UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

For the transition period from _________ to ________

 

Commission File Number: 001-36615

 

GWG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		26-2222607
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

220 South Sixth Street, Suite 1200

Minneapolis, MN 55402

(Address of principal executive offices, including zip code)

 

(612) 746-1944

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		GWGH		NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

 

As of October 31, 2019, GWG Holdings, Inc. had 30,033,503 shares of common stock outstanding.

 

 

 

GWG HOLDINGS, INC.

 

Index to Form 10-Q

for the Quarter Ended September 30, 2019

 

		Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	2
	Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 4.	Controls and Procedures	74
PART II.	OTHER INFORMATION
Item 5.	Other Information	76
Item 6.	Exhibits	77
SIGNATURES		78

 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2019 (unaudited)				December 31, 2018
ASSETS
Cash and cash equivalents		$	65,680,464			$	114,587,084
Restricted cash			8,204,705				10,849,126
Investment in life insurance policies, at fair value			807,518,088				747,922,465
Life insurance policy benefits receivable, net			17,369,176				16,460,687
Financing receivables from affiliates			241,185,081				184,768,874
Equity method investment			370,652,128				360,841,651
Other assets			50,391,311				45,437,164
TOTAL ASSETS		$	1,561,000,953			$	1,480,867,051
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation		$	131,717,520			$	148,977,596
L Bonds			830,341,949				651,402,663
Seller Trust L Bonds			366,891,940				366,891,940
Accounts payable			2,570,842				9,276,507
Interest and dividends payable			16,726,344				18,555,293
Other accrued expenses			6,700,336				4,705,170
TOTAL LIABILITIES			1,354,948,931				1,199,809,169
STOCKHOLDERS’ EQUITY
REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 100,000; shares outstanding 92,124 and 97,524; liquidation preference of $92,661,000 and $98,093,000 as of September 30, 2019 and December 31, 2018, respectively)			81,509,765				86,910,335
SERIES 2 REDEEMABLE PREFERRED STOCK
(par value $0.001; shares authorized 150,000; shares outstanding 147,604 and 148,359; liquidation preference of $148,465,000 and $149,225,000 as of September 30, 2019 and December 31, 2018, respectively)			128,307,735				129,062,704
COMMON STOCK
(par value $0.001; shares authorized 210,000,000; shares issued and outstanding 33,033,420 as of September 30, 2019 and 33,018,161 as of December 31, 2018)			33,033				33,018
Additional paid-in capital			237,159,909				249,662,168
Accumulated deficit			(240,958,420	)			(184,610,343	)
TOTAL STOCKHOLDERS’ EQUITY			206,052,022				281,057,882
TOTAL LIABILITIES & EQUITY		$	1,561,000,953			$	1,480,867,051

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
REVENUE
Gain (loss) on life insurance policies, net		$	17,792,324			$	15,721,513			$	59,218,532			$	52,930,008
Interest and other income			4,418,655				5,215,515				12,219,762				6,863,640
TOTAL REVENUE			22,210,979				20,937,028				71,438,294				59,793,648
EXPENSES
Interest expense			28,289,670				21,799,332				83,751,611				55,010,519
Employee compensation and benefits			9,136,824				5,548,771				21,084,815				12,527,139
Legal and professional fees			2,594,467				1,421,964				10,263,230				3,751,321
Other expenses			3,549,265				2,688,970				12,315,434				8,262,324
TOTAL EXPENSES			43,570,226				31,459,037				127,415,090				79,551,303
INCOME (LOSS) BEFORE INCOME TAXES			(21,359,247	)			(10,522,009	)			(55,976,796	)			(19,757,655	)
INCOME TAX EXPENSE (BENEFIT)			—				—				—				—
NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT			(21,359,247	)			(10,522,009	)			(55,976,796	)			(19,757,655	)
Earnings (loss) from equity method investment			955,751				—				(371,281	)			—
NET INCOME (LOSS)			(20,403,496	)			(10,522,009	)			(56,348,077	)			(19,757,655	)
Preferred stock dividends			4,231,641				4,313,542				12,806,173				12,356,513
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(24,635,137	)		$	(14,835,551	)		$	(69,154,250	)		$	(32,114,168	)
NET INCOME (LOSS) PER COMMON SHARE
Basic		$	(0.75	)		$	(2.52	)		$	(2.09	)		$	(5.50	)
Diluted		$	(0.75	)		$	(2.52	)		$	(2.09	)		$	(5.50	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic			33,033,420				5,894,639				33,010,100				5,840,880
Diluted			33,033,420				5,894,639				33,010,100				5,840,880

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(20,403,496	)		$	(10,522,009	)		$	(56,348,077	)		$	(19,757,655	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Change in fair value of life insurance policies			(14,180,970	)			(24,839,567	)			(48,031,195	)			(56,058,336	)
Amortization of deferred financing and issuance costs			3,460,607				2,575,322				9,982,375				7,241,283
Accretion of discount (amortization of premium) on financing receivables			(427,914	)			—				(1,292,434	)			—
Provision for uncollectible policy benefits receivable			200,897				—				200,897				—
(Earnings) loss from equity method investment			(955,751	)			—				371,281				—
Stock-based compensation			700,688				528,461				1,365,219				788,865
(Increase) decrease in operating assets:
Life insurance policy benefits receivable			(11,993,676	)			16,562,304				(1,109,386	)			6,186,065
Accrued interest on financing receivables			(2,078,175	)			(4,284,370	)			(5,123,774	)			(4,284,370	)
Other assets			390,183				321,968				(4,556,454	)			(1,487,238	)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses			(3,679,319	)			1,390,241				(8,432,166	)			126,719
NET CASH FLOWS USED IN OPERATING ACTIVITIES			(48,966,926	)			(18,267,650	)			(112,973,714	)			(67,244,667	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies			(710,863	)			(42,891,764	)			(32,249,397	)			(98,440,528	)
Carrying value of matured life insurance policies			6,639,919				2,325,989				20,684,967				13,557,632
Financing receivables from affiliates issued			—				—				(50,000,000	)			—
Equity method investment acquired			—				(1,421,059	)			(10,000,000	)			(1,421,059	)
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES			5,929,056				(41,986,834	)			(71,564,430	)			(86,303,955	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt*			3,937,020				—				3,937,020				12,903,166
Repayments of senior debt*			(2,079,600	)			(18,425,136	)			(21,648,615	)			(63,463,452	)
Proceeds from issuance of L Bonds			107,012,114				68,884,369				278,238,656				166,081,914
Payments for issuance and redemption of L Bonds			(61,679,235	)			(20,195,657	)			(108,656,765	)			(46,151,926	)
Issuance (repurchase) of common stock			—				682,954				57,518				682,954
Common stock dividends			—				(25,709,412	)			—				(25,709,412	)
Proceeds from issuance of convertible preferred stock			—				50,000,000				—				50,000,000
Proceeds from issuance of redeemable preferred stock			—				—				—				56,238,128
Payments for issuance of preferred stock			—				—				—				(4,142,294	)
Payments for redemption of preferred stock			(2,920,292	)			(821,778	)			(6,134,538	)			(2,361,692	)
Preferred stock dividends			(4,231,641	)			(4,313,542	)			(12,806,173	)			(12,356,513	)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES			40,038,366				50,101,798				132,987,103				131,720,873
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(2,999,504	)			(10,152,686	)			(51,551,041	)			(21,827,749	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD			76,884,673				131,096,113				125,436,210				142,771,176
END OF PERIOD		$	73,885,169			$	120,943,427			$	73,885,169			$	120,943,427

 

*

The line items Borrowings on senior debt and Repayments of senior debt for the three and nine months ended September 30, 2018 have been revised to present gross activity that was previously reported net as discussed in Note 2 Correction of an Immaterial Error.

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED

(unaudited)

 

		Three Months Ended								Nine Months Ended
		September 30, 2019				September 30, 2018				September 30, 2019				September 30, 2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	25,719,000			$	17,340,000			$	75,153,000			$	44,591,000
Premiums paid, including prepaid		$	16,684,000			$	14,672,000			$	51,586,000			$	38,898,000
NON-CASH INVESTING AND FINANCING ACTIVITIES
Financing receivable from affiliate:
Commercial Loan receivable		$	—				190,670,000				—				190,670,000
Exchangeable Note receivable		$	—				171,917,000				—				171,917,000
Equity method investment acquired		$	—				40,648,000				—				40,648,000
Seller Trust L Bonds issued		$	—				403,235,000				—				403,235,000
L Bonds:
Conversion of accrued interest and commissions payable to principal		$	214,000			$	410,000			$	1,086,000			$	972,000
Conversion of L Bonds to redeemable preferred stock		$	—			$	—			$	—			$	4,546,000
Options and stock appreciation rights issued			—				290,000				—				458,000
Investment in life insurance policies included in accounts payable		$	4,000			$	508,000			$	4,000			$	508,000

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

For the three and nine months ended September 30, 2019:

 

		Preferred Stock Shares				Preferred Stock				Common Shares				Common Stock (par)				Additional Paid-in Capital				Accumulated Deficit				Total Equity
Balance, June 30, 2019			242,648			$	212,737,793				33,033,420			$	33,033			$	241,317,803			$	(220,554,924	)		$	233,533,705
Net income (loss)			—				—				—				—				—				(20,403,496	)			(20,403,496	)
Issuance of common stock			—				—				—				—				—				—				—
Repurchase of common stock			—				—				—				—				—				—				—
Redemption of redeemable preferred stock			(2,920	)			(2,920,293	)			—				—				—				—				(2,920,293	)
Preferred stock dividends			—				—				—				—				(4,231,641	)			—				(4,231,641	)
Stock-based compensation			—				—				—				—				73,747				—				73,747
Balance, September 30, 2019			239,728			$	209,817,500				33,033,420			$	33,033			$	237,159,909			$	(240,958,420	)		$	206,052,022
Balance, December 31, 2018 (audited)			245,883			$	215,973,039				33,018,161			$	33,018			$	249,662,168			$	(184,610,343	)		$	281,057,882
Net income (loss)			—				—				—				—				—				(56,348,077	)			(56,348,077	)
Issuance of common stock			—				—				58,009				58				418,954				—				419,012
Repurchase of common stock			—				—				(42,750	)			(43	)			(361,451	)			—				(361,494	)
Redemption of redeemable preferred stock			(6,155	)			(6,155,539	)			—				—				—				—				(6,155,539	)
Preferred stock dividends			—				—				—				—				(12,806,173	)			—				(12,806,173	)
Stock-based compensation			—				—				—				—				246,411				—				246,411
Balance, September 30, 2019			239,728			$	209,817,500				33,033,420			$	33,033			$	237,159,909			$	(240,958,420	)		$	206,052,022

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY — CONTINUED

(unaudited)

 

For the three and nine months ended September 30, 2018:

 

		Preferred Stock Shares				Preferred Stock				Common Shares				Common Stock (par)				Additional Paid-in Capital				Accumulated Deficit				Total Equity
Balance, June 30, 2018			246,800			$	220,701,701				5,813,555			$	5,813			$	—			$	(48,685,163	)		$	172,022,351
Net income (loss)			—				—				—				—				—				(10,522,009	)			(10,522,009	)
Issuance of common stock			—				—				166,569				167				1,181,435				—				1,181,602
Redemption of redeemable preferred stock			(822	)			(823,000	)			—				—				—				—				(823,000	)
Issuance of Series B convertible preferred stock			5,000,000				50,000,000				—				—				—				—				50,000,000
Common stock dividends			—				—				—				—				—				(25,709,412	)			(25,709,412	)
Preferred stock dividends			—				(3,519,761	)			—				—				(793,781	)			—				(4,313,542	)
Stock-based compensation			—				(290,901	)			—				—				(387,654	)			—				(678,555	)
Balance, September 30, 2018			5,245,978			$	266,068,039				5,980,124			$	5,980			$	—			$	(84,916,584	)		$	181,157,435
Balance, December 31, 2017 (audited)			187,319			$	173,115,447				5,813,555			$	5,813			$	—			$	(39,449,517	)		$	133,671,743
Net income (loss)			—				—				—				—				—				(19,757,655	)			(19,757,655	)
Issuance of common stock			—				—				166,569				167				1,181,435				—				1,181,602
Issuance of redeemable preferred stock			61,021				56,878,238				—				—				—				—				56,878,238
Redemption of redeemable preferred stock			(2,362	)			(2,362,914	)			—				—				—				—				(2,362,914	)
Issuance of Series B convertible preferred stock			5,000,000				50,000,000				—				—				—				—				50,000,000
Common stock dividends			—				—				—				—				—				(25,709,412	)			(25,709,412	)
Preferred stock dividends			—				(11,562,732	)			—				—				(793,781	)			—				(12,356,513	)
Stock-based compensation			—				—				—				—				(387,654	)			—				(387,654	)
Balance, September 30, 2018			5,245,978			$	266,068,039				5,980,124			$	5,980			$	—			$	(84,916,584	)		$	181,157,435

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(1) Nature of Business and Summary of Significant Accounting Policies

 

Nature of Business — GWG Holdings, Inc. (“GWG Holdings”) conducts its life insurance secondary market business through a wholly owned subsidiary, GWG Life, LLC (“GWG Life”), and GWG Life’s wholly owned subsidiaries, GWG Life Trust and GWG DLP Funding IV, LLC. GWG Holdings owns a significant equity interest in The Beneficient Company Group, L.P. (“BEN LP,” including all of the subsidiaries it may have from time to time — “Beneficient”). Beneficient is a financial services firm based in Dallas, Texas that provides liquidity solutions for mid-to-high net worth (“MHNW”) individuals and small-to-mid (“STM”) size institutions, which previously had few options to obtain early liquidity for their alternative assets holdings. Beneficient has closed a limited number of these transactions to date, and intends to significantly expand its operations. All of the GWG Holdings’ entities are legally organized in Delaware, other than GWG Life Trust, which is governed by the laws of the state of Utah. GWG Holdings’ wholly owned subsidiary, Life Epigenetics Inc. (formerly named Actüa Life & Annuity Ltd.) (“Life Epigenetics”) was formed to engage in various life insurance related businesses and activities related to its development of epigenetic technology. Through its wholly owned subsidiary, youSurance General Agency, LLC (“youSurance”), GWG Holdings offers life insurance directly to customers from a variety of life insurance carriers. On November 11, 2019, GWG contributed the common stock of Life Epigenetics and membership interests in youSurance to a legal entity, InsurTech Holdings, LLC in exchange for a membership interest in the entity (see Note 25). Unless the context otherwise requires or we specifically so indicate, all references in this report to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to these entities collectively. Our headquarters are currently in Minneapolis, Minnesota. 

 

Beneficient was formed in 2003 but began its alternative asset business in September 2017. Beneficient operates primarily through its subsidiaries, which provide Beneficient’s products and services. These subsidiaries include: (i) Beneficient Capital Company, L.L.C. (“BCC”), through which Beneficient offers loans and liquidity products; (ii) Beneficient Administrative and Clearing Company, L.L.C. (“BACC”), through which Beneficient provides services for fund and trust administration and plans to provide custody services; (iii) PEN Indemnity Insurance Company, LTD (“PEN”), through which Beneficient plans to offer insurance services; and (iv) ACE Portal, L.L.C. (“ACE”), through which Beneficient plans to provide an online portal for direct access to Beneficient’s financial services and products. 

 

In 2018 and early 2019, we consummated a series of transactions (as more fully described below) with Beneficient that has resulted in a significant reorientation of our business and capital allocation strategy in addition to a change in our Board of Directors and executive management team.

 

The Exchange Transaction 

 

On August 10, 2018 (the “Initial Transfer Date”), we completed the first of two closings (the “Initial Transfer”) contemplated by a Master Exchange Agreement with BEN LP and certain other parties (the “Seller Trusts”), which governs the strategic exchange of assets among the parties (the “Exchange Transaction”). On the Initial Transfer Date: 

 

●

GWG issued to the Seller Trusts Seller Trust L Bonds due 2023 (the “Seller Trust L Bonds”) in an aggregate principal amount of $403,234,866, as more fully described below;

 

●

Beneficient purchased 5,000,000 shares of GWG’s Series B Convertible Preferred Stock, par value $0.001 per share and having a stated value of $10 per share (“Series B”), for cash consideration of $50,000,000, which shares were subsequently transferred to the Seller Trusts;

 

●

in consideration for GWG and GWG Life entering into the Master Exchange Agreement and consummating the transactions contemplated thereby, BEN LP, as borrower, entered into a commercial loan agreement (the “Commercial Loan Agreement”) with GWG Life, as lender, providing for a loan in a principal amount of $200,000,000 (the “Commercial Loan”);

 

●

BEN LP delivered to GWG a promissory note (the “Exchangeable Note”) in the principal amount of $162,911,379; and

 

●

the Seller Trusts delivered to GWG 4,032,349 common units of BEN LP at an assumed value of $10 per common unit.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

On December 28, 2018, the final closing of the transaction occurred and the following actions took place (the “Final Closing” and the date upon which the Final Closing occurs, the “Final Closing Date”):

 

●

in accordance with the Master Exchange Agreement, and based on the net asset value of alternative asset financings as of the Final Closing Date, effective as of the Initial Transfer Date, (i) the principal amount of the Commercial Loan was reduced to $181,974,314, (ii) the principal amount of the Exchangeable Note was reduced to $148,228,432, and (iii) the principal amount of the Seller Trust L Bonds was reduced to $366,892,000;

 

●

the Seller Trusts refunded to GWG $840,430 in interest paid on the Seller Trust L Bonds related to the Seller Trust L Bonds that were issued as of the Initial Transfer Date but cancelled, effective as of the Initial Transfer Date, on the Final Closing Date;

 

●

the accrued interest on the Commercial Loan and the Exchangeable Note was added to the principal amount of the Commercial Loan, as a result of which the principal amount of the Commercial Loan as of the Final Closing Date was $192,507,946;

 

●

the Seller Trusts transferred to GWG an aggregate of 21,650,087 common units of BEN LP and GWG received 14,822,843 common units of BEN LP in exchange for the Exchangeable Note, upon completion of which GWG owned (including the 4,032,349 common units received by GWG on the Initial Transfer Date) 40,505,279 common units of BEN LP;

 

●

BEN LP issued to GWG an option (the “Option Agreement”) to acquire the number of common units of BEN LP, interests or other property that would be received by a holder of the NPC-A Prime limited partnership interests of Beneficient Company Holdings, L.P., an affiliate of BEN LP (“Beneficient Holdings”); and

 

●

GWG issued to the Seller Trusts 27,013,516 shares of GWG common stock (including 5,000,000 shares issued upon conversion of the Series B).

 

Description of the Assets Exchanged

 

Seller Trust L Bonds

 

On August 10, 2018, in connection with the Initial Transfer, GWG Holdings, GWG Life and Bank of Utah, as trustee, entered into a Supplemental Indenture (the “Supplemental Indenture”) to the Amended and Restated Indenture dated as of October 23, 2017 (the “Amended and Restated Indenture”). GWG Holdings entered into the Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of the Seller Trust L Bonds. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.5% per year. Interest is payable monthly in cash.

 

After the second anniversary of the Final Closing Date, the holders of the Seller Trust L Bonds will have the right to cause GWG to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder. The repurchase may be paid, at GWG’s option, in the form of cash, a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the Commercial Loan and (ii) BEN LP common units, or a combination of cash and such property.

