A proposal to rescue troubled life settlement company Lifemark in Luxembourg is off the table after hedge fund CarVal Investors backed out of a $60 million loan offer, people close to Lifemark said.

Lifemark has repaid Minneapolis-based CarVal about $2.5 million of short-term debt to limit interest payments, a spokesperson for KPMG, which is Lifemark's provisional administrator, said in an email to The Life Settlements Wire. The spokesperson declined further comment, including confirmation of CarVal's rescission of the larger loan offer.

A spokesperson for CarVal did not return a phone call for comment.

Meanwhile, the U.K.'s Financial Services Compensation Scheme, a financial industry-funded government program, issued a statement Wednesday saying that it should know by September whether approximately 20,000 investors who purchased Lifemark bonds through Keydata Investment Services can receive compensation for potential losses.

"There is currently uncertainty around when the parties will be in a position to update investors on the timing and terms of any proposal," the FSCS said in the statement. "Whilst this remains unresolved it is unclear what losses investors may suffer."

About £385 million ($594 million) has been invested in Lifemark. The vast majority of the investments came from individuals through Keydata, which itself has been under administration in the U.K. for a year.

Lifemark, which was started by Keydata's founder Stewart Ford, has been under the management of KPMG at the request of Luxembourg authorities since November as it works on a restructuring proposal. Luxembourg's finance commission ceased trading of the bonds on the Luxembourg Stock Exchange in February, and Lifemark has stopped paying income.

While bondholders have not received income in months, initial capital has not been lost. But investors have been concerned as Lifemark was close to letting policies lapse in June due to income shortfalls because policies have not matured as anticipated. Lifemark's settlement portfolio has a face value of about £1.3 billion.

CarVal stepped in with a bridge loan, which had an interest rate of 20% compounding monthly, according to a statement released by Ford's spokesman in June. It also offered a $60 million loan as part of a restructuring proposal that was criticized by Ford.

Some policies have since matured, which should enable the company to pay policy premiums for several months, sources said.

Source: FSCS Statement