL as held for sale, all segmented information has been adjusted to exclude FGL from the Insurance segment. See Note 4, Divestitures.
Energy Segment
The Energy segment represents the Company’s wholly-owned subsidiary, HGI Energy Holdings, LLC (“HGI Energy”) and HGI Energy’s wholly-owned subsidiary, Compass Production GP, LLC (“Compass GP”) and its respective subsidiaries (collectively, “Compass”). Compass is an owner and operator of conventional oil and natural gas properties in East Texas and North Louisiana.
On December 1, 2015, Compass completed the sale of its oil and gas interests located in the Holly, Waskom and Danville Fields in East Texas and North Louisiana (the “Compass Asset Sale”). At closing, proceeds from the transaction, which were approximately $147.5, less estimated expenses of $1.9, were used primarily to reduce borrowings under Compass’ existing credit facility (the “Compass Credit Agreement”). For the nine months ended June 30, 2016, Compass received an additional $5.9 as a result of resolving certain title and consent matters in connection with the Compass Asset Sale.
As further discussed in Note 17, Subsequent Events, on July 1, 2016, subsequent to the end of the fiscal quarter, the Company, through HGI Energy, entered into an agreement to sell its equity interests in Compass to a third party for a cash purchase price of $145.0 (such agreement, the “Compass Sale Agreement” and such sale, the “Compass Sale”). The purchase price will be reduced by the balance of Compass Credit Agreement outstanding at closing ($125.0 as of June 30, 2016) and is subject to other customary closing purchase price adjustments for title and environmental defects. The closing of the Compass Sale is subject to the satisfaction of customary closing conditions. HRG is a party to the Compass Sale Agreement for the purpose of satisfying HGI Energy’s post-closing obligations to the buyer. Upon the completion of the Compass Sale, HGI Energy’s existing notes, $100.0 notional aggregate amount held by the Company’s affiliates, will be canceled and replaced with $92.0 notional aggregate amount of new notes of HGI Energy and HGI Energy will be recapitalized with an equity contribution of $110.0 in assets or cash to satisfy its future obligations.
Given the inherent decline in the production potential of its existing asset base, Compass’ indebtedness and the continued declines in commodity prices, if the Compass Sale is not completed, Compass may also pursue a variety of strategies to generate cash flows and reduce its leverage, including pursuing dispositions, acquisitions, other strategic transactions and the issuance of debt and equity securities.
Asset Management Segment
The Asset Management segment represents the Company’s ownership of Salus Capital Partners, LLC (“Salus”), an asset based lender, and CorAmerica Capital, LLC (“CorAmerica”), a commercial real estate lender. During the three months ended June 30, 2016, the operations of Energy & Infrastructure Capital, LLC (“EIC”), a debt capital investment manager focused on direct lending to companies in the North America energy and infrastructure sectors, were wound down.