 

The Seller Trust L Bonds (see Note 11) are senior secured obligations of GWG, ranking junior only to all senior debt of GWG (see Note 9), pari passu in right of payment and in respect of collateral with all “L Bonds” of GWG (see Note 10), and senior in right of payment to all subordinated indebtedness of GWG. Payments under the Seller Trust L Bonds are guaranteed by GWG Life (see Note 23).

 

Series B Convertible Preferred Stock

 

The Series B converted into 5,000,000 shares of our common stock at a conversion price of $10 per share upon the Final Closing.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Commercial Loan

 

The $192,508,000 principal amount under the Commercial Loan is due on August 9, 2023; however, is extendable for two five-year terms. See Note 6 for a full description of the terms of the Commercial Loan. BEN LP’s obligations under the Commercial Loan are unsecured.

 

The principal amount of the Commercial Loan bears interest at 5.0% per year. From and after the Final Closing Date, one-half of the interest, or 2.5% per year, is due and payable monthly in cash, and one-half of the interest, or 2.5% per year, accrues and compounds annually on each anniversary date of the Final Closing Date and becomes due and payable in full in cash on the maturity date.

 

In accordance with the Supplemental Indenture governing the issuance of the Seller Trust L Bonds, upon a redemption event or at the maturity date of the Seller Trust L Bonds, the Company, at its option, may use the outstanding principal amount of the Commercial Loan, and accrued and unpaid interest thereon, as repayment consideration of the Seller Trust L Bonds.

 

Exchangeable Note

 

The Exchangeable Note accrued interest at a rate of 12.4% per year, compounded annually. Interest was payable in cash on the earlier to occur of the maturity date or the Final Closing Date; provided that Beneficient had the option to add to the outstanding principal balance under the Commercial Loan the accrued interest in lieu of payment in cash of such accrued interest thereon at the Final Closing Date. At the Final Closing date, the principal amount of the Exchangeable Note was exchanged for 14,822,843 common units of BEN LP, and the accrued interest on the Exchangeable Note was added to the principal balance of the Commercial Loan.

 

Option Agreement

 

In connection with the Final Closing, the Company entered into the Option Agreement with BEN LP. The Option Agreement gives us the option to acquire the number of common units in BEN LP that would be received by the holder of NPC-A Prime limited partnership interests of Beneficient Holdings, if such holder were converting on that date. There is no exercise price and the Company may exercise the option at any time until December 27, 2028, at which time the option will automatically settle.

 

Common Units of BEN LP

 

In connection with the Initial Transfer and Final Closing, the Seller Trusts and Beneficient delivered to us 40,505,279 common units of BEN LP. This represented an approximate 89.9% interest in the common units of BEN LP as of the Final Closing Date (although, on a fully diluted basis, our ownership interest in common units of BEN LP would be reduced significantly below a majority of those issued and outstanding).

 

Purchase and Contribution Agreement

 

On April 15, 2019, Jon R. Sabes, GWG’s former Chief Executive Officer and a former director, and Steven F. Sabes, GWG’s former Executive Vice President and a former director, entered into a Purchase and Contribution Agreement (the “Purchase and Contribution Agreement”) with, among others, Beneficient. Under the Purchase and Contribution Agreement, Jon and Steven Sabes agreed to transfer all 3,952,155 of the shares of GWG’s outstanding common stock held directly or indirectly by them to BCC (a subsidiary of BEN LP) and AltiVerse Capital Markets, L.L.C. (“AltiVerse”). GWG was not a party to the Purchase Agreement; however, the closing of the transactions contemplated by the Purchase and Contribution Agreement (the “Purchase and Contribution Transaction”) were subject to certain conditions that were dependent upon GWG taking, or refraining from taking, certain actions.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The closing of the Purchase and Contribution Transaction occurred on April 26, 2019. Prior to or in connection with such closing:

 

●

GWG’s bylaws were amended to increase the maximum number of directors of GWG from nine to 13, and the actual number of directors comprising the Board of Director was increased from seven to 11. The size of the Board has since been reduced and currently consists of ten directors.

 

●

All seven members of GWG’s Board of Directors prior to the closing resigned as directors of GWG, and 11 individuals designated by Beneficient were appointed as directors of GWG, leaving two board seats vacant after the closing.

 

●

Jon R. Sabes resigned from all officer positions he held with GWG or any of its subsidiaries prior to the closing, other than his position as Chief Executive Officer of GWG’s technology focused wholly owned subsidiaries, Life Epigenetics and youSurance.

 

●

Steven F. Sabes resigned from all officer positions he held with GWG or any of its subsidiaries prior to the closing, except as Chief Operating Officer of Life Epigenetics.

 

●

The resignations of Messrs. Jon and Steven Sabes included a full waiver and forfeit of (i) any severance that may be payable by GWG or any of its subsidiaries in connection with such resignations or the Purchase and Contribution Transaction and (ii) all equity awards of GWG held by either of them.

 

●

Murray T. Holland was appointed as Chief Executive Officer of GWG.

 

●

GWG entered into performance share unit agreements with certain employees of GWG pursuant to which such employees will collectively receive up to $4.5 million in cash compensation under certain terms and conditions, including, among others, that such employees remain employed by GWG or one of its subsidiaries (or, if no longer employed, such employment was terminated by GWG other than for cause, as such term is defined in the performance share unit agreement) for a period of 120 days following the closing.

 

●

The stockholders agreement that was entered into on the Final Closing Date was terminated by mutual consent of the parties thereto.

 

●

BCC and AltiVerse executed and delivered a Consent and Joinder to the Amended and Restated Pledge and Security Agreement dated October 23, 2017 by and among the Company, GWG Life, LLC, Messrs. Jon and Steven Sabes and the Bank of Utah, which provides that the shares of GWG’s common stock acquired by BCC and AltiVerse pursuant to the Purchase and Contribution Agreement will continue to be pledged as collateral security for GWG’s obligations owing in respect of the L Bonds and Seller Trust L Bonds.

 

Indemnification Agreements

  

On April 26, 2019, GWG entered into Indemnification Agreements (the “Indemnification Agreements”) with each of its executive officers and the directors appointed to the Board of Directors on such date. On May 13, 2019, GWG entered into Indemnification Agreement with the three additional directors appointed to the Board of Directors on such date (collectively with the executive officers and directors appointed on April 26, 2019, the “Indemnitees”). The Indemnification Agreements clarify and supplement indemnification provisions already contained in GWG’s bylaws and generally provide that GWG shall indemnify the Indemnitees to the fullest extent permitted by applicable law, subject to certain exceptions, against expenses, judgments, fines and other amounts actually and reasonably incurred in connection with their service as a director or officer and also provide for rights to advancement of expenses and contribution.

 

Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (“SEC”) requirements for interim reporting, which allows certain footnotes and other financial information normally required by Generally Accepted Accounting Principles in the United States of America (“GAAP”) to be condensed or omitted. In our opinion, the condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for the fair presentation of our financial position and results of operations. These statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Principles of Consolidation — The condensed consolidated financial statements include the accounts of GWG Holdings, Inc. and all its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated upon consolidation.

 

The Company has interests in various entities including corporations and limited partnerships. For each such entity, the Company evaluates its ownership interest to determine whether the entity is a variable interest entity (“VIE”) and, if so, whether it is the primary beneficiary of the VIE. The Company would consolidate any entity for which it was the primary beneficiary, regardless of its ownership or voting interests. Upon inception of a variable interest or the occurrence of a reconsideration event, the Company makes judgments in determining whether entities in which it invests are VIEs. If so, the Company makes judgments to determine whether it is the primary beneficiary and is thus required to consolidate the entity.

 

If it is concluded that an entity is not a VIE, then the Company considers its proportional voting interests in the entity. The Company consolidates majority-owned subsidiaries in which a controlling financial interest is maintained. A controlling financial interest is determined by majority ownership and the absence of significant third-party participating rights. Ownership interests in entities for which the Company has significant influence that are not consolidated under the Company’s consolidation policy are accounted for as equity method investments. SEC Staff Announcement: Accounting for Limited Partnership Investments (codified in Accounting Standards Codification (“ASC”) 323-30-S99-1) guidance requires the use of the equity method unless the investor’s interest “is so minor that the limited partner may have virtually no influence over partnership operating and financial policies.” The SEC staff’s position is that investments in limited partnerships of greater than 3% to 5% are considered more than minor and, therefore, should be accounted for using the equity method.

 

Related party transactions between the Company and its equity method investee have not been eliminated.

 

Use of Estimates — The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make significant estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of revenue during the reporting period. We regularly evaluate estimates and assumptions, which are based on current facts, historical experience, management’s judgment, and various other factors that we believe to be reasonable under the circumstances. Our actual results may differ materially and adversely from our estimates. The most significant estimates with regard to these condensed consolidated financial statements relate to (1) the determination of the assumptions used in estimating the fair value of our investments in life insurance policies, (2) the assessment of potential impairment of our equity method investment and our equity security investment and determination of the allowance for credit losses on our financing receivables, and (3) the value of our deferred tax assets and liabilities. Periodically, we make significant estimates in assessing the fair value of assets acquired and consideration given in return for those assets, which are used to establish the initial recorded values of such assets in accordance with ASC 805, Business Combinations. Under ASC 805, the consideration paid in an asset acquisition is allocated among the assets acquired based on their relative fair values at acquisition date. In relation to the Exchange Transaction, relative fair values obtained from a third-party valuation firm were used to calculate the amounts recorded for the Commercial Loan, the Exchangeable Note, the equity method investment and the option agreement at their acquisition dates.

 

Cash and Cash Equivalents — We consider cash in demand deposit accounts and temporary investments purchased with an original maturity of three months or less to be cash equivalents. We maintain our cash and cash equivalents with highly rated financial institutions. The balances in our bank accounts may exceed Federal Deposit Insurance Corporation limits. We periodically evaluate the risk of exceeding insured levels and may transfer funds as we deem appropriate.

 

Cash, cash equivalents and restricted cash on our condensed consolidated statements of cash flows include cash and cash equivalents of $65.7 million and restricted cash of $8.2 million as of September 30, 2019, and $117.9 million and $3.1 million, respectively, as of September 30, 2018.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Life Insurance Policies — ASC 325-30, Investments in Insurance Contracts, permits a reporting entity to account for its investments in life insurance policies using either the investment method or the fair value method. We elected to use the fair value method to account for our life insurance policies. We initially record our purchase of life insurance policies at the purchase price, which is the amount paid for the policy, inclusive of all direct external fees and costs associated with the purchase. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as unrealized gain or loss in the current period, net of premiums paid, within gain (loss) on life insurance policies, net in our condensed consolidated statements of operations.

 

In a case where our acquisition of a policy is not complete as of a reporting date, but we have nonetheless advanced direct costs and deposits for the acquisition, those costs and deposits are recorded as other assets on our condensed consolidated balance sheets until the acquisition is complete and we have secured title to the policy. On both September 30, 2019 and December 31, 2018, none of our other assets comprised direct costs and deposits that we had advanced for life insurance policy acquisitions.

 

We also recognize realized gain (or loss) from a life insurance policy upon one of the two following events: (1) our receipt of notice or verified mortality of the insured; or (2) our sale of the policy (upon filing of change-of-ownership forms and receipt of payment). In the case of mortality, the gain (or loss) we recognize is the difference between the policy benefits and the carrying value of the policy once we determine that collection of the policy benefits is reasonably assured. In the case of a policy sale, the gain (or loss) we recognize is the difference between the sale price and the carrying value of the policy on the date we receive sale proceeds.

 

Life Insurance Policy Benefits Receivable, Net — Our policy benefit receivables represent amounts due from insurance carriers for claims submitted on matured life insurance policies. Policy benefit receivables are recorded at the policy benefit amounts less reserves for estimated uncollectible amounts. Uncollectible policy benefits can result from challenges by the insurance carrier to the legal validity of the policy, typically related to the concept of insurable interest, or from liquidity or solvency problems at the insurance carrier (although policy benefits are senior to any other obligations of a carrier).

 

We reserve for policy benefits when it becomes probable that we will not collect the full amount of the policy benefit. The reserve requirements are based on the best facts available to us and are re-evaluated and adjusted as additional information becomes available. Uncollectible policy benefits are written off against the reserves when it is deemed that a policy amount is uncollectible. As of September 30, 2019, the balance of the allowance for uncollectible receivables was $4.5 million, relating to a single life insurance policy claim where collection is doubtful.

 

Other Assets — Included in other assets at September 30, 2019 are $38.6 million of equity security investment (see below), $6.0 million of prepaid expenses, $1.3 million of net fixed assets, $0.6 million of security deposits with states for life settlement provider licenses and $3.9 million of other miscellaneous assets. At December 31, 2018, other assets included $38.6 million of equity security investment, $1.2 million of prepaid expenses, $1.5 million of net fixed assets, $0.6 million of security deposits with states for life settlement provider licenses, $0.5 million net secured merchant cash advances and $3.1 million of other miscellaneous assets.

 

In December 2018, in connection with the Final Closing of the Exchange Transaction, the Company entered into an Option Agreement with Beneficient. The agreement gives GWG the option to acquire the number of common units in BEN LP that would be received by the holder of NPC-A Prime limited partnership interests of Beneficient Holdings. There is no exercise price and the Company may exercise the option at any time until December 27, 2028, at which time the option will automatically exercise and settle. The Option Agreement is recorded in other assets at a value of $38.6 million at both September 30, 2019 and December 31, 2018. The Option Agreement is considered an equity security investment and the Company has elected the measurement alternative for equity securities without a readily determinable fair value. Under this measurement alternative, we record the Option Agreement at its cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of Beneficient. As at September 30, 2019, there were no indications of impairment. The instrument earns a preferred return that we accrue to the investment balance and record in interest and other income in the condensed consolidated statement of operations.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Financing Receivables — ASC 310, Receivables, provides guidance for receivables and notes that arise from credit sales, loans or other transactions. Financing receivables includes loans and notes receivable. Originated loans we hold for which we have the intent and ability to hold for the foreseeable future or to maturity (or payoff) are classified as held for investment. Financing receivables held for investment are reported in our condensed consolidated balance sheets at the outstanding principal balance adjusted for any write-offs, allowance for loan losses, deferred fees or costs, and any unamortized premiums or discounts. Interest income is accrued on outstanding principal as earned. Unamortized discounts and premiums are amortized using the effective interest method with the amortization recognized as part of interest income in the condensed consolidated statements of operations.

 

Losses on financing receivables are recognized when they are incurred, which requires us to make our best estimate of probable losses. Specific allowances are recorded for individually impaired loans to the extent we determine it is probable we will be unable to collect all amounts due according to original contractual terms of the loan agreement. Certain loans classified as impaired may not require an allowance for loan loss because we believe we will ultimately collect the unpaid balance (through collection or collateral repossession). The method for calculating the best estimate of losses depends on the type and risk characteristics of the related financing receivables. Such an estimate requires consideration of historical loss experience, adjusted for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates, financial health of market sectors, and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments we use to provide for losses are updated periodically to reflect our view of current conditions. Changes in such estimates can significantly affect the allowance and provision for losses. It is possible we will experience credit losses that are different from our current estimates. We have no allowance for losses at September 30, 2019 or December 31, 2018. Write-offs are deducted from the allowance for losses when we judge the principal to be uncollectible and subsequent recoveries are added to the allowance at the time cash is received on a written-off account.

 

Equity Method Investment — We account for investments in common stock or in-substance common stock in which we have the ability to exercise significant influence, but do not own a controlling financial interest, under the equity method of accounting. Investments within the scope of the equity method of accounting are initially measured at cost, including the cost of the investment itself and direct transaction costs incurred to acquire the investment. After the initial recognition of the investment at cost, we recognize income and losses from our investment by adjusting upward or downward the balance of our equity method investment on our condensed consolidated balance sheet with such adjustments, if any, flowing through earnings (loss) from equity method investment on our condensed consolidated statement of operations, in all cases adjusted to reflect amortization of basis differences, if any, and the elimination of intercompany gains and losses, if any. Cash distributions received from equity method investees are recorded as reductions to the investment balance and classified on the statement of cash flows using the cumulative earnings approach.

 

Our equity method investment is reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the investment might not be recoverable. These circumstances can include, but are not limited to evidence that we do not have the ability to recover the carrying amount, the inability of the investee to sustain earnings, a current fair value of the investment that is less than the carrying amount, and other investors ceasing to provide support or reducing their financial commitment to the investee. If the fair value of the investment is less than the carrying amount, and the investment will not recover in the near term, then an other-than-temporary impairment may exist. We recognize a loss in value of an investment deemed other-than-temporary in the period the conclusion is made.

 

The Company reports its share of the income or loss of the equity method partner companies on a one-quarter lag where we do not expect financial information to be consistently available on a timely basis.

 

For more information on equity method investment, see Note 7.

 

Leases – The Company currently has one significant lease relating to office space that is classified as an operating lease. We assess whether an arrangement is a lease at inception. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We have elected the practical expedient to not separate lease and non-lease components for all assets. Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Stock-Based Compensation — We measure and recognize compensation expense for all stock-based payments at fair value on the grant date over the requisite service period. We use the Black-Scholes option pricing model to determine the fair value of stock options and stock appreciation rights. For restricted stock grants (including restricted stock units), fair value is determined as of the closing price of our common stock on the date of grant. Stock-based compensation expense is recorded in general and administrative expenses based on the classification of the employee or vendor. The determination of fair value of stock-based payment awards on the date of grant is affected by our stock price and a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards and the expected duration of the awards. We account for the effects of forfeitures as they occur.

 

The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on the standard deviation of the average continuously compounded rate of return of five selected companies.

 

Deferred Financing and Issuance Costs — Loans advanced to us under our amended and restated senior credit facility with LNV Corporation, as described in Note 9, are reported net of financing costs, including issuance costs, sales commissions and other direct expenses, which are amortized using the straight-line method over the term of the facility. The L Bonds, as described in Note 10, are reported net of financing costs, which are amortized using the effective interest method over the term of those borrowings. Selling and issuance costs of Redeemable Preferred Stock (“RPS”) and Series 2 Redeemable Preferred Stock (“RPS 2”), described in Notes 12 and 13, respectively, are netted against additional paid-in capital, until depleted, and then against the outstanding balance of the preferred stock. The offerings of our RPS and RPS 2 closed in March 2017 and April 2018, respectively. There were no issuance costs associated with the August 2018 issuance of the Series B Convertible Preferred Stock, described in Note 14.

 

Earnings (Loss) per Share — Basic earnings (loss) per share attributable to common shareholders are calculated using the weighted-average number of shares outstanding during the reported period. Diluted earnings (loss) per share are calculated based on the potential dilutive impact of our RPS, RPS 2, restricted stock units, warrants and stock options. Due to our net loss attributable to common shareholders for the three and nine months ended September 30, 2019 and 2018, there are no dilutive securities.

 

Reclassification — Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. See Note 23 for an explanation of certain reclassifications we recorded in comparative periods on the guarantor financial statements.

 

Newly Adopted Accounting Pronouncements — On January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with a term greater than twelve months. We elected to adopt the standard using the modified retrospective method, without restatement of prior periods’ financial information. The impact to the balance sheet was the addition of approximately $0.9 million in right-of-use assets, a reduction to deferred rent of $0.7 million, and a net increase to lease liabilities of $1.6 million for our operating lease. The adoption of the new standard did not materially affect our condensed consolidated statements of operations, condensed consolidated statements of cash flows or condensed consolidated statements of changes in stockholders’ equity.

 

Recently Issued Accounting Pronouncements — In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans. The standard requires entities to use a new, forward-looking “expected loss” model that is expected to generally result in the earlier recognition of allowances for losses. The guidance is effective for annual periods beginning after December 15, 2022, including interim periods within those years, for smaller reporting companies, as defined by the SEC, but early adoption is permitted. The Company is evaluating the potential impact of this guidance on our condensed consolidated financial statements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. The guidance is effective for fiscal years and interim periods beginning after December 15, 2019. Certain of the amendments require prospective application, while the remainder require retrospective application. Early adoption is allowed either for the entire standard or only the provisions that eliminate or modify the requirements. The Company believes that we are currently compliant with this pronouncement but continues to evaluate potential impact of this guidance on our condensed consolidated financial statements.

 

(2) Correction of an Immaterial Error

 

In the condensed consolidated statement of cash flows for the three and nine months ended September 30, 2018, we have separated the gross borrowings and repayments on our senior credit facility with LNV Corporation that were previously erroneously reported on a net basis in cash flows from financing activities.

 

For the three and nine months ended September 30, 2018, we previously reported net repayments of senior debt of $18.4 million and $50.6 million, respectively. We have revised the comparative information for the three and nine months ended September 30, 2018 to report gross borrowings on senior debt of $0 million and $12.9 million, respectively, and gross repayments of senior debt of $18.4 million and $63.5 million, respectively, in the condensed consolidated statements of cash flows. This revision had no effect on the total cash flows from financing activities.

 

(3) Restrictions on Cash

 

Under the terms of our amended and restated senior credit facility with LNV Corporation (discussed in Note 9), we are required to maintain collection and payment accounts that are used to collect policy benefits from pledged policies, pay annual policy premiums, interest and other charges under the facility, distribute funds to pay down the facility, and distribute excess funds to the borrower (GWG DLP Funding IV, LLC).

 

The agents for the lender authorize the disbursements from these accounts. At September 30, 2019 and December 31, 2018, there was a balance of $8,112,000 and $4,164,000, respectively, in these collection and payment accounts.

 

To fund the Company’s acquisition of life insurance policies, we are required to maintain escrow accounts. Distributions from these accounts are made according to life insurance policy purchase contracts. At September 30, 2019 and December 31, 2018, there was a balance of $93,000 and $6,685,000, respectively, in the Company’s escrow accounts.

 

(4) Investment in Life Insurance Policies

 

Our investments in life insurance policies are valued based on unobservable inputs that are significant to their overall fair value. Changes in the fair value of these policies, net of premiums paid, are recorded in gain (loss) on life insurance policies, net in our condensed consolidated statements of operations. Fair value is determined on a discounted cash flow basis that incorporates life expectancy assumptions generally derived from reports obtained from widely accepted life expectancy providers (other than insured lives covered under small face amount policies — those with $1 million in face value benefits or less — which utilize either a single fully underwritten, or simplified report based on self-reported medical interview), assumptions relating to cost-of-insurance (premium) rates and other assumptions. The discount rate we apply incorporates current information about the discount rates observed in the life insurance secondary market through competitive bidding observations (which have declined recently as a result of our decreased purchase activity) and other means, fixed income market interest rates, the estimated credit exposure to the insurance companies that issued the life insurance policies and management’s estimate of the operational risk yield premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. Management has significant discretion regarding the combination of these and other factors when determining the discount rate. As a result of management’s analysis, a discount rate of 8.25% was applied to our portfolio as of both September 30, 2019 and December 31, 2018.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Portfolio Information

 

Our portfolio of life insurance policies, owned by our subsidiaries as of September 30, 2019 is summarized below:

 

Life Insurance Portfolio Summary

 

Total life insurance portfolio face value of policy benefits		$	2,064,156,000
Average face value per policy		$	1,758,000
Average face value per insured life		$	1,887,000
Average age of insured (years)*			82.3
Average life expectancy estimate (years)*			7.3
Total number of policies			1,174
Number of unique lives			1,094
Demographics			74% Male; 26% Female
Number of smokers			45
Largest policy as % of total portfolio face value			0.64	%
Average policy as % of total portfolio face value			0.09	%
Average annual premium as % of face value			3.2	%

 

*	Averages presented in the table are weighted averages by face amount of policy benefits.

 

A summary of our policies, organized according to their estimated life expectancy dates, grouped by year, as of the reporting date, is as follows:

 

		As of September 30, 2019												As of December 31, 2018
Years Ending December 31,		Number of Policies				Estimated Fair Value				Face Value				Number of Policies				Estimated Fair Value				Face Value
2019			3			$	3,232,000			$	3,375,000				9			$	6,380,000			$	7,305,000
2020			19				12,533,000				14,917,000				41				46,338,000				59,939,000
2021			62				75,255,000				100,575,000				81				68,836,000				108,191,000
2022			109				109,003,000				180,986,000				104				97,231,000				177,980,000
2023			121				114,084,000				213,293,000				109				93,196,000				185,575,000
2024			111				98,450,000				217,355,000				107				84,150,000				211,241,000
Thereafter			749				394,961,000				1,333,655,000				703				351,791,000				1,297,761,000
Totals			1,174			$	807,518,000			$	2,064,156,000				1,154			$	747,922,000			$	2,047,992,000

 

We recognized life insurance benefits of $27,470,000 and $7,973,000 during the three months ended September 30, 2019 and 2018, respectively, related to policies with a carrying value of $6,640,000 and $2,326,000, respectively, and as a result recorded realized gains of $20,830,000 and $5,647,000. We recognized life insurance benefits of $80,927,000 and $50,100,000 during the nine months ended September 30, 2019 and 2018, respectively, related to policies with a carrying value of $20,685,000 and $13,558,000, respectively, and as a result recorded realized gains of $60,242,000 and $36,542,000.

 

A reconciliation of gain (loss) on life insurance policies is as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Change in estimated probabilistic cash flows(1)		$	17,908,000			$	19,069,000			$	52,161,000			$	55,483,000
Unrealized gain on acquisitions(2)			472,000				9,021,000				6,775,000				21,790,000
Premiums and other annual fees			(17,219,000	)			(14,765,000	)			(49,055,000	)			(39,670,000	)
Change in discount rates(3)(4)			—				—				—				—
Change in life expectancy evaluation(5)			—				73,000				—				(4,890,000	)
Face value of matured policies			27,470,000				7,973,000				80,927,000				50,100,000
Fair value of matured policies			(10,839,000	)			(5,650,000	)			(31,590,000	)			(29,883,000	)
Gain (loss) on life insurance policies, net		$	17,792,000			$	15,721,000			$	59,218,000			$	52,930,000

 

(1)

Change in fair value of expected future cash flows relating to our investment in life insurance policies that are not specifically attributable to changes in life expectancy, discount rate changes or policy maturity events.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(2)	Gain resulting from fair value in excess of the purchase price for life insurance policies acquired during the reporting period.

 

(3)	The discount rate applied to estimate the fair value of the portfolio of life insurance policies we own was 8.25% at September 30 and June 30, 2019 and December 31, 2018, and was 10.45% at September 30 and June 30, 2018 and December 31, 2017.

 

(4)	The discount rate of 8.25% is based on our “longest life expectancy” methodology (among other factors) which was adopted at December 31, 2018, whereas the discount rate of 10.45% is based on our historical “average life expectancy methodology” (among other factors).

  

(5)	The change in fair value due to updating life expectancy estimates on certain life insurance policies in our portfolio.

 

Estimated premium payments and servicing fees required to maintain our current portfolio of life insurance policies in force for the next five years, assuming no mortalities, are as follows: 

 

Years Ending December 31,		Premiums				Servicing				Total
Three months ending December 31, 2019		$	16,553,000			$	430,000			$	16,983,000
2020			76,305,000				1,719,000				78,024,000
2021			88,684,000				1,719,000				90,403,000
2022			101,706,000				1,719,000				103,425,000
2023			113,838,000				1,719,000				115,557,000
2024			123,793,000				1,719,000				125,512,000
		$	520,879,000			$	9,025,000			$	529,904,000

 

Management anticipates funding the majority of the premium payments and servicing fees estimated above from cash flows realized from life insurance policy benefits, and to the extent necessary, with additional borrowing capacity created as the premiums and servicing costs of pledged life insurance policies become due, under the amended and restated senior credit facility with LNV Corporation as described in Note 9, and the net proceeds from our offering of L Bonds as described in Note 10. Management anticipates funding premiums and servicing costs of non-pledged life insurance policies with cash flows realized from life insurance policy benefits from our portfolio of life insurance policies and net proceeds from our offering of L Bonds. The proceeds of these capital sources may also be used for the purchase, policy premiums and servicing costs of additional life insurance policies, working capital and financing expenditures including paying principal, interest and dividends.

 

(5) Fair Value Definition and Hierarchy

 

ASC 820, Fair Value Measurements and Disclosures, establishes a hierarchical disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is affected by a number of factors, including the type of investment, the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Assets and liabilities with readily available and actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

ASC 820 maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the use of observable inputs whenever available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect assumptions about how market participants price an asset or liability based on the best available information. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date (a non-distressed transaction in which neither seller nor buyer is compelled to engage in the transaction). A sale of the portfolio or a portion of the portfolio in an other than orderly transaction would likely occur at less than the fair value of the respective life insurance policies.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The hierarchy is broken down into three levels based on the observability of inputs as follows:

 

Level 1 —

Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuations are based on quoted prices that are readily and regularly available in an active market.

 

Level 2 —

Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 —

Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

The availability of observable inputs can vary by types of assets and liabilities and is affected by a wide variety of factors, including, for example, whether an instrument is established in the marketplace, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for assets and liabilities categorized in Level 3.

 

Level 3 Valuation Process

 

The estimated fair value of our portfolio of life insurance policies is determined on a quarterly basis by management taking into consideration a number of factors, including changes in discount rate assumptions, estimated premium payments and life expectancy estimate assumptions, as well as any changes in economic and other relevant conditions. The discount rate incorporates current information about discount rates observed in the life insurance secondary market through competitive bidding observations (which have declined recently as a result of our decreased purchase activity) and other means, fixed income market interest rates, the estimated credit exposure to the insurance company that issued the life insurance policy and management’s estimate of the operational risk yield premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. Management has significant discretion regarding the combination of these and other factors when determining the discount rate.

 

These inputs are then used to estimate the discounted cash flows from the portfolio using the ClariNet LS probabilistic and stochastic portfolio pricing model from ClearLife Limited, which estimates the expected cash flows using various mortality probabilities and scenarios. The valuation process includes a review by senior management as of each quarterly valuation date. We also engage ClearLife Limited to prepare a net present value calculation of our life insurance portfolio using the inputs we provide on a quarterly basis.

 

The following table reconciles the beginning and ending fair value of our Level 3 investments in our portfolio of life insurance policies for the periods ended September 30, as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Beginning balance		$	799,266,000			$	726,063,000			$	747,922,000			$	650,527,000
Purchases			711,000				42,892,000				32,250,000				98,442,000
Maturities (initial cost basis)			(6,640,000	)			(2,326,000	)			(20,685,000	)			(13,558,000	)
Net change in fair value			14,181,000				24,840,000				48,031,000				56,058,000
Ending balance		$	807,518,000			$	791,469,000			$	807,518,000			$	791,469,000

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Historically, for life insurance policies with face amounts greater than $1 million and that are not pledged as collateral under our amended and restated senior credit facility with LNV Corporation (approximately 25.3% of our portfolio by face amount of policy benefits), we attempted to obtain updated life expectancy reports on a continuous rotating three year cycle. For life insurance policies that are pledged under our amended and restated senior credit facility with LNV Corporation (approximately 62.5% of our portfolio by face amount of policy benefits as of September 30, 2019), prior to entering into the second amended and restated senior credit facility with LNV Corporation on November 1, 2019, we were required to update the life expectancy estimates every two years beginning from the closing date of the amended and restated senior credit facility with LNV Corporation. Under the second amended and restated senior credit facility with LNV Corporation, we are required to update the life expectancy estimates no later than December 18, 2020 and obtain updated life expectancy updates no less frequently than once every five years. For the remaining small face insurance policies (i.e., a policy with $1 million in face value benefits or less), we historically employed other methods and timeframes to update life expectancy estimates.

 

With the adoption of the Longest Life Expectancy method in the fourth quarter of 2018 (as described under “Fair Value Components — Life Expectancies” within the Management Discussion and Analysis section), we discontinued the practice of obtaining updated life expectancy reports (or updating specific life expectancies in any manner) except as required by lenders to comply with existing and future covenants within credit facilities. This change was accounted for as a change in accounting estimate and affects current and future periods. To the extent such updated life expectancy reports are available, we do not expect to incorporate these life expectancy reports into our revised valuation methodology; however, we will monitor this data to determine over time if there exists any additive predictive value in relation to the basis of its mortality projections.

 

The following table summarizes the inputs utilized in estimating the fair value of our portfolio of life insurance policies:

 

		As of September 30, 2019				As of December 31, 2018
Weighted-average age of insured, years*			82.3				82.1
Age of insured range, years			62-101				61-100
Weighted-average life expectancy, months*			87.6				93.2
Life expectancy range, months			1-243				1-251
Average face amount per policy		$	1,758,000			$	1,775,000
Discount rate			8.25	%			8.25	%

 

(*)

Weighted-average by face amount of policy benefits

 

Life expectancy estimates and market discount rates for a portfolio of life insurance policies are inherently uncertain and the effect of changes in estimates may be significant. For example, if the life expectancy estimates were increased or decreased by four and eight months on each outstanding policy, and the discount rates were increased or decreased by 1% and 2%, with all other variables held constant, the fair value of our investment in life insurance policies would increase or decrease as summarized below:

 

Change in Fair Value of the Investment in Life Insurance Policies

 

		Change in Life Expectancy Estimates
		minus 8 months				minus 4 months				plus 4 months				plus 8 months
September 30, 2019		$	116,229,000			$	59,050,000			$	(57,071,000	)		$	(113,742,000	)
December 31, 2018		$	113,410,000			$	57,611,000			$	(55,470,000	)		$	(110,473,000	)

 

		Change in Discount Rate
		minus 2%				minus 1%				plus 1%				plus 2%
September 30, 2019		$	94,576,000			$	44,978,000			$	(40,918,000	)		$	(78,257,000	)
December 31, 2018		$	95,747,000			$	45,440,000			$	(41,179,000	)		$	(78,615,000	)

 

Other Fair Value Considerations

 

The carrying value of policy benefit receivables, prepaid expenses, accounts payable and accrued expenses approximate fair value due to their short-term maturities and low credit risk. Using the income-based valuation approach, the estimated fair value of our L Bonds and Seller Trust L Bonds, largely containing the same terms, having an aggregate face value of $1,209,840,000 as of September 30, 2019, is approximately $1,283,460,000 based on a weighted-average market interest rate of 6.28%.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The Commercial Loan receivable from BEN LP (see Note 6) has a below-market interest rate of 5.0% per year; provided that the accrued interest from the date of the Initial Transfer to the Final Closing Date of the Exchange Transaction was added to the principal balance of the Commercial Loan. From and after the Final Closing Date, one-half of the interest, or 2.5% per year, is due and payable monthly in cash, and one-half of the interest, or 2.5% per year, accrues and compounds annually on each anniversary date of the Final Closing Date and becomes due and payable in full in cash on the maturity date. Utilizing an implied yield of 6.75%, we estimate the fair value of the Commercial Loan to be approximately $188,936,000 as of September 30, 2019 based on a market yield analysis for similar instruments with similar credit profiles. The Commercial Loan had a carrying value of $190,018,000 as of September 30, 2019. 

 

The Promissory Note receivable from the LiquidTrusts (see Note 6) earns interest at 7.0% per year, payable upon maturity in 2023. Utilizing an implied yield of 7.0%, we estimate the fair value of the Promissory Note to be approximately $49,924,000 as of September 30, 2019 based on a market yield analysis for similar instruments with similar credit profiles. The Promissory Note had a carrying value of $51,167,000 as of September 30, 2019.

 

The carrying value of the amended and restated senior credit facility with LNV Corporation reflects interest charged at 12-month LIBOR plus an applicable margin. The margin represents our credit risk, and the strength of the portfolio of life insurance policies collateralizing the debt. The overall rate reflects the current interest rate market, and the carrying value of the facility approximates fair value.

 

GWG MCA Capital, Inc. (“GWG MCA”) participated in the merchant cash advance industry by directly advancing sums to merchants and lending money, on a secured basis, to companies that advance sums to merchants. Each quarter, we review the carrying value of these cash advances, determine if an impairment exists and establish or adjust an allowance for loan loss as necessary. At September 30, 2019, one of our secured cash advances was impaired. Specifically, the secured loan to Nulook Capital LLC had an outstanding balance of $1,879,000 and an allowance for loan loss of $1,879,000 at September 30, 2019. We deem fair value to be the estimated collectible value on each loan or advance made from GWG MCA. Secured merchant cash advances, net of allowance for loan loss, of none and $547,000 are included within other assets on our condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively. Where we estimate the collectible amount to be less than the outstanding balance, we record an allowance for the difference. Provision for merchant cash advances are recorded within other expenses on our condensed consolidated statements of operations (see Note 18). GWG MCA no longer participates in the merchant cash advance industry.

 

Certain assets are subject to periodic impairment testing by comparing the respective carrying value of the asset to its estimated fair value. In the event we determine these assets to be impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the impaired asset exceeds its estimated fair value. These periodic impairment tests utilize company-specific assumptions involving significant unobservable inputs, or Level 3, in the fair value hierarchy.

 

GWG Holdings previously had outstanding common stock warrants; however, the warrants expired in the quarter ended September 30, 2019.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(6) Financing Receivables from Affiliates

 

Commercial Loan

 

On August 10, 2018, in connection with the Initial Transfer of the Exchange Transaction, GWG Life, as lender, and BEN LP, as borrower, entered into the Commercial Loan Agreement. On December 28, 2018, the Final Closing Date of the Exchange Transaction, the agreement was amended to adjust the principal to $192,508,000. The principal amount under the Commercial Loan is due on August 9, 2023, but is extendable for two five-year terms under certain circumstances. The extensions are available to the borrower provided that (a) in the event BEN LP completes at least one public offering of its common units raising at least $50,000,000, which on its own or together with any other public offering of BEN LP’s common units results in Beneficient raising at least $100,000,000, then the maturity date will be extended to August 9, 2028; and (b) in the event that BEN LP (i) completes at least one public offering of its common units raising at least $50,000,000, which on its own or together with any other public offering of BEN LP’s common units results in Beneficient raising at least $100,000,000 and (ii) at least 75% of Beneficient Holding’s total outstanding NPC-B limited partnership interests, if any, have been converted to shares of BEN LP’s common units, then the maturity date will be extended to August 9, 2033.

 

Repayment of the Commercial Loan is subordinated in right of payment to other Beneficient obligations, including (i) Beneficient’s exiting senior debt obligations, (ii) any of Beneficient’s commercial bank debt and (iii) any Beneficient obligations that may arise in connection with the issuance of Preferred Series B Unit Accounts of Beneficient Holdings. BEN LP’s obligations under the Commercial Loan Agreement are unsecured.

 

The Commercial Loan Agreement contains negative covenants that limit or restrict, subject to certain exceptions, the incurrence of liens and indebtedness by Beneficient, fundamental changes to its business and transactions with affiliates. The Commercial Loan Agreement also contains customary affirmative covenants, including, but not limited to, preservation of corporate existence, compliance with applicable law, payment of taxes, notice of material events, financial reporting and keeping of proper books of record and account.

 

The Commercial Loan Agreement includes customary events of default, including, but not limited to, non-payment of principal or interest, failure to comply with covenants, failure to pay other indebtedness when due, cross-acceleration to other debt, material adverse effects, events of bankruptcy and insolvency, and unsatisfied judgments. The borrower was in compliance with its financial reporting covenants in the Commercial Loan Agreement as of September 30, 2019.

 

The principal amount of the Commercial Loan bears interest at 5.00% per year from the Final Closing Date. One-half of the interest, or 2.50% per year, is due and payable monthly in cash, and one-half of the interest, or 2.50% per year, accrues and compounds annually on each anniversary date of the Final Closing Date and becomes due and payable in full in cash on the maturity date. The accrued interest from the Initial Transfer to the Final Closing Date was added to the principal amount of the Commercial Loan. The Commercial Loan was recorded at a discount as a result of the relative fair value allocations for the assets received in the Initial Transfer of the Exchange Transaction. Under ASC 805, Business Combinations, the consideration paid in an asset acquisition is allocated among the assets acquired based on their relative fair values at acquisition date. The discount is being amortized to interest income over the term of the loan.

 

In accordance with the Supplemental Indenture governing the issuance of the Seller Trust L Bonds, upon a redemption event or at the maturity date of the Seller Trust L Bonds, the Company, at its option, may use the outstanding principal amount of the Commercial Loan, and accrued and unpaid interest thereon, as repayment consideration of the Seller Trust L Bonds (see Note 11).

 

Promissory Note

 

On May 31, 2019, GWG Life entered into a Promissory Note (the “Promissory Note”), made by Jeffrey S. Hinkle and Dr. John A. Stahl, not in their individual capacity but solely as trustees of The LT-1 LiquidTrust, The LT-2 LiquidTrust, The LT-5 LiquidTrust, The LT-7 LiquidTrust, The LT-8 LiquidTrust and The LT-9 LiquidTrust (collectively, the “LiquidTrust Borrowers”) in the principal amount of $65,000,000. Pursuant to the terms of the Promissory Note, GWG Life will fund a term loan to the LiquidTrust Borrowers in an aggregate principal amount of $65,000,000 (the “Loan”), which Loan is to be funded in two installments as described below. The Loan was made pursuant to GWG’s strategy to further diversify into alternative assets (beyond life insurance) and ancillary businesses and was intended to better position Beneficient’s balance sheet, working capital and liquidity profile to satisfy anticipated state of Texas regulatory requirements.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The LiquidTrust Borrowers are common law trusts established as part of alternative asset financings extended by a subsidiary of BEN LP, of which the Company owns approximately 90% of the issued and outstanding common units of BEN LP (although, on a fully diluted basis, our ownership interest in common units of BEN LP would be reduced significantly below a majority of those issued and outstanding). Although each Borrower is allocated a portion of the Loan equal to approximately 16.7% of the aggregate outstanding principal of the Loan, the Loan constitutes the joint and several obligations of the LiquidTrust Borrowers.

 

An initial advance in the principal amount of $50,000,000 was funded on June 3, 2019 and, subject to satisfaction of certain customary conditions, it is anticipated that the second advance, in the principal amount of $15,000,000, will be funded no later than December 31, 2019. The Loan bears interest at 7.0% per annum, with interest payable at maturity, and matures on June 30, 2023. Subject to the Intercreditor Agreements (as defined below), the Loan can be prepaid at the LiquidTrust Borrowers’ election without premium or penalty.

 

The Loan is unsecured and is subject to certain covenants (including a restriction on the incurrence of any indebtedness senior to the Loan other than existing senior loan obligations to each of HCLP Nominees, L.L.C. (“HCLP”) and Beneficient Holdings, Inc. (“BHI”, and together with HCLP, the “Senior Lenders”), as lenders) and events of default. The Senior Lenders are directly or indirectly associated with one of Beneficient’s founders, who is also Chairman of the Company’s Board of Directors.

 

Intercreditor Agreements

 

In connection with the Promissory Note, the Company also entered into two intercreditor and subordination agreements: (1) an Intercreditor Agreement between the GWG Life and HCLP and (2) an Intercreditor Agreement between the GWG Life and BHI (the “Intercreditor Agreements”). Under the Intercreditor Agreements, GWG Life agrees to subordinate the Loan to the secured obligations of Beneficient and its affiliates outstanding to the Senior Lenders (the “Senior Loan Obligations”), agrees to not take any liens to secure the Loan (and to subordinate such liens, if any, to the liens of the Senior Lenders), and agrees not to take enforcement actions under the Promissory Note until such Senior Loan Obligations are paid in full. The Intercreditor Agreements establish various other inter-lender and subordination terms, including, without limitation, with respect to permitted actions by each party, permitted payments, waivers, voting arrangements in bankruptcy, application of certain proceeds and limitations on amendments of the respective loan obligations of the parties. The Senior Lenders have agreed not to extend the maturity of their respective loan obligations beyond June 30, 2023 or increase the outstanding principal of the loans made by the Senior Lenders without the written consent of GWG Life. GWG Life has agreed not to transfer, assign, pledge, grant a security interest in or otherwise dispose of (including, without limitation, pursuant to a foreclosure) the Promissory Note except with the written consent of the Senior Lenders (such consent not to be unreasonably withheld) or to the Company or direct or indirect wholly owned subsidiaries thereof.

 

The following table summarizes outstanding principal, discount and accrued interest balances of the financing receivables:

 

		September 30, 2019				December 31, 2018
Commercial Loan
Commercial Loan receivable – principal		$	192,508,000			$	192,508,000
Discount on Commercial Loan receivable			(6,554,000	)			(7,846,000	)
Accrued interest receivable on Commercial Loan			4,064,000				107,000
Balance outstanding on Commercial Loan			190,018,000				184,769,000
Promissory Note
Promissory Note receivable – principal			50,000,000				-
Accrued interest receivable on Promissory Note			1,167,000				-
Balance outstanding on Promissory Note			51,167,000				-
Total financing receivables from affiliates		$	241,185,000			$	184,769,000

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(7) Equity Method Investment

 

During 2018, in connection with the Initial Transfer and Final Closing of the Exchange Transaction, we acquired 40.5 million common units of BEN LP for a total limited partnership interest in the common units of BEN LP of approximately 89.9% as of December 31, 2018 (although, on a fully diluted basis, our ownership interest in common units of BEN LP would be reduced significantly below a majority of those issued and outstanding). On June 12, 2019, we acquired an additional 1 million common units of BEN LP from a third party for a cash investment of $10 million. The common units of BEN LP are not publicly traded on a stock exchange.

 

Our investment in the common units of BEN LP is presented in equity method investment on our condensed consolidated balance sheets. Our proportionate share of earnings or losses from our investee is recognized in earnings (loss) from equity method investment in our condensed consolidated statements of operations. We record our share of the income or loss of Beneficient on a one-quarter lag.

 

Financial information pertaining to Beneficient is summarized in the table below:

 

		Three Months Ended June 30, 2019 (unaudited)				Nine Months Ended June 30, 2019 (unaudited)
Total revenues		$	28,151,000			$	69,262,000
Net income (loss)			9,696,000				(36,345,000	)
Net earnings (loss) attributable to BEN LP common unitholders			1,080,000				(11,439,000	)
GWG portion of net earnings (loss)			956,000	(1)			(371,000	)(2)

  

(1)

Our portion of Beneficient’s net earnings (loss) from April 1, 2019 to June 30, 2019.

(2)

Our portion of Beneficient’s net earnings (loss) from October 1, 2018 to June 30, 2019.

 

Due to our accounting election to record the equity earnings of Beneficient on a one quarter-lag, for the three months ended September 30, 2019, we recorded earnings of $956,000 for our share of the net earnings of Beneficient for the period from April 1 to June 30, 2019, and for the nine months ended September 30, 2019, we recorded a loss of $371,000 for the period from October 1, 2018 to June 30, 2019. We eliminated the effects of any intercompany transactions in the summarized information presented above. For the period from October 1 to December 28, 2018, we owned 13.9% of the common units of BEN LP. Effective December 28, 2018, as a result of the Final Closing of the Exchange Transaction, our ownership of BEN LP common units increased to approximately 89.9%. As a result of common unit issuances by BEN LP in the first quarter of 2019, our ownership dropped to 88.1% as of March 31, 2019. Effective June 12, 2019, we acquired an additional 1 million common units of BEN LP, which increased our ownership to 90.2% (although, on a fully diluted basis, our ownership interest in common units of BEN LP would be reduced significantly below a majority of those issued and outstanding).

 

A substantial majority of the net assets of Beneficient are currently represented by intangible assets and goodwill. As such, we believe substantially all of our equity method investment is characterized as equity method goodwill as of September 30, 2019. We do not believe conditions exist indicating an other-than-temporary loss in the value of our investment and no impairment has been recorded to our equity method investment as of September 30, 2019.

 

Beneficient has certain share classes outstanding other than and senior to the BEN LP common units, namely Class S Ordinary units, FLP units and Non-Participating Convertible Series A units issued by a subsidiary of BEN LP. The Class S Ordinary units and FLP units are classified as noncontrolling interest and the Non-Participating Convertible Series A units are classified as redeemable noncontrolling interest on the consolidated statements of financial position of Beneficient and their share of the net income of Beneficient is classified as net income attributable to noncontrolling interests on the consolidated statements of operations of Beneficient. These units are exchangeable or convertible into common units of BEN LP. 

 

Beneficient Adoption of Equity Incentive Plan 

 

The board of directors of Beneficient Management, L.L.C., Beneficient’s general partner, adopted an equity incentive plan (“Beneficient’s Equity Incentive Plan”) in September 2018. Under the Beneficient Equity Incentive Plan, Beneficient is permitted to grant equity awards representing ownership interests in BEN LP common units. Vested awards under the Beneficient Equity Incentive Plan dilute BEN LP’s common unitholders, including GWG. The total number of common units that may be issued under the Beneficient Equity Incentive Plan is equivalent to 15% of the number of fully diluted common units outstanding, subject to annual adjustment.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

In April 2019, initial equity awards in the form of Beneficient restricted equity units (“Beneficient REUs”) were granted under Beneficient’s Equity Incentive Plan. These awards are generally subject to service-based vesting of a three year period from the date of grant, though some of the awards are fully vested upon grant date. All awards are subject to performance conditions pertaining to entry into certain transactions with GWG Holdings or a change of control event prior to July 1, 2021. While providing services to Beneficient, if applicable, certain of these awards are subject to minimum retained ownership rules requiring the award recipient to continuously hold BEN LP common unit equivalents equal to at least 15% of their cumulatively vested awards that have the minimum retained ownership requirement. 

 

For the Beneficient REUs awarded under the Beneficient Equity Incentive Plan, Beneficient will recognize expense associated with the vesting of these awards based on the fair value of the BEN LP common units on the date of grant, discounted for the lack of participation rights in the expected distributions on unvested units and discounted for the lack of marketability associated with the post-vesting transfer restrictions. Beneficient will recognize expense when it is probable that the performance condition will be met, which will be upon entering into certain transactions with GWG Holdings or upon a change of control. A cumulative catch up of expense will be recognized by Beneficient at the time of entering into certain transactions with GWG Holdings or a change of control for the portion of awards that are vested at the time the performance condition is met. The remaining unrecognized compensation cost for these awards would be recognized prospectively over the remaining requisite service period. The remaining unrecognized compensation expense will be recognized on a straight-line basis using the graded vesting method over the life of the award and forfeitures will be accounted for at the time that such forfeitures occur. 

 

A total of 3.4 million Beneficient REUs have been approved for granting in 2019 that will vest upon the grant date, subject to the performance condition vesting described above. A total of 6.1 million Beneficient REUs have been approved for granting in 2019 that will vest over the completion of a 3-year service period beginning on the grant date, subject to the performance condition described above. All awards are anticipated to be classified in equity. Based on the grant date fair value, the estimated total Beneficient compensation expense attributable to these awards, assuming all vest, is approximately $90 to $100 million. 

 

The expense, when recognized by Beneficient, will impact the earnings at BEN LP and GWG’s equity earnings from our equity method investment in Beneficient. The Beneficient REUs, when settled – commencing July 1, 2021 over a three-year period, will convert to BEN LP common units and will be dilutive to the existing BEN LP common unitholders, including GWG.

 

Amendment of Beneficient Holdings Limited Partner Agreement Governing Beneficient Noncontrolling Interests

 

BEN LP is a holding company of capital and financial services companies, the general partner of Beneficient Holdings, and owns 100% of the Class A Subclass 1 and Subclass 2 Units of Beneficient Holdings. Beneficient Holdings is a Delaware limited partnership formed on July 1, 2010. Beneficient Holdings is the holding company that directly or indirectly receives all active and passive income from its subsidiaries and allocates that income among its issued units. 

 

Beneficient Holdings has issued general partnership Class A Units (Subclass 1 and Subclass 2) — the class of units owned by BEN LP — and Class S Ordinary Units, FLP Unit accounts (Subclass 1 and Subclass 2) and Preferred Series A Subclass 1 Unit accounts (formerly referred to as Non-Participating Convertible Series A Units), which are owned by entities associated with BEN LP’s management and founders, including our Chairman, and certain of our directors, along with our Chief Executive Officer.

 

At June 30, 2019, there was $1,012,873,516 of Preferred Series A Subclass 1 Unit accounts (the “Preferred Series A”) and $58,879,383 of Class S Ordinary Units issued.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The rights of all partners of Beneficient Holdings are governed by a Limited Partnership Agreement (“BCH LPA”). On April 26, 2019, the BCH LPA was amended. Under the amendment, the preferred return to be paid to Preferred Series A holders is limited through December 31, 2019 by a quarterly rate cap that is based on the annualized revenues of Beneficient Holdings. Further, under the amendment, the Preferred Series A holders can convert up to 20% of the sub-capital balance in any calendar year into Class S Ordinary Units on or after January 1, 2021. Upon such an election, a holder of Preferred Series A will be issued Class S Ordinary Units necessary to provide the holder with a number of Class S Ordinary Units that, in the aggregate, equal (a) the balance of the holder’s capital account associated with the Preferred Series A Subclass 1 Unit accounts being converted divided by (b) $8.50.

 

The amendment affects several areas that could impact the value of our ownership in BEN LP such as allocations or distributions of income to the various classes of units issued by Beneficient Holdings, including the Class A Units (Subclass 1 and Subclass 2) owned by BEN LP, preferred returns paid to the holders of Class S Preferred Units, FLP Units and Preferred Series A Units (collectively, “BCH Preferred Units”), distribution of proceeds from the sale of assets, and future issuance of dilutive securities and future debt issuances, among other changes. The impact of the BCH LPA amendment on our investment in BEN LP may vary depending on multiple factors, including, among other things, (1) the economic performance of BEN LP, (2) the value of BEN LP’s common units, and (3) the timing, price and amount of any conversions of BCH Preferred Units or Class S Ordinary Units.

 

BEN LP has notified us that, subject to receiving approval from the board of directors of its general partner, BEN LP intends to further amend, effective April 26, 2019, the BCH LPA to adjust the conversion price for the Preferred Series A Subclass 1 Units to the fair market value of the BEN LP common units at conversion. This conversion price would be consistent with the previous BCH LPA prior to the most recent amendment described above. BEN LP has determined that the accounting for this further proposed amendment will be a modification as opposed to an extinguishment and will not have a significant impact on the relative value of the Beneficient securities. GWG has therefore concluded the collective impacts of the amended BCH LPA, inclusive of the proposed further amendment, will not significantly impact GWG’s portion of net earnings related to its investment in BEN LP.

 

(8) Variable Interest Entities

 

In accordance with ASC 810, Consolidation, the Company assesses whether it has a variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.

 

We have determined that Beneficient is a VIE, but that we are not the primary beneficiary of the investment. GWG does not have the power to direct any activities of Beneficient, or any of its related parties, that most significantly impact Beneficient’s economic performance. GWG has no board representation at BEN LP or at its general partner. The general partner is exclusively assigned all management powers over the business and affairs of Beneficient, and the limited partners do not have the ability to remove the general partner. BEN LP’s limited partnership agreement specifies that any person or group that acquires beneficial ownership of 20% or more of BEN LP’s common limited partnership units (including us) forfeits all voting rights associated with all of its common units and such common units may not be voted on any matter. Therefore, we do not consolidate the results of Beneficient in our consolidated financial statements. The Company’s exposure to risk of loss in Beneficient is generally limited to its investment in the common units of BEN LP, its financing receivable from Beneficient and its equity security investment in the Option Agreement to purchase additional common units of BEN LP.

 

We have determined that the LiquidTrust Borrowers are VIEs, but that we are not the primary beneficiary of the variable interests. We do not have the power to direct any activities of the LiquidTrust Borrowers that most significantly impact the Borrower’s economic performance. The Company’s exposure to risk of loss in the LiquidTrust Borrowers is limited to its financing receivable from the LiquidTrust Borrowers.

 

The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs at September 30, 2019 and December 31, 2018:

 

		September 30, 2019								December 31, 2018
		Carrying Value				Maximum Exposure to Loss				Carrying Value				Maximum Exposure to Loss
Financing receivables from affiliates		$	241,185,000			$	241,185,000			$	184,769,000			$	184,769,000
Equity method investment			370,652,000				370,652,000				360,842,000				360,842,000
Other asset			38,607,000				38,607,000				38,562,000				38,562,000
Total assets		$	650,444,000			$	650,444,000			$	584,173,000			$	584,173,000

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(9) Credit Facility — LNV Corporation

 

On September 27, 2017, we entered into an amended and restated senior credit facility with LNV Corporation as lender through our subsidiary GWG DLP Funding IV, LLC (“DLP IV”). The amended and restated senior credit facility makes available a total of up to $300,000,000 in credit with a maturity date of September 27, 2029. Additional advances are available under the amended and restated senior credit facility at the LIBOR rate as herein defined. Advances are available as the result of additional borrowing base capacity, created as the premiums and servicing costs of pledged life insurance policies become due. Interest will accrue on amounts borrowed under the amended and restated senior credit facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) 12-month LIBOR plus (b) 7.50% per annum. The effective rate at September 30, 2019 was 9.68%. Interest payments are made on a quarterly basis.

 

As of September 30, 2019, approximately 62.5% of the total face value of our life insurance policies portfolio is pledged to LNV Corporation. The amount outstanding under this facility was $140,497,000 and $158,209,000 at September 30, 2019 and December 31, 2018, respectively. Obligations under the amended and restated senior credit facility are secured by a security interest in DLP IV’s assets, for the benefit of the lenders, through an arrangement under which Wells Fargo Bank, N.A. serves as securities intermediary. The life insurance policies owned by DLP IV do not serve as direct collateral for the obligations of GWG Holdings under the L Bonds and Seller Trust L Bonds. The difference between the amount outstanding and the carrying amount on our condensed consolidated balance sheets is due to netting of unamortized debt issuance costs.

 

The amended and restated senior credit facility has certain financial and nonfinancial covenants, and we were in compliance with these covenants at September 30, 2019 and as of the date of this filing.

 

On November 1, 2019, we entered into the second amended and restated senior credit facility with LNV Corporation (see Note 25).

 

(10) L Bonds

 

We began publicly offering and selling L Bonds in January 2012 under the name “Renewable Secured Debentures”. These debt securities were re-named “L Bonds” in January 2015. L Bonds are publicly offered and sold on a continuous basis under a registration statement permitting us to sell up to $1.0 billion in principal amount of L Bonds through January 2018. On December 1, 2017, an additional public offering was declared effective permitting us to sell up to $1.0 billion in principal amount of L Bonds on a continuous basis until December 2020. The new offering is a follow-on to the previous L Bond offering and contains the same terms and features. We are party to an indenture governing the L Bonds dated October 19, 2011, as amended (“Indenture”), under which GWG Holdings is obligor, GWG Life is guarantor, and Bank of Utah serves as indenture trustee. On October 23, 2017, the parties entered into the Amended and Restated Indenture in connection with the new offering. On March 27, 2018, GWG L Bond holders approved Amendment No.1 to the Amended and Restated Indenture. This amendment expands the definition of Total Coverage to include, without duplication, the value of all of our other assets as reflected on our most recently available balance sheet prepared in accordance with GAAP. The Amended and Restated Indenture contains certain financial and nonfinancial covenants, and we were in compliance with all material covenants at September 30, 2019 and as of the date of this filing and no Events of Default (as defined in the Amended and Restated Indenture) existed as of such dates.

 

We publicly offer and sell L Bonds under a registration statement declared effective by the SEC and have issued Seller Trust L Bonds under a Supplemental Indenture, as described in Note 11. We temporarily suspended the offering of our L Bonds on May 1, 2019 as a result of our delay in filing certain periodic reports with the SEC. We recommenced our L Bond offering on August 8, 2019. The L Bonds and Seller Trust L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all our common stock held by BCC, an indirect subsidiary of BEN LP and AltiVerse (which together represent approximately 12% of our outstanding common stock), and by a guarantee and corresponding grant of a security interest in substantially all the assets of GWG Life⁽¹⁾. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds and Seller Trust L Bonds. GWG Life’s assets, including its equity in DLP IV⁽²⁾ and its beneficial interest in GWG Life Trust (“Life Trust”), serve as collateral for our L Bond and Seller Trust L Bond obligations. The life insurance policies held by DLP IV and Life Trust, which comprise a substantial majority of our life insurance policies, do not serve as direct collateral for the L Bonds. Further, the life insurance policies held by DLP IV are pledged as direct collateral securing the obligations under our amended and restated senior credit facility with LNV Corporation. 

 

(1)

The Seller Trust L Bonds (see Note 11) are senior secured obligations of GWG, ranking junior to all senior debt of GWG (see Note 9) and pari passu in right of payment and in respect of collateral with all L Bonds of GWG. Payments under the Seller Trust L Bonds are guaranteed by GWG Life. The assets exchanged in the Exchange Transaction are available as collateral for all holders of the L Bonds and Seller Trust L Bonds. Specifically, the common units of BEN LP and the Option Agreement are held by GWG Holdings and the Commercial Loan is held by GWG Life.

 

(2)

The terms of our amended and restated senior credit facility with LNV Corporation require that we maintain a significant excess of pledged collateral value over the amount outstanding on the amended and restated senior credit facility at any given time. Any excess equity value in DLP IV after satisfying all amounts owing under our amended and restated senior credit facility is available as collateral for the L Bonds (including the Seller Trust L Bonds).

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The bonds have renewal features under which we may elect to permit their renewal, subject to the right of bondholders to elect to receive payment at maturity. Interest is payable monthly or annually depending on the election of the investor.

 

At September 30, 2019 and December 31, 2018, the weighted-average interest rate of our L Bonds was 7.14% and 7.10%, respectively. The principal amount of L Bonds outstanding was $842,948,000 and $662,152,000 at September 30, 2019 and December 31, 2018, respectively. The difference between the amount of outstanding L Bonds and the carrying amount on our condensed consolidated balance sheets is due to netting of unamortized deferred issuance costs, cash receipts for new issuances and payments of redemptions in process. Amortization of deferred issuance costs was $3,197,000 and $2,312,000 for the three months ended September 30, 2019 and 2018, respectively, and $9,191,000 and $6,450,000 for the nine months ended September 30, 2019 and 2018, respectively. Future expected amortization of deferred financing costs as of September 30, 2019 is $32,507,000 in total over the next seven years.

 

Future contractual maturities of L Bonds, and future amortization of their deferred financing costs, at September 30, 2019 are as follows:

 

Years Ending December 31,		Contractual Maturities				Unamortized Deferred Financing Costs
Three months ending December 31, 2019		$	29,267,000			$	91,000
2020			158,475,000				2,399,000
2021			174,469,000				5,461,000
2022			125,086,000				5,335,000
2023			72,640,000				3,320,000
2024			92,488,000				4,967,000
Thereafter			190,523,000				10,934,000
		$	842,948,000			$	32,507,000

 

(11) Seller Trust L Bonds

 

On August 10, 2018, in connection with the Initial Transfer of the Exchange Transaction, GWG Holdings, GWG Life and Bank of Utah, as trustee, entered into a Supplemental Indenture (the “Supplemental Indenture”) to the Amended and Restated Indenture. GWG Holdings entered into the Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of a new class of securities titled “Seller Trust L Bonds”. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.50% per year. Interest is payable monthly in cash.

 

GWG issued Seller Trust L Bonds in the amount of $366,892,000 to the various related trusts (the “Seller Trusts”) in connection with the Exchange Transaction on August 10, 2018.

 

After the second anniversary of the Final Closing, the holders of the Seller Trust L Bonds will have the right to cause GWG to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder. The repurchase may be paid, at GWG’s option, in the form of cash, a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the Commercial Loan Agreement and (ii) BEN LP common units, or a combination of cash and such property.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Our L Bonds are offered and sold under a registration statement declared effective by the SEC, as described in Note 10, and we have issued Seller Trust L Bonds under a Supplemental Indenture. We temporarily suspended the offering of our L Bonds on May 1, 2019 as a result of our delay in filing certain periodic reports with the SEC. We recommenced our L Bond offering on August 8, 2019. The L Bonds and Seller Trust L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all our common stock held by BCC and AltiVerse (which together represent approximately 12% of our outstanding common stock), and by a guarantee and corresponding grant of a security interest in substantially all the assets of GWG Life⁽¹⁾. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds and Seller Trust L Bonds. GWG Life’s assets, including its equity in DLP IV⁽²⁾ and its beneficial interest in Life Trust, serve as collateral for our L Bond and Seller Trust L Bond obligations. The life insurance policies held by DLP IV and Life Trust, which comprise a substantial majority of our life insurance policies, do not serve as direct collateral for the L Bonds. Further, the life insurance policies held by DLP IV are pledged as direct collateral securing the obligations under our amended and restated senior credit facility with LNV Corporation.

 

(1)

The Seller Trust L Bonds are senior secured obligations of GWG, ranking junior to all senior debt of GWG (see Note 9) and pari passu in right of payment and in respect of collateral with all L Bonds of GWG (see Note 10). Payments under the Seller Trust L Bonds are guaranteed by GWG Life. The assets exchanged in the Exchange Transaction are available as collateral for all holders of the L Bonds and Seller Trust L Bonds. Specifically, the common units of BEN LP and the Option Agreement are held by GWG Holdings and the Commercial Loan is held by GWG Life.

 

(2)

The terms of our amended and restated senior credit facility with LNV Corporation require that we maintain a significant excess of pledged collateral value over the amount outstanding on the amended and restated senior credit facility at any given time. Any excess equity value of DLP IV after satisfying all amounts owing under our amended and restated senior credit facility is available as collateral for the L Bonds (including the Seller Trust L Bonds).

 

The principal amount of Seller Trust L Bonds outstanding was $366,892,000 at both September 30, 2019 and December 31, 2018.

 

(12) Redeemable Preferred Stock

 

On November 30, 2015, our public offering of up to 100,000 shares of RPS at $1,000 per share was declared effective. Holders of RPS are entitled to cumulative dividends at the rate of 7% per annum, paid monthly. Dividends on the RPS are recorded as a reduction to additional paid-in capital, if any, then to the outstanding balance of the preferred stock if additional paid-in capital has been exhausted. Under certain circumstances described in the Certificate of Designation for the RPS, additional shares of RPS may be issued in lieu of cash dividends.

 

The RPS ranks senior to our common stock and pari passu with our RPS 2 and entitles its holders to a liquidation preference equal to the stated value per share (i.e., $1,000) plus accrued but unpaid dividends. Holders of RPS may presently convert their RPS into our common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date of conversion, subject to a minimum conversion price of $15.00 and in an aggregate amount limited to 15% of the stated value of RPS originally purchased from us and still held by such purchaser.

 

Holders of RPS may request that we redeem their RPS at a price equal to their stated value plus accrued but unpaid dividends, less an applicable redemption fee, if any, as specified in the Certificate of Designation. Nevertheless, the Certificate of Designation for RPS permits us in our sole discretion to grant or decline redemption requests. Subject to certain restrictions and conditions, we may also redeem shares of RPS without a redemption fee upon a holder’s death, total disability or bankruptcy. In addition, after one year from the date of original issuance, we may, at our option, call and redeem shares of RPS at a price equal to their liquidation preference.

 

In March 2017, we closed the RPS offering to additional investors having sold 99,127 shares of RPS for an aggregate gross consideration of $99,127,000 and incurred approximately $7,019,000 of related selling costs.

 

At the time of its issuance, we determined that the RPS contained two embedded features: (1) optional redemption by the holder, and (2) optional conversion by the holder. We determined that each of the embedded features met the definition of a derivative; however, based on our assessment under Accounting Standards Codification 470, Debt, (“ASC 470”) and ASC 815, Derivatives and Hedging, (“ASC 815”), we do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(13) Series 2 Redeemable Preferred Stock

 

On February 14, 2017, our public offering of up to 150,000 shares of RPS 2 at $1,000 per share was declared effective. Holders of RPS 2 are entitled to cumulative dividends at the rate of 7% per annum, paid monthly. Dividends on the RPS 2 are recorded as a reduction to additional paid-in capital, if any, then to the outstanding balance of the preferred stock if additional paid-in capital has been exhausted. Under certain circumstances described in the Certificate of Designation for the RPS 2, additional shares of RPS 2 may be issued in lieu of cash dividends.

 

The RPS 2 ranks senior to our common stock and pari passu with our RPS and entitles its holders to a liquidation preference equal to the stated value per share (i.e., $1,000) plus accrued but unpaid dividends. Holders of RPS 2 may, less an applicable conversion discount, if any, convert their RPS 2 into our common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date of conversion, subject to a minimum conversion price of $12.75 and in an aggregate amount limited to 10% of the stated value of RPS 2 originally purchased from us and still held by such purchaser.

 

Holders of RPS 2 may request that we redeem their RPS 2 shares at a price equal to their liquidation preference, less an applicable redemption fee, if any, as specified in the Certificate of Designation. Nevertheless, the Certificate of Designation for RPS 2 permits us in our sole discretion to grant or decline requests for redemption. Subject to certain restrictions and conditions, we may also redeem shares of RPS 2 without a redemption fee upon a holder’s death, total disability or bankruptcy. In addition, we may, at our option, call and redeem shares of RPS 2 at a price equal to their liquidation preference (subject to a minimum redemption price, in the event of redemptions occurring less than one year after issuance, of 107% of the stated value of the shares being redeemed).

 

In April 2018, we closed the RPS 2 offering to additional investors having sold 149,979 shares of RPS 2 for an aggregate gross consideration of $149,979,000 and incurred approximately $10,284,000 of related selling costs.

 

At the time of its issuance, we determined that the RPS 2 contained two embedded features: (1) optional redemption by the holder, and (2) optional conversion by the holder. We determined that each of the embedded features met the definition of a derivative; however, based on our assessment under ASC 470 and ASC 815, we do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate. 

 

(14) Series B Convertible Preferred Stock

 

On August 10, 2018, GWG Holdings issued 5,000,000 shares of Series B, par value $0.001 per share and having a stated value of $10.00 per share, to BEN LP for cash consideration of $50,000,000 as part of the Initial Transfer.

 

On December 28, 2018, the Series B converted into 5,000,000 shares of our common stock at a conversion price of $10.00 per share immediately following the Final Closing of the Exchange Transaction.

 

(15) Income Taxes

 

We had no current income tax liability as of September 30, 2019 and December 31, 2018. The components of our income tax expense (benefit) and the reconciliation at the statutory federal tax rate to our actual income tax expense (benefit) for the three and nine months ended September 30, 2019 and 2018 consisted of the following: 

 

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2019				2018				2019				2018
Statutory federal income tax (benefit)		$	(4,485,000	)		$	(2,234,000	)		$	(11,755,000	)		$	(4,173,000	)
State income taxes (benefit), net of federal benefit			(1,322,000	)			(866,000	)			(4,103,000	)			(1,558,000	)
Change in valuation allowance			4,697,000				3,215,000				15,025,000				5,783,000
Other permanent differences			1,110,000				(115,000	)			833,000				(52,000	)
Total income tax expense (benefit)		$	-			$	-			$	-			$	-

  

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The tax effects of temporary differences that give rise to deferred income taxes were as follows:

 

		September 30, 2019				December 31, 2018
Deferred tax assets:
Net operating loss carryforwards		$	9,994,000			$	10,491,000
Investment in life insurance policies			34,186,000				23,132,000
Other assets			11,429,000				6,864,000
Subtotal			55,609,000				40,487,000
Valuation allowance			(55,410,000	)			(40,385,000	)
Deferred tax assets			199,000				102,000
Deferred tax liabilities:
Other liabilities			(199,000	)			(102,000	)
Net deferred tax asset (liability)		$	—			$	—

 

At September 30, 2019 and December 31, 2018, we had federal net operating loss (“NOL”) carryforwards of $34,773,000 and $36,501,000, respectively, and aggregate state NOL carryforwards of approximately $34,747,000 and $36,475,000, respectively. The NOL carryforwards will begin to expire in 2031. Future utilization of NOL carryforwards is subject to limitations under Section 382 of the Internal Revenue Code. This section generally relates to a more than 50 percent change in ownership over a three-year period. As a result of the Exchange Transaction, it is believed that a change in ownership for income tax purposes only has occurred as of December 28, 2018. As such, the annual utilization of our net operating losses generated prior to the ownership change is limited. Based on the estimated value of the Company prior to the Exchange Transaction, utilization of pre-ownership change net operating losses are subject to an annual limitation of approximately $7,564,000.

 

We provide for a valuation allowance when it is not considered “more likely than not” that our deferred tax assets will be realized. As of September 30, 2019, based on all available evidence, we have provided a valuation allowance against our total net deferred tax asset of $55,410,000 due to uncertainty as to the realization of our deferred tax assets during the carryforward periods.

 

ASC 740, Income Taxes, requires the reporting of certain tax positions that do not meet a threshold of “more-likely-than-not” to be recorded as uncertain tax benefits. It is management’s responsibility to determine whether it is “more-likely-than-not” that a tax position will be sustained upon examination, including resolution of any related appeals or litigation, based upon the technical merits of the position. Management has reviewed all income tax positions taken or expected to be taken and has determined that the income tax positions are appropriately stated and supported. We do not anticipate that the total unrecognized tax benefits will significantly change prior to December 31, 2019.

 

Under our accounting policies, interest and penalties on unrecognized tax benefits, as well as interest received from favorable tax settlements are recognized as components of income tax expense. At September 30, 2019 and December 31, 2018, we recorded no accrued interest or penalties related to uncertain tax positions.

 

Our income tax returns for tax years ended December 31, 2016 through 2018 remain open to examination by the Internal Revenue Service and various state taxing jurisdictions. Our income tax return for tax year ended December 31, 2015 also remains open to examination by various state taxing jurisdictions.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(16) Common Stock

 

In September 2014, we consummated an initial public offering of our common stock resulting in the sale of 800,000 shares of common stock at $12.50 per share, and net proceeds of approximately $8.6 million after the payment of underwriting commissions, discounts and expense reimbursements. In connection with this offering, we listed our common stock on the Nasdaq Capital Market under the ticker symbol “GWGH.”

 

In conjunction with the initial public offering, we issued warrants to purchase 16,000 shares of common stock at an exercise price of $15.63 per share. As of September 30, 2019, all of these warrants have expired and none of them had been exercised.

 

On August 10, 2018, the Company declared a special dividend of $4.30 per share of common stock payable to shareholders of record on August 27, 2018.

 

On December 28, 2018, the Series B converted into 5,000,000 shares of our common stock at a conversion price of $10.00 per share immediately following the Final Closing of the Exchange Transaction.

 

On December 28, 2018, in connection with the Exchange Transaction, we issued 22,013,516 shares of common stock to the Seller Trusts at a market value of approximately $203.4 million in exchange for BEN LP common units. The shares were offered and sold in reliance upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended.

 

The common shares issued to the Seller Trusts were initially subject to a Stockholders Agreement between GWG and the Seller Trusts, under which the Seller Trusts, as long as they own at least 10% of the voting shares of GWG, agree to vote their shares in proportion to the votes cast by all other voting securities of GWG. In addition, the Seller Trusts agree, for the period of one year after the Final Closing, not to seek or propose to influence or control the management, Board or policies of GWG. The Stockholders Agreement was terminated in connection with the closing of the Purchase and Contribution Transaction on April 26, 2019.

 

In addition, GWG and the Seller Trusts entered into a registration rights agreement and an orderly marketing agreement. Under these agreements, GWG and the Seller Trusts agreed to take steps to allow for the orderly marketing and resale of the common shares issued to Seller Trusts as part of the Exchange Transaction, and Seller Trusts agreed to sell their common shares of GWG only as permitted under these agreements.

 

On November 15, 2018, the Company’s Board of Directors approved a stock repurchase program pursuant to which the Company was permitted, from time to time, to purchase shares of its common stock for an aggregate purchase price not to exceed $1,500,000. Stock repurchases were able to be executed through various means, including, without limitation, open market transactions, privately negotiated transactions or otherwise. The stock repurchase program did not obligate the Company to purchase any shares, and expired on April 30, 2019.

 

The following table includes information about the stock repurchase program for the nine months ended September 30, 2019:

 

Monthly Period		Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of the Program				Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program
January 2019			42,488			$	8.47				52,523			$	1,072,000
February 2019			202				8.88				52,725				1,070,000
March 2019			—				—				—				—
April 2019			—				—				—				—
May 2019			—				—				—				—
June 2019			—				—				—				—
July 2019			—				—				—				—
August 2019			—				—				—				—
September 2019			—				—				—				—
Total			42,690			$	8.47				52,725			$	1,070,000	(1)

 

(1)

The stock repurchase program expired on April 30, 2019.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(17) Stock Incentive Plan

 

We adopted our 2013 Stock Incentive Plan in March 2013, as amended on June 1, 2015, May 5, 2017 and May 8, 2018. The Stock Option Sub-Committee of our Compensation Committee of our Board of Directors is responsible for the administration of the plan. Participants under the plan may be granted incentive stock options and non-statutory stock options; stock appreciation rights; stock awards; restricted stock; restricted stock units; and performance shares. Eligible participants include officers and employees of GWG Holdings and its subsidiaries, members of our Board of Directors, and consultants. Option awards generally expire 10 years from the date of grant. As of September 30, 2019, 6,000,000 of our common stock options are authorized under the plan, of which 2,482,452 shares were reserved for issuance under outstanding incentive awards and 3,517,548 shares remain available for future grants.

 

Stock Options

 

As of September 30, 2019, we had outstanding stock options for 888,000 shares of common stock to employees, officers, and directors under the plan. Options for 665,000 shares have vested and the remaining options are scheduled to vest over three years. The options were issued with an exercise price between $4.83 and $11.56, which is equal to the market price of the shares on the date of grant. As of September 30, 2019, stock options for 1,164,000 shares had been forfeited and stock options for 775,000 shares had been exercised. The total intrinsic value of stock options exercised during the three months ended September 30, 2019 was $36,000. The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2019 was $1,145,000 and $891,000, respectively.

 

Outstanding stock options:

 

		Vested				Unvested				Total
Balance as of December 31, 2017			857,192				779,756				1,636,948
Granted during the year			63,950				314,000				377,950
Vested during the year			503,503				(503,503	)			—
Exercised during the year			(569,864	)			—				(569,864	)
Forfeited during the year			(21,582	)			(25,501	)			(47,083	)
Balance as of December 31, 2018			833,199				564,752				1,397,951
Granted during the period			—				—				—
Vested during the period			182,053				(182,053	)			—
Exercised during the period			(50,685	)			—				(50,685	)
Forfeited during the period			(299,883	)			(158,936	)			(458,819	)
Balance as of September 30, 2019			664,684				223,763				888,447

 

As of September 30, 2019, unrecognized compensation expense related to unvested options is $515,000. We expect to recognize this compensation expense over the next three years: $85,000 in 2019, $302,000 in 2020, and $128,000 in 2021.

 

Stock Appreciation Rights (SARs)

 

As of September 30, 2019, we had outstanding SARs for 288,000 shares of common stock to employees. The strike price of the SARs was between $6.75 and $11.55, which was equal to the market price of the common stock at the date of issuance. SARs vest over varying terms of up to three years. As of September 30, 2019, 178,000 of the SARs were vested and 169,000 have been exercised. On September 30, 2019, the market price of GWG’s common stock was $9.98.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Outstanding SARs:

 

		Vested				Unvested				Total
Balance as of December 31, 2017			189,053				153,919				342,972
Granted during the year			2,625				111,025				113,650
Vested during the year			71,785				(71,785	)			--
Exercised during the year			(145,622	)			—				(145,622	)
Forfeited during the year			—				(39,235	)			(39,235	)
Balance as of December 31, 2018			117,841				153,924				271,765
Granted during the period			4,250				43,150				47,400
Vested during the period			79,150				(79,150	)			—
Exercised during the period			(23,448	)			—				(23,448	)
Forfeited during the period			—				(7,592	)			(7,592	)
Balance as of September 30, 2019			177,793				110,332				288,125

 

The liability for the SARs as of September 30, 2019 and December 31, 2018 was $557,000 and $349,000, respectively, and was recorded within other accrued expenses on the condensed consolidated balance sheets. Remaining compensation expense is expected to be recognized over the next three years. Employee compensation and benefits expense for SARs of $327,000 and $25,000 was recorded for the three months ending September 30, 2019 and 2018, respectively, and $323,000 and $15,000 was recorded for the nine months ended September 30, 2019 and 2018, respectively.

 

Upon the exercise of SARs, the Company is obligated to make cash payment equal to the positive difference between the market value of the Company’s common stock on the date of exercise less the market value of the common stock on the date of grant.

 

The following summarizes information concerning outstanding shares issuable under the 2013 Stock Incentive Plan:

 

		September 30, 2019
		Outstanding				Weighted- Average Exercise Price				Weighted- Average Remaining Life (years)				Fair Value at Grant Date
Vested
Stock Options			664,684			$	8.88				7.05			$	2.21
SARs			177,793			$	8.78				4.68			$	2.07
Total Vested			842,477			$	8.86				6.55			$	2.18
Unvested
Stock Options			223,763			$	9.47				8.47			$	2.56
SARs			110,332			$	9.57				5.79			$	2.48
Total Unvested			334,095			$	9.50				7.58			$	2.53

 

		December 31, 2018
		Outstanding				Weighted- Average Exercise Price				Weighted- Average Remaining Life (years)				Fair Value at Grant Date
Vested
Stock Options			833,199			$	8.88				5.95			$	2.02
SARs			117,841			$	8.88				5.02			$	2.02
Total Vested			951,040			$	8.88				5.83			$	2.02
Unvested
Stock Options			564,752			$	9.15				7.88			$	2.35
SARs			153,924			$	8.37				5.98			$	2.09
Total Unvested			718,676			$	8.98				7.47			$	2.30

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Restricted Stock Units 

 

A restricted stock unit (“RSU”) entitles the holder thereof to receive one share of our common stock (or, in some circumstances, the cash value thereof) upon vesting. RSUs are subject to forfeiture until they vest. As of September 30, 2019, we had outstanding RSUs for 244,083 shares of common stock (based on target grant amounts) held by employees and directors under the plan, of which none were vested. On June 18, 2019, we granted an aggregate of 114,366 RSUs to our directors, which RSUs are subject to time-based vesting and are scheduled to vest in their entirety on the one year anniversary of the grant date subject to the holder continuously remaining a director or employee of, or a consultant to, GWG or one of its subsidiaries through such date. On May 31, 2019, we granted RSUs to our Chief Executive Officer that are subject to performance-based vesting pursuant to a performance share unit agreement (“PSU Agreement”). The PSU Agreement provides for a target award grant of 129,717 RSUs, and up to a maximum of 259,434 RSUs, with each representing the right to receive one share of our common stock (or, following a Change-in-Control Transaction (as defined in the PSU Agreement), the cash value thereof) upon vesting, which is generally subject to the satisfaction of performance goals over a performance period commencing on April 26, 2019 and ending on December 31, 2021.

 

In the three months ended September 30, 2019, a total of 375,000 RSUs held by employees vested entitling the holders thereof, collectively, to cash payments totaling $4.5 million. Additionally, during the nine months ended September 30, 2019, 53,403 RSUs vested and 26,701 shares of common stock were issued to employees, net of shares forfeited to satisfy tax withholding obligations.

 

(18) Other Expenses

 

The components of other expenses in our condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 are as follows:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Contract Labor		$	533,000			$	359,000			$	1,345,000			$	964,000
Marketing			408,000				413,000				1,229,000				1,343,000
Information Technology			529,000				432,000				1,513,000				1,208,000
Servicing and Facility Fees			450,000				382,000				1,313,000				1,244,000
Travel and Entertainment			321,000				204,000				823,000				650,000
Insurance and Regulatory			586,000				401,000				4,426,000				1,120,000
General and Administrative			722,000				498,000				1,666,000				1,733,000
Total Other Expenses		$	3,549,000			$	2,689,000			$	12,315,000			$	8,262,000

 

(19) Net Loss Attributable to Common Shareholders

 

We have outstanding RPS and RPS 2, as described in Notes 12 and 13. RPS and RPS 2 are anti-dilutive to our net loss attributable to common shareholders calculation for both the three and nine months ended September 30, 2019 and 2018. Our warrants, vested and unvested stock options and restricted stock units are also anti-dilutive for both the three and nine months ended September 30, 2019 and 2018.

 

(20) Segment Reporting

 

GWG has two reportable segments consisting of Secondary Life Insurance and Investment in Beneficient. In addition, the Company reports certain of its results of operations in Corporate & Other. The Secondary Life Insurance segment seeks to earn non-correlated yield from our portfolio of life insurance policies. Our Investment in Beneficient segment consists of our investment in the common units of BEN LP, which we account for using the equity method, and related assets and liabilities. Beneficient provides a variety of trust services, liquidity products and loans for alternative assets and illiquid investment funds, and other financial services to mid-to-high net worth individuals. The Corporate & Other category consists of unallocated corporate overhead and administrative costs and the operations of operating segments that do not meet the quantitative criteria to be separately reported. 

 

These segments are differentiated by the products and services they offer as well as by the information used by the Company’s chief operating decision maker to determine allocation of resources and assess performance.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Earnings before taxes (“EBT”) is the measure of profitability used by management to assess performance of its segments and allocate resources. Segment EBT represents net income (loss) excluding income taxes and includes earnings (loss) from equity method investments. Equity method investments and related earnings are allocated to the Investment in Beneficient segment.

 

Summarized financial information for the Company’s reportable segments is presented for the periods indicated:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Revenue:		2019				2018				2019				2018
Secondary Life Insurance		$	18,238,000			$	16,388,000			$	61,199,000			$	55,054,000
Investment in Beneficient			3,709,000				4,284,000				9,723,000				4,284,000
Corporate & Other			264,000				265,000				516,000				456,000
Total		$	22,211,000			$	20,937,000			$	71,438,000			$	59,794,000

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Segment EBT:		2019				2018				2019				2018
Secondary Life Insurance		$	(9,169,000	)		$	(4,932,000	)		$	(19,792,000	)		$	(4,256,000	)
Investment in Beneficient			(2,214,000	)			-				(11,286,000	)			-
Corporate & Other			(9,020,000	)			(5,590,000	)			(25,270,000	)			(15,502,000	)
Total			(20,403,000	)			(10,522,000	)			(56,348,000	)			(19,758,000	)
Income tax benefit			-				-				-				-
Net Loss		$	(20,403,000	)		$	(10,522,000	)		$	(56,348,000	)		$	(19,758,000	)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Interest Expense:		2019				2018				2019				2018
Secondary Life Insurance		$	21,410,000			$	17,514,000			$	63,114,000			$	50,725,000
Investment in Beneficient			6,880,000				4,284,000				20,638,000				4,284,000
Corporate & Other			-				1,000				-				2,000
Total		$	28,290,000			$	21,799,000			$	83,752,000			$	55,011,000

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Interest Income:		2019				2018				2019				2018
Secondary Life Insurance		$	226,000			$	553,000			$	1,594,000			$	1,663,000
Investment in Beneficient			3,709,000				4,284,000				9,678,000				4,284,000
Corporate & Other			-				39,000				4,000				173,000
Total		$	3,935,000			$	4,876,000			$	11,276,000			$	6,120,000

 

		September 30,				December 31,
Total Assets:		2019				2018
Secondary Life Insurance		$	903,726,000			$	889,665,000
Investment in Beneficient			650,444,000				584,173,000
Corporate & Other			6,831,000				7,029,000
Total		$	1,561,001,000			$	1,480,867,000

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(21) Leases

 

We are party to an office lease with U.S. Bank National Association as the landlord. On September 1, 2015, we entered into an amendment to our original lease that expanded the leased space to 17,687 square feet and extended the term through October 2025. Under the amended lease, we are obligated to pay base rent plus common area maintenance and a share of building operating costs. This lease is accounted for as an operating lease. We lease various other facilities on a short-term basis.

 

The lease assets and liabilities are as follows:

 

				September 30,
Leases		Classification		2019
Operating lease right-of-use assets		Other assets		$	852,000
Operating lease liabilities		Other accrued expenses		$	1,498,000

 

Total lease costs recognized for the three and nine months ended September 30, 2019 were $108,000 and $355,000, respectively, and $119,000 and $334,000 for the three and nine months ended September 30, 2018, respectively. These amounts included operating lease costs of $50,000 and $149,000, variable lease costs of $49,000 and $159,000, and short term lease costs of $9,000 and $47,000 for the three months and nine months ended September 30, 2019, respectively. The remaining lease term at September 30, 2019 was 6.0 years and the discount rate was 6.96%. For the three and nine months ended September 30, 2019, cash paid for amounts included in the measurement of operating lease liabilities and included in operating cash flows totaled $68,000 and $205,000, respectively.

 

Maturities of operating lease liabilities as of September 30, 2019 are as follows:

 

Remaining 2019		$	70,000
2020			284,000
2021			293,000
2022			302,000
2023			311,000
Thereafter			593,000
Total lease payments			1,853,000
Less: imputed interest			(355,000	)
Present value of lease liabilities		$	1,498,000

 

The minimum aggregate operating lease commitments as of December 31, 2018 as reported under previous lease accounting standards were as follows:

 

2019		$	275,000
2020			284,000
2021			293,000
2022			302,000
2023			311,000
Thereafter			593,000
		$	2,058,000

 

(22) Contingencies

 

Litigation — In the normal course of business, we are involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on our financial position, results of operations or cash flows.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(23) Guarantee of L Bonds and Seller Trust L Bonds

 

Our L Bonds are offered and sold under a registration statement declared effective by the SEC, as described in Note 10, and we have issued Seller Trust L Bonds under a Supplemental Indenture, as described in Note 11. The L Bonds and Seller Trust L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all our common stock held by BCC and AltiVerse (which together represent approximately 12% of our outstanding common stock), and by a guarantee and corresponding grant of a security interest in substantially all the assets of GWG Life⁽¹⁾. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds and Seller Trust L Bonds. GWG Life’s assets, including its equity in DLP IV⁽²⁾ and its beneficial interest in Life Trust, serve as collateral for our L Bond and Seller Trust L Bond obligations. The life insurance policies held by DLP IV and Life Trust, which comprise a substantial majority of our life insurance policies, do not serve as direct collateral for the L Bonds. Further, the life insurance policies held by DLP IV are pledged as direct collateral securing the obligations under our amended and restated senior credit facility with LNV Corporation.

 

(1)

The Seller Trust L Bonds (see Note 11) are senior secured obligations of GWG, ranking junior to all senior debt of GWG (see Note 9), and pari passu in right of payment and in respect of collateral with all L Bonds of GWG (see Note 10). Payments under the Seller Trust L Bonds are guaranteed by GWG Life. The assets exchanged in the Exchange Transaction are available as collateral for all holders of the L Bonds and Seller Trust L Bonds. Specifically, the common units of BEN LP and the Option Agreement are held by GWG Holdings and the Commercial Loan is held by GWG Life.

 

(2)

The terms of our amended and restated senior credit facility with LNV Corporation require that we maintain a significant excess of pledged collateral value over the amount outstanding on the amended and restated senior credit facility at any given time. Any excess equity value of DLP IV after satisfying all amounts owing under our amended and restated senior credit facility is available as collateral for the L Bonds (including the Seller Trust L Bonds).

 

The following represents consolidating financial information as of September 30, 2019 and December 31, 2018, with respect to the financial position, and as of September 30, 2019 and 2018, with respect to results of operations and cash flows of GWG Holdings and its subsidiaries. The parent column presents the financial information of GWG Holdings, the primary obligor for the L Bonds and Seller Trust L Bonds. The guarantor subsidiary column presents the financial information of GWG Life, the guarantor subsidiary of the L Bonds and Seller Trust L Bonds, presenting its investment in DLP IV and the Trust under the equity method. The non-guarantor subsidiaries column presents the financial information of all non-guarantor subsidiaries, including DLP IV and Life Trust.

  

For the three and nine months ended September 30, 2018, we reclassified certain intercompany funding outflows from operating cash flows to investing cash flows in the condensed consolidating statement of cash flows in this guarantor footnote. This had the effect of increasing cash flows from operations for the parent for the three and nine months ended September 30, 2018 by $59.6 million and $136.6 million, respectively, and for the guarantor for the three and nine months ended September 30, 2018 by $47.3 million and $112.8 million, respectively, and decreasing cash flow from investing activities by these amounts, compared to previous presentation. Presentation of consolidated results in the condensed consolidated financial statements were not affected by these reclassifications. Presentation of the condensed consolidating balance sheets and condensed consolidating statements of operations in this guarantor footnote were not affected by these reclassifications. 

  

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Balance Sheets

 

September 30, 2019		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Cash and cash equivalents		$	61,701,804			$	2,605,365			$	1,373,295			$	—			$	65,680,464
Restricted cash			—				1,177,630				7,027,075				—				8,204,705
Investment in life insurance policies, at fair value			—				106,329,394				701,188,694				—				807,518,088
Life insurance policy benefits receivable, net			—				961,200				16,407,976				—				17,369,176
Financing receivables from affiliates			—				241,185,081				—				—				241,185,081
Equity method investment			370,652,128				—				—				—				370,652,128
Other assets			43,810,955				2,433,192				4,147,164				—				50,391,311
Investment in subsidiaries			944,560,782				592,688,454				—				(1,537,249,236	)			—
TOTAL ASSETS		$	1,420,725,669			$	947,380,316			$	730,144,204			$	(1,537,249,236	)		$	1,561,000,953
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation		$	—			$	(329,050	)		$	132,046,570			$	—			$	131,717,520
L Bonds			830,341,949				—				—				—				830,341,949
Seller Trust L Bonds			366,891,940				—				—				—				366,891,940
Accounts payable			1,353,654				927,306				289,882				—				2,570,842
Interest and dividends payable			13,273,621				—				3,452,723				—				16,726,344
Other accrued expenses			2,812,483				3,006,986				880,867				—				6,700,336
TOTAL LIABILITIES			1,214,673,647				3,605,242				136,670,042				—				1,354,948,931
STOCKHOLDERS’ EQUITY
Member capital			—				943,775,074				593,474,162				(1,537,249,236	)			—
Redeemable preferred stock and Series 2 redeemable preferred stock			209,817,500				—				—				—				209,817,500
Common stock			33,033				—				—				—				33,033
Additional paid-in capital			237,159,909				—				—				—				237,159,909
Accumulated deficit			(240,958,420	)			—				—				—				(240,958,420	)
TOTAL STOCKHOLDERS’ EQUITY			206,052,022				943,775,074				593,474,162				(1,537,249,236	)			206,052,022
TOTAL LIABILITIES AND EQUITY		$	1,420,725,669			$	947,380,316			$	730,144,204			$	(1,537,249,236	)		$	1,561,000,953

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Balance Sheets (continued)

 

December 31, 2018		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
ASSETS
Cash and cash equivalents		$	113,293,682			$	232,387			$	1,061,015			$	—			$	114,587,084
Restricted cash			—				7,217,194				3,631,932				—				10,849,126
Investment in life insurance policies, at fair value			—				92,336,494				655,585,971				—				747,922,465
Life insurance policy benefits receivable, net			—				5,000,000				11,460,687				—				16,460,687
Financing receivables from affiliates			—				184,768,874				—				—				184,768,874
Equity method investment			360,841,651				—				—				—				360,841,651
Other assets			42,944,402				1,730,581				762,181				—				45,437,164
Investment in subsidiaries			799,182,251				510,865,003				—				(1,310,047,254	)			—
TOTAL ASSETS		$	1,316,261,986			$	802,150,533			$	672,501,786			$	(1,310,047,254	)		$	1,480,867,051
LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES
Senior credit facility with LNV Corporation		$	—			$	—			$	148,977,596			$	—			$	148,977,596
L Bonds			651,402,663				—				—				—				651,402,663
Seller Trust L Bonds			366,891,940				—				—				—				366,891,940
Accounts payable			1,126,327				1,674,494				6,475,686				—				9,276,507
Interest and dividends payable			14,047,248				—				4,508,045				—				18,555,293
Other accrued expenses			1,735,926				1,593,108				1,376,136				—				4,705,170
TOTAL LIABILITIES			1,035,204,104				3,267,602				161,337,463				—				1,199,809,169
STOCKHOLDERS’ EQUITY
Member capital			—				798,882,931				511,164,323				(1,310,047,254	)			—
Redeemable preferred stock and Series 2 redeemable preferred stock			215,973,039				—				—				—				215,973,039
Common stock			33,018				—				—				—				33,018
Additional paid-in capital			249,662,168				—				—				—				249,662,168
Accumulated deficit			(184,610,343	)			—				—				—				(184,610,343	)
TOTAL STOCKHOLDERS’ EQUITY			281,057,882				798,882,931				511,164,323				(1,310,047,254	)			281,057,882
TOTAL LIABILITIES AND EQUITY		$	1,316,261,986			$	802,150,533			$	672,501,786			$	(1,310,047,254	)		$	1,480,867,051

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Operations

 

For the three months ended September 30, 2019		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUE
Gain (loss) on life insurance policies, net		$	—			$	2,231,897			$	15,560,427			$	—			$	17,792,324
Interest and other income			257,050				3,825,547				336,058				—				4,418,655
TOTAL REVENUE			257,050				6,057,444				15,896,485				—				22,210,979
EXPENSES
Interest expense			24,573,192				—				3,716,478				—				28,289,670
Employee compensation and benefits			6,374,457				2,080,646				681,721				—				9,136,824
Legal and professional fees			1,816,531				297,254				480,682				—				2,594,467
Other expenses			2,094,036				586,601				868,628				—				3,549,265
TOTAL EXPENSES			34,858,216				2,964,501				5,747,509				—				43,570,226
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES			(34,601,166	)			3,092,943				10,148,976				—				(21,359,247	)
EQUITY IN INCOME OF SUBSIDIARIES			13,241,919				11,448,079				—				(24,689,998	)			—
INCOME (LOSS) BEFORE INCOME TAXES			(21,359,247	)			14,541,022				10,148,976				(24,689,998	)			(21,359,247	)
INCOME TAX EXPENSE (BENEFIT)			—				—				—				—				—
NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT			(21,359,247	)			14,541,022				10,148,976				(24,689,998	)			(21,359,247	)
Earnings (loss) from equity method investment			955,751				—				—				—				955,751
NET INCOME (LOSS)			(20,403,496	)			14,541,022				10,148,976				(24,689,998	)			(20,403,496	)
Preferred stock dividends			4,231,641				—				—				—				4,231,641
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(24,635,137	)		$	14,541,022			$	10,148,976			$	(24,689,998	)		$	(24,635,137	)

 

For the three months ended September 30, 2018		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUE
Gain on life insurance policies, net		$	—			$	4,122,153			$	11,599,360			$	—			$	15,721,513
Interest and other income			3,333,424				1,700,414				181,677				—				5,215,515
TOTAL REVENUE			3,333,424				5,822,567				11,781,037				—				20,937,028
EXPENSES
Interest expense			16,739,120				—				5,060,212				—				21,799,332
Employee compensation and benefits			2,292,251				3,086,682				169,838				—				5,548,771
Legal and professional fees			483,512				221,613				716,839				—				1,421,964
Other expenses			1,590,823				455,800				642,347				—				2,688,970
TOTAL EXPENSES			21,105,706				3,764,095				6,589,236				—				31,459,037
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES			(17,772,282	)			2,058,472				5,191,801				—				(10,522,009	)
EQUITY IN INCOME OF SUBSIDIARIES			7,250,273				6,266,481				—				(13,516,754	)			—
INCOME (LOSS) BEFORE INCOME TAXES			(10,522,009	)			8,324,953				5,191,801				(13,516,754	)			(10,522,009	)
INCOME TAX EXPENSE (BENEFIT)			—				—				—				—				—
NET INCOME (LOSS)			(10,522,009	)			8,324,953				5,191,801				(13,516,754	)			(10,522,009	)
Preferred stock dividends			4,313,542				—				—				—				4,313,542
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(14,835,551	)		$	8,324,953			$	5,191,801			$	(13,516,754	)		$	(14,835,551	)

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Operations (continued)

 

For the nine months ended September 30, 2019		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUE
Gain (loss) on life insurance policies, net		$	—			$	6,783,129			$	52,435,403			$	—			$	59,218,532
Interest and other income			1,438,068				9,852,224				929,470				—				12,219,762
TOTAL REVENUE			1,438,068				16,635,353				53,364,873				—				71,438,294
EXPENSES
Interest expense			71,753,380				—				11,998,231				—				83,751,611
Employee compensation and benefits			13,991,440				5,791,512				1,301,863				—				21,084,815
Legal and professional fees			6,146,443				1,212,791				2,903,996				—				10,263,230
Other expenses			8,548,645				1,549,259				2,217,530				—				12,315,434
TOTAL EXPENSES			100,439,908				8,553,562				18,421,620				—				127,415,090
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES			(99,001,840	)			8,081,791				34,943,253				—				(55,976,796	)
EQUITY IN INCOME OF SUBSIDIARIES			43,025,044				39,802,437				—				(82,827,481	)			—
INCOME (LOSS) BEFORE INCOME TAXES			(55,976,796	)			47,884,228				34,943,253				(82,827,481	)			(55,976,796	)
INCOME TAX EXPENSE (BENEFIT)			—				—				—				—				—
NET INCOME (LOSS) BEFORE EARNINGS (LOSS) FROM EQUITY METHOD INVESTMENT			(55,976,796	)			47,884,228				34,943,253				(82,827,481	)			(55,976,796	)
Earnings (loss) from equity method investment			(371,281	)			—				—				—				(371,281	)
NET INCOME (LOSS)			(56,348,077	)			47,884,228				34,943,253				(82,827,481	)			(56,348,077	)
Preferred stock dividends			12,806,173				—				—				—				12,806,173
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(69,154,250	)		$	47,884,228			$	34,943,253			$	(82,827,481	)		$	(69,154,250	)

 

For the nine months ended September 30, 2018		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiaries				Eliminations				Consolidated
REVENUE
Gain (loss) on life insurance policies, net		$	—			$	12,135,832			$	40,794,176			$	—			$	52,930,008
Interest and other income			4,447,322				1,726,938				689,380				—				6,863,640
TOTAL REVENUE			4,447,322				13,862,770				41,483,556				—				59,793,648
EXPENSES
Interest expense			38,758,326				—				16,252,193				—				55,010,519
Employee compensation and benefits			5,629,344				5,881,219				1,016,576				—				12,527,139
Legal and professional fees			1,290,614				688,003				1,772,704				—				3,751,321
Other expenses			5,082,525				1,397,314				1,782,485				—				8,262,324
TOTAL EXPENSES			50,760,809				7,966,536				20,823,958				—				79,551,303
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES			(46,313,487	)			5,896,234				20,659,598				—				(19,757,655	)
EQUITY IN INCOME OF SUBSIDIARIES			26,555,832				23,824,330				—				(50,380,162	)			—
INCOME (LOSS) BEFORE INCOME TAXES			(19,757,655	)			29,720,564				20,659,598				(50,380,162	)			(19,757,655	)
INCOME TAX EXPENSE (BENEFIT)			—				—				—				—				—
NET INCOME (LOSS)			(19,757,655	)			29,720,564				20,659,598				(50,380,162	)			(19,757,655	)
Preferred stock dividends			12,356,513				—				—				—				12,356,513
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		$	(32,114,168	)		$	29,720,564			$	20,659,598			$	(50,380,162	)		$	(32,114,168	)

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Cash Flows

 

For the three months ended September 30, 2019		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiary				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(20,403,496	)		$	14,541,022			$	10,148,976			$	(24,689,998	)		$	(20,403,496	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Equity of subsidiaries			(13,241,919	)			(11,448,079	)			—				24,689,998				—
Change in fair value of life insurance policies			—				(2,251,068	)			(11,929,902	)			—				(14,180,970	)
Amortization of deferred financing and issuance costs			3,196,852				—				263,755				—				3,460,607
Accretion of discount on financing receivables from affiliates			—				(427,914	)			—				—				(427,914	)
Provision for uncollectible policy benefits receivable			—				—				200,897				—				200,897
(Earnings) Loss from equity method investment			(955,751	)			—				—				—				(955,751	)
Stock-based compensation			700,688				—				—				—				700,688
(Increase) decrease in operating assets:
Life insurance policy benefits receivable			—				570,197				(12,563,873	)			—				(11,993,676	)
Accrued interest on financing receivables			—				(2,078,175	)			—				—				(2,078,175	)
Other assets			517,880				(201,431	)			73,734				—				390,183
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses			(3,366,349	)			649,937				(962,907	)			—				(3,679,319	)
NET CASH FLOWS USED IN OPERATING ACTIVITIES			(33,552,095	)			(645,511	)			(14,769,320	)			—				(48,966,926	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies			—				—				(710,863	)			—				(710,863	)
Carrying value of matured life insurance policies			—				1,347,089				5,292,830				—				6,639,919
Financing receivables from affiliates issued			—				—				—				—				—
Equity method investment acquired			—				—				—				—				—
Payment of capital contributions			(497,879	)			(9,715,465	)			—				10,213,344				—
NET CASH FLOWS USED IN INVESTING ACTIVITIES			(497,879	)			(8,368,376	)			4,581,967				10,213,344				5,929,056
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt			—				—				3,937,020				—				3,937,020
Repayments of senior debt			—				—				(2,079,600	)			—				(2,079,600	)
Proceeds from issuance of L Bonds			107,012,114				—				—				—				107,012,114
Payments for issuance and redemptions of L Bonds			(61,679,235	)			—				—				—				(61,679,235	)
Issuance (repurchase) of common stock			—				—				—				—				—
Payments for redemption of preferred stock			(2,920,292	)			—				—				—				(2,920,292	)
Preferred stock dividends			(4,231,641	)			—				—				—				(4,231,641	)
Issuance of member capital			—				(1,010,542	)			11,223,886				(10,213,344	)			—
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES			38,180,946				(1,010,542	)			13,081,306				(10,213,344	)			40,038,366
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			4,130,972				(10,024,429	)			2,893,953				—				(2,999,504	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD			57,570,832				13,807,424				5,506,417				—				76,884,673
END OF PERIOD		$	61,701,804			$	3,782,995			$	8,400,370			$	—			$	73,885,169

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Cash Flows (continued)

 

For the three months ended September 30, 2018		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiary				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(10,522,009	)		$	8,324,953			$	5,191,801			$	(13,516,754	)		$	(10,522,009	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Equity of subsidiaries			(7,250,273	)			(6,266,481	)			—				13,516,754				—
Change in fair value of life insurance policies			—				(3,485,452	)			(21,354,115	)			—				(24,839,567	)
Amortization of deferred financing and issuance costs			2,311,567				—				263,755				—				2,575,322
Amortization of discount or premium on financing receivables			251,672				(251,672	)			—				—				—
Stock-based compensation			528,461				—				—				—				528,461
(Increase) decrease in operating assets:
Accrued interest on financing receivables			(2,839,926	)			(1,444,444	)			—				—				(4,284,370	)
Life insurance policy benefits receivable			—				(2,000,000	)			18,562,304				—				16,562,304
Other assets			(82,158	)			98,900				305,226				—				321,968
Increase (decrease) in operating liabilities:
Account payable and other accrued expenses			2,931,894				(384,380	)			(1,157,273	)			—				1,390,241
NET CASH FLOWS USED IN OPERATING ACTIVITIES			(14,670,772	)			(5,408,576	)			1,811,698				—				(18,267,650	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies			—				(11,368,457	)			(31,523,307	)			—				(42,891,764	)
Carrying value of matured life insurance policies			—				669,349				1,656,640				—				2,325,989
Equity method investment acquired			(1,421,059	)			—				—				—				(1,421,059	)
Payment of capital contributions			(59,567,886	)			(47,346,065	)			—				106,913,951				—
NET CASH FLOWS USED IN INVESTING ACTIVITIES			(60,988,945	)			(58,045,173	)			(29,866,667	)			106,913,951				(41,986,834	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt			—				—				—				—				—
Repayments of senior debt			—				—				(18,425,136	)			—				(18,425,136	)
Proceeds from issuance of L Bonds			68,884,369				—				—				—				68,884,369
Payments for issuance and redemptions of L Bonds			(20,195,657	)			—				—				—				(20,195,657	)
Issuance (redemption) of common stock			682,954				—				—				—				682,954
Common stock dividends			(25,709,412	)			—				—				—				(25,709,412	)
Proceeds from issuance of convertible preferred stock			50,000,000				—				—				—				50,000,000
Payments for redemption of preferred stock			(821,778	)			—				—				—				(821,778	)
Preferred stock dividends			(4,313,542	)			—				—				—				(4,313,542	)
Issuance of member capital			—				58,589,352				48,324,599				(106,913,951	)			—
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			68,526,934				58,589,352				29,899,463				(106,913,951	)			50,101,798
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(7,132,783	)			(4,864,397	)			1,844,494				—				(10,152,686	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD			123,017,408				6,195,102				1,883,603				—				131,096,113
END OF PERIOD		$	115,884,625			$	1,330,705			$	3,728,097			$	—			$	120,943,427

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Cash Flows (continued)

 

For the nine months ended September 30, 2019		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiary				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(56,348,077	)		$	47,884,228			$	34,943,253			$	(82,827,481	)		$	(56,348,077	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Equity of subsidiaries			(43,025,044	)			(39,802,437	)			—				82,827,481				—
Change in fair value of life insurance policies			—				(8,713,865	)			(39,317,330	)			—				(48,031,195	)
Amortization of deferred financing and issuance costs			9,191,110				—				791,265				—				9,982,375
Accretion of discount on financing receivables from affiliates			—				(1,292,434	)			—				—				(1,292,434	)
Provision for uncollectible policy benefit receivable			—				—				200,897				—				200,897
(Earnings) Loss from equity method investment			371,281				—				—				—				371,281
Stock-based compensation			1,365,219				—				—				—				1,365,219
(Increase) decrease in operating assets:
Life insurance policy benefits receivable			—				4,038,800				(5,148,186	)			—				(1,109,386	)
Accrued interest on financing receivables			—				(5,123,774	)			—				—				(5,123,774	)
Other assets			(1,048,310	)			(112,467	)			(3,395,677	)			—				(4,556,454	)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued expenses			(443,269	)			(252,502	)			(7,736,395	)			—				(8,432,166	)
NET CASH FLOWS USED IN OPERATING ACTIVITIES			(89,937,090	)			(3,374,451	)			(19,662,173	)			—				(112,973,714	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies			—				(8,682,044	)			(23,567,353	)			—				(32,249,397	)
Carrying value of matured life insurance policies			—				3,403,008				17,281,959				—				20,684,967
Financing receivables from affiliates issued			—				(50,000,000	)			—				—				(50,000,000	)
Equity method investment acquired			(10,000,000	)			—				—				—				(10,000,000	)
Payment of capital contributions			(102,353,486	)			(42,021,014	)			—				144,374,500				—
NET CASH FLOWS USED IN INVESTING ACTIVITIES			(112,353,486	)			(97,300,050	)			(6,285,394	)			144,374,500				(71,564,430	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt			—				—				3,937,020				—				3,937,020
Repayments of senior debt			—				—				(21,648,615	)			—				(21,648,615	)
Proceeds from issuance of L Bonds			278,238,656				—				—				—				278,238,656
Payments for issuance and redemptions of L Bonds			(108,656,765	)			—				—				—				(108,656,765	)
Issuance (repurchase) of common stock			57,518				—				—				—				57,518
Payments for redemption of preferred stock			(6,134,538	)			—				—				—				(6,134,538	)
Preferred stock dividends			(12,806,173	)			—				—				—				(12,806,173	)
Issuance of member capital			—				97,007,915				47,366,585				(144,374,500	)			—
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			150,698,698				97,007,915				29,654,990				(144,374,500	)			132,987,103
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(51,591,878	)			(3,666,586	)			3,707,423				—				(51,551,041	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD			113,293,682				7,449,581				4,692,947				—				125,436,210
END OF PERIOD		$	61,701,804			$	3,782,995			$	8,400,370			$	—			$	73,885,169

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Cash Flows (continued)

 

For the nine months ended September 30, 2018		Parent				Guarantor Subsidiary				Non-Guarantor Subsidiary				Eliminations				Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	(19,757,655	)		$	29,720,564			$	20,659,598			$	(50,380,162	)		$	(19,757,655	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Equity of subsidiaries			(26,555,832	)			(23,824,330	)			—				50,380,162				—
Change in fair value of life insurance policies			—				(9,691,293	)			(46,367,043	)			—				(56,058,336	)
Amortization of deferred financing and issuance costs			6,450,018				—				791,265				—				7,241,283
Amortization of discount or premium on financing receivables			251,672				(251,672	)			—				—				—
Stock-based compensation			788,865				—				—				—				788,865
(Increase) decrease in operating assets:
Accrued interest on financing receivable			(2,839,926	)			(1,444,444	)			—				—				(4,284,370	)
Life insurance policy benefits receivable			—				(1,300,000	)			7,486,065				—				6,186,065
Other assets			(2,477,789	)			164,028				826,523				—				(1,487,238	)
Increase (decrease) in operating liabilities:
Account payable and other accrued expenses			3,832,942				(365,125	)			(3,341,098	)			—				126,719
NET CASH FLOWS USED IN OPERATING ACTIVITIES			(40,307,705	)			(6,992,272	)			(19,944,690	)			—				(67,244,667	)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in life insurance policies			—				(26,916,457	)			(71,524,071	)			—				(98,440,528	)
Carrying value of matured life insurance policies			—				2,623,779				10,933,853				—				13,557,632
Equity method investment acquired			(1,421,059	)			—				—				—				(1,421,059	)
Payment of capital contributions			(136,620,599	)			(112,777,113	)			—				249,397,712				—
NET CASH FLOWS USED IN INVESTING ACTIVITIES			(138,041,658	)			(137,069,791	)			(60,590,218	)			249,397,712				(86,303,955	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on senior debt			—				—				12,903,166				—				12,903,166
Repayments of senior debt			—				—				(63,463,452	)			—				(63,463,452	)
Proceeds from issuance of L Bonds			166,081,914				—				—				—				166,081,914
Payments for issuance and redemptions of L Bonds			(46,151,926	)			—				—				—				(46,151,926	)
Issuance (redemption) of common stock			682,954				—				—				—				682,954
Common stock dividends			(25,709,412	)			—				—				—				(25,709,412	)
Proceeds from issuance of convertible preferred stock			50,000,000																50,000,000
Proceeds from issuance of redeemable preferred stock			56 ,238,128				—				—				—				56 ,238,128
Payments for issuance of preferred stock			(4,142,294	)			—				—				—				(4,142,294	)
Payments for redemption of preferred stock			(2,361,692	)			—				—				—				(2,361,692	)
Preferred stock dividends			(12,356,513	)			—				—				—				(12,356,513	)
Issuance of member capital			—				134,538,735				114,858,977				(249,397,712	)			—
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			182,281,159				134,538,735				64,298,691				(249,397,712	)			131,720,873
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			3,931,796				(9,523,328	)			(16,236,217	)			—				(21,827,749	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
BEGINNING OF PERIOD			111,952,829				10,854,033				19,964,314				—				142,771,176
END OF PERIOD		$	115,884,625			$	1,330,705			$	3,728,097			$	—			$	120,943,427

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(24) Concentration

 

Life Insurance Carriers

 

We mostly purchase life insurance policies written by life insurance companies rated investment-grade by certain third-party rating agencies. As a result, there may be certain concentrations of policies with life insurance companies. The following summarizes the face value of insurance policies with specific life insurance companies exceeding 10% of the total face value held by our portfolio. 

 

Life Insurance Company		September 30, 2019				December 31, 2018
John Hancock			14.02	%			13.71	%
Lincoln National			11.22	%			11.33	%
AXA Equitable			10.65	%			10.83	%

 

The following summarizes the number of insureds’ state of residence exceeding 10% of the total face value held by us:

 

State of Residence		September 30, 2019				December 31, 2018
California			17.38	%			18.02	%
Florida			14.91	%			15.34	%

 

Investment in Beneficient

 

During 2018, in connection with the Exchange Transaction, the Company (i) acquired a limited partnership investment in the common units of BEN LP, (ii) entered into a Commercial Loan with BEN LP as borrower, and (iii) received an Option Agreement to acquire additional common units of BEN LP. The total carrying value of these investments at September 30, 2019 and December 31, 2018 was 650,444,000 and $584,173,000, respectively, representing 41.7% and 39.4%, respectively, of the Company’s consolidated assets. Currently there is no liquid market for the common units of BEN LP and it is possible none will develop. Although we intend to hold the Commercial Loan to maturity, there is currently no liquid market for this loan and it is possible none will develop.

 

(25) Subsequent Events

 

Subsequent to September 30, 2019, policy benefits on 12 policies covering 11 individuals have been realized. The face value of insurance benefits of these policies was $14,544,000.

 

Subsequent to September 30, 2019, we issued approximately $73,160,000 of L Bonds.

 

Second Amended and Restated Senior Credit Facility with LNV Corporation

 

On November 1, 2019, DLP IV entered into a Second Amended and Restated Loan and Security Agreement with LNV Corporation, as lender, and CLMG Corp., as the administrative agent on behalf of the lenders under the agreement (the “Second Amended and Restated Agreement”), which replaced an amended and restated agreement dated September 27, 2017 that previously governed the DLP IV’s senior credit facility (the “Second Amended Facility”). The Second Amended Facility makes available a total of up to $300,000,000 in credit to DLP IV with a maturity date of September 27, 2029. Subject to available borrowing base capacity, additional advances are available under the Second Amended Facility at the LIBOR rate described below. Such advances are available to pay the premiums and servicing costs of pledged life insurance policies as such amounts become due. Interest will accrue on amounts borrowed under the Second Amended Facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) 12-month LIBOR, plus (b) 7.50% per annum.

 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Under the Second Amended and Restated Agreement, DLP IV has granted the administrative agent, for the benefit of the lenders under the Second Amended Facility, a security interest in all of DLP IV’s assets.

 

The Company is subject to various financial and non-financial covenants under the Second Amended and Restated Agreement, including, but not limited to, compliance with laws, preservation of existence, financial reporting, keeping of proper books of record and account, payment of taxes, and ensuring that neither DLP IV nor GWG Life, LLC become an investment company.

 

In conjunction with entering into the Second Amended and Restated Agreement, DLP IV pledged life insurance policies having an aggregate face value of approximately $298.3 million as additional collateral and received an advance of approximately $37.1 million under the Second Amended Facility (inclusive of certain fees and expenses incurred in connection with the negotiation and entry into the Second Amended and Restated Agreement). After giving effect to such advance, the amount outstanding under the Second Amended Facility on November 1, 2019 was approximately $175.5 million.

 

Insurtech

 

On November 11, 2019, GWG contributed the common stock and membership interests of its wholly owned Life Epigenetics and youSurance subsidiaries (“Insurtech Subsidiaries”) to a legal entity, InsurTech Holdings, LLC (“InsurTech Holdings”) in exchange for a membership interest in InsurTech Holdings. Although we currently own 100% of InsurTech Holding’s equity, we do not have a controlling financial interest in InsurTech Holdings because the managing member has substantive participating rights. Therefore, we will account for our ownership interest in InsurTech Holdings as an equity method investment.

 

The transaction resulted in a loss of control of the Insurtech Subsidiaries and as a result we will deconsolidate the subsidiaries and record an investment in equity method investee during the fourth quarter of 2019. The loss of control requires us to measure the equity investment at fair value. The valuation of our equity investment is not complete, and we expect to record the resulting gain or loss in earnings during the fourth quarter of 2019.

 

In connection with the transaction, GWG contributed $1.25 million in cash to InsurTech Holdings and is committed to contribute an additional $18.75 million to the entity over the next two years.

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion in conjunction with the condensed consolidated financial statements and accompanying notes and the information contained in other sections of this report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2018. This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

 

Risk Relating to Forward-Looking Statements

 

This report contains forward-looking statements that reflect our current expectations and projections about future events. Actual results could differ materially from those described in these forward-looking statements.

 

The words “believe,” “could,” “possibly,” “probably,” “anticipate,” “estimate,” “project,” “expect,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect,” or “consider” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from such statements. Many of the forward-looking statements contained in this report can be found in the following discussion and analysis.

 

Such risks and uncertainties include, but are not limited to:

 

●

the valuation of assets reflected on our financial statements, including our equity method investment in Beneficient and our financing receivables from Beneficient and the LiquidTrust Borrowers (see Note 6 to the condensed consolidated financial statements);

 

●

the illiquidity of our life insurance and Beneficient-related investments and receivables from affiliates;

 

●

our ability to realize the anticipated benefits from our strategic relationship with Beneficient;

 

●

Beneficient’s financial performance and ability to execute on its business plan;

 

●

our ability to obtain accurate and timely financial information from Beneficient;

 

●

our ability to effectively transition the management and oversight roles served by our former executives and members of our Board of Directors;

 

●

changes resulting from the evolution of our business model and strategy with respect to Beneficient and the life insurance secondary market;

 

 

●

our reliance on debt financing and continued access to the capital markets;

 

●

our significant and on-going financing requirements;

 

	●	our ability to make cash distributions in satisfaction of dividend obligations and redemption requests;
	●	our predominant use of short term debt to fund a portfolio of long term assets could result in a liquidity shortage;

 

●

our ability to satisfy our debt obligations if we were to sell our portfolio of life insurance policies and our Beneficient-related assets;

 

●

our history of operating losses;

 

●

general economic outlook, including prevailing interest rates;

 

●

federal, state and FINRA regulatory matters;

 

●

litigation risks;

 

●

our ability to comply with financial and non-financial covenants contained in borrowing agreements;

 

●

the reliability of assumptions underlying our actuarial models, including life expectancy estimates and our projections of mortality events and the realization of policy benefits;

 

●

risks relating to the validity and enforceability of the life insurance policies we purchase;

 

●

our reliance on information provided and obtained by third parties, including changes in underwriting tables and underwriting methodology;

 

●

life insurance company credit exposure;

 

●

cost-of-insurance (premium) increases on our life insurance policies;

 

●

performance of our investments in life insurance policies;

 

●

the various risks associated with our attempts to commercialize our epigenetic technology;

 

●

risks associated with our ability to protect our intellectual property rights; and

 

●

risks associated with causing Life Epigenetics and youSurance to become independent of GWG.

 

We caution you that the foregoing list of factors is not exhaustive. Some of the factors which could cause results to differ from those expressed in any forward-looking statements are set forth in the Risk Factors attached as Exhibit 99.1 to our Current Report on Form 8-K filed on August 8, 2019. Forward-looking statements are only estimates and predictions, or statements of current intent. Actual results, outcomes or actions that we ultimately undertake could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements.

 

JOBS Act

 

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. This means that an “emerging growth company” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies. We have historically qualified as an emerging growth company and have elected to delay our adoption of new or revised accounting standards and, as a result, we may not have complied with new or revised accounting standards at the same time as other public reporting companies that are not “emerging growth companies.” As discussed in our Annual Report on Form 10-K for the year ended December 31, 2018, we no longer qualify as an emerging growth company as a result of the aggregate amount of non-convertible debt that we have issued during the prior three year period.

 

 

Overview

 

In 2018 and early 2019, we consummated a series of transactions (as more fully described below) with The Beneficient Company Group, L.P. (“BEN LP,” including all of the subsidiaries it may have from time to time — “Beneficient”). Beneficient is a financial services firm, based in Dallas, Texas, that provides liquidity solutions for mid-to-high net worth (“MHNW”) individuals and small-to-mid (“STM”) size institutions, which previously had few options to obtain early liquidity for their alternative asset holdings. Beneficient has closed a limited number of these transactions to date, and intends to significantly expand its operations going forward. As part of GWG’s reorientation, we also changed our Board of Directors and executive management team. Beneficient, through its subsidiaries, plans to operate three potentially high value, high margin lines of business:

 

●

Private Trust Lending & Liquidity Products. Through Beneficient Capital Company, L.L.C. (“BCC”), Beneficient provides a unique suite of private trust, lending and liquidity products focused on bringing liquidity to owners of professionally managed alternative assets. Beneficient’s innovative liquidity solutions are designed to serve mid-to-high net worth (“MHNW”) individuals, small-to-mid sized (“STM”) institutions, and asset managers who have historically possessed few attractive options to access early liquidity from their alternative assets. Beneficient targets MHNW clients with $5 million to $30 million in net worth and STM institutional clients typically holding up to $1 billion in assets.

 

●

Trust and Custody Services. Through Beneficient Administrative and Clearing Company, L.L.C. (“BACC”), and (subject to capitalization) through PEN Indemnity Insurance Company, LTD (“PEN”), Beneficient plans, in the future, to market retirement funds, custody and clearing of alternative assets, and trustee and insurance services for covering risks attendant to owning or managing alternative assets.

 

●

Financial Technology. Through ACE Portal, L.L.C. (“ACE”), Beneficient plans to provide online portals and financial technologies for the trading and financing of alternative assets. Beneficient’s existing and planned products and services are designed to support the tax and estate planning objectives of its MHNW clients, facilitate a diversification of assets or simply provide administrative management and reporting solutions tailored to the goals of the investor who owns alternative investments.

 

While we are continuing our work to maximize the value of our secondary life insurance business, we have significantly reduced capital allocated to purchasing additional life insurance policies in the secondary market and have increased capital allocated toward providing liquidity to a broader range of alternative assets, primarily through investments in Beneficient. We believe Beneficient can finance investments in alternative assets that will produce higher risk-adjusted returns than those we can achieve from life insurance policies acquired in the secondary market. Furthermore, although we believe that our portfolio of life insurance policies is a meaningful component of a diversified alternative asset portfolio, we continue to explore strategic alternatives for our life insurance portfolio aimed at maximizing its value, including a possible sale, refinancing or recapitalization of our life insurance portfolio.

 

We completed our transactions with Beneficient to provide us with a significant increase in assets and common shareholders’ equity. In addition, our transactions with Beneficient provide us with the opportunity for a diversified source of future earnings within the alternative asset industry. As GWG and Beneficient expand their strategic relationship, we believe the Beneficient transactions will transform GWG from a niche provider of liquidity to owners of life insurance to a full-scale provider of trust and liquidity products and services to owners of a broad range of alternative assets.

 

The Beneficient Transactions 

 

The Exchange Transaction

 

On January 12, 2018, GWG Holdings and GWG Life entered into a Master Exchange Agreement with Beneficient, MHT Financial SPV, LLC, a Delaware limited liability company (“MHT SPV”), and various related trusts (the “Seller Trusts”), as amended and restated on January 18, 2018 with effect from January 12, 2018, and as further amended by the First Amendment to Master Exchange Agreement, the Second Amendment to Master Exchange Agreement and the Third Amendment to the Master Exchange Agreement (as amended, the “Master Exchange Agreement”). The material terms and conditions of the initial Master Exchange Agreement were described in GWG Holdings’ Current Report on Form 8-K (the “January 2018 Form 8-K”) filed with the Securities and Exchange Commission (“SEC”) on January 18, 2018.

 

 

On August 10, 2018, GWG Holdings, GWG Life, Beneficient, MHT SPV, and the Seller Trusts entered into a Third Amendment to Master Exchange Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the parties agreed to consummate the transactions contemplated by the Master Exchange Agreement in two closings. The Third Amendment also generally deleted MHT SPV as a party to the Master Exchange Agreement. The material terms and conditions of the Third Amendment to Master Exchange Agreement were described in GWG Holdings’ Current Report on Form 8-K (the “August 2018 Form 8-K”) filed with the SEC on August 14, 2018. The transactions contemplated by the Master Exchange Agreement, as amended, are referred to throughout this Report as the “Exchange Transaction.”

 

On the first closing date, which took place on August 10, 2018 (the “Initial Transfer Date”):

 

●

in consideration for GWG and GWG Life entering into the Master Exchange Agreement and consummating the transactions contemplated thereby, BEN LP, as borrower, entered into a commercial loan agreement (the “Commercial Loan Agreement”) with GWG Life, as lender, providing for a loan in a principal amount of $200,000,000 (the “Commercial Loan”);

 

●

BEN LP delivered to GWG a promissory note (the “Exchangeable Note”) in the principal amount of $162,911,379;

 

●

BEN LP purchased 5,000,000 shares of GWG’s Series B Convertible Preferred Stock, par value $0.001 per share and having a stated value of $10 per share (the “Series B”), for cash consideration of $50,000,000, which shares were subsequently transferred to the Seller Trusts;

 

●

the Seller Trusts delivered to GWG 4,032,349 common units of BEN LP at an assumed value of $10 per common unit;

 

●

GWG issued to the Seller Trusts Seller Trust L Bonds due 2023 (the “Seller Trust L Bonds”) in an aggregate principal amount of $403,234,866;

 

●

GWG and the Seller Trusts entered into a registration rights agreement with respect to the Seller Trust L Bonds received by the Seller Trusts; and

 

●

GWG and Beneficient entered into a registration rights agreement with respect to the BEN LP common units received and to be received by GWG.

 

Under the Master Exchange Agreement, at the final closing (the “Final Closing” and the date on which the final closing occurred, the “Final Closing Date”), which occurred on December 28, 2018:

 

●

in accordance with the Master Exchange Agreement, and based on the net asset value of alternative asset financings as of the Final Closing Date, effective as of the Initial Transfer Date, (i) the principal amount of the Commercial Loan was reduced to $181,974,314, (ii) the principal amount of the Exchangeable Note was reduced to $148,228,432, and (iii) the principal amount of the Seller Trust L Bonds was reduced to $366,891,940;

 

●

the Seller Trusts refunded to GWG $840,430 in interest paid on the Seller Trust L Bonds related to the Seller Trust L Bonds that were issued as of the Initial Transfer Date, but cancelled, effective as of the Initial Transfer Date, on the Final Closing Date;

 

●

the accrued interest on the Commercial Loan and the Exchangeable Note was added to the principal amount of the Commercial Loan, as a result of which the principal amount of the Commercial Loan as of the Final Closing Date was $192,507,946;

 

●

the Seller Trusts transferred to GWG an aggregate of 21,650,087 common units of BEN LP and GWG received 14,822,843 common units of BEN LP in exchange for the Exchangeable Note, upon completion of which GWG owned (including the 4,032,349 common units received by GWG on the Initial Transfer Date) 40,505,279 common units of BEN LP;

 

 

●

BEN LP issued to GWG an option (the “Option Agreement”) to acquire the number of common units of BEN LP, interests or other property that would be received by a holder of the NPC-A Prime limited partnership interests of Beneficient Company Holdings, L.P., an affiliate of BEN LP (“Beneficient Holdings”); and

 

●

GWG issued to the Seller Trusts 27,013,516 shares of GWG common stock (including shares issued upon conversion of the Series B).

 

On the Final Closing Date, GWG and the Seller Trusts also entered into a registration rights agreement with respect to the shares of GWG common stock owned by the Seller Trusts, an orderly marketing agreement and a stockholders agreement. The material terms of these agreements are described in our Information Statement on Schedule 14C filed with the SEC on December 6, 2018 and in our Current Report on Form 8-K filed with the SEC on January 4, 2019.

 

The Expanded Strategic Relationship

 

In the second quarter of 2019, we completed an expansion of the strategic relationship with Beneficient, which was a transformational event for both organizations that creates a unified platform uniquely positioned to provide an expanded suite of products, services and resources for investors and the financial professionals who assist them. GWG and Beneficient intend to collaborate extensively and capitalize on one another’s capabilities, relationships and services.

 

On April 15, 2019, Jon R. Sabes, the Company’s former Chief Executive Officer and a former director, and Steven F. Sabes, the Company’s former Executive Vice President and a former director, entered into a Purchase and Contribution Agreement (the “Purchase and Contribution Agreement”) with, among others, Beneficient. The Purchase and Contribution Agreement was summarized in our Current Report on Form 8-K filed with the SEC on April 16, 2019.

 

The closing of the transactions contemplated by the Purchase and Contribution Agreement (the “Purchase and Contribution Transaction”) occurred on April 26, 2019. Prior to or in connection with such closing:

 

●

Messrs. Jon and Steven Sabes sold and transferred all of the shares of the Company’s common stock held directly and indirectly by them and their immediate family members (approximately 12% of the Company’s outstanding common stock in the aggregate); specifically, Messrs. Jon and Steven Sabes (i) sold an aggregate 2,500,000 shares of Company common stock to BCC for $25,000,000 in cash and (ii) contributed the remaining 1,452,155 shares of Company common stock to AltiVerse Capital Markets, L.L.C., a Delaware limited liability company (“AltiVerse”) (which is a limited liability company owned by certain of Beneficient’s founders, including Brad K. Heppner (GWG’s Chairman and Beneficient’s Chief Executive Officer and Chairman) and Thomas O. Hicks (one of Beneficient’s current directors and a director of GWG)), in exchange for certain equity interests in AltiVerse.

 

●

Our bylaws were amended to increase the maximum number of directors of the Company from nine to 13, and the actual number of directors comprising the Board was increased from seven to 11. The size of the Board has since been reduced and currently consists of ten directors.

 

●

All seven members of the Company’s Board of Directors prior to the closing resigned as directors of the Company, and 11 individuals designated by Beneficient were appointed as directors of the Company, leaving two board seats vacant after the closing.

 

●

Jon R. Sabes resigned from all officer positions he held with the Company or any of its subsidiaries prior to the closing, other than his position as Chief Executive Officer of the Company’s technology focused wholly owned subsidiaries, Life Epigenetics and youSurance.

 

●

Steven F. Sabes resigned from all officer positions he held with the Company or any of its subsidiaries prior to the closing, except as Chief Operating Officer of Life Epigenetics.

 

●

The resignations of Messrs. Jon and Steven Sabes included a full waiver and forfeit of (i) any severance that may be payable by the Company or any of its subsidiaries in connection with such resignations or the Transactions and (ii) all equity awards of the Company currently held by either of them.

 

●

Murray T. Holland, a trust advisor of the Seller Trusts, which in the aggregate own approximately 79 percent of GWG’s outstanding common stock, was named Chief Executive Officer of the Company.

 

 

●

The Company entered into performance share unit agreements with certain employees of the Company pursuant to which such employees will receive up to $4.5 million in bonuses under certain terms and conditions, including, among others, that such employees remain employed by the Company or one of its subsidiaries (or, if no longer employed, such employment was terminated by the Company other than for cause, as such term is defined in the performance share unit agreement) for a period of 120 days following the closing.

 

●

The stockholders agreement that was entered into on the Final Closing Date was terminated by mutual consent of the parties thereto.

 

●

BCC and AltiVerse executed and delivered a Consent and Joinder to the Amended and Restated Pledge and Security Agreement dated October 23, 2017 by and among the Company, GWG Life, LLC, Messrs. Jon and Steven Sabes and the Bank of Utah, which provides that the shares of the Company’s common stock acquired by BCC and AltiVerse pursuant to the Purchase and Contribution Agreement will continue to be pledged as collateral security for the Company’s obligations owing in respect of the L Bonds issued under our Amended and Restated Indenture, dated as of October 23, 2017, as amended and supplemented.

 

Among other things, the Purchase and Contribution Agreement contemplates that after the closing, the parties will seek to enter into an agreement pursuant to which the Company will have the right to appoint a majority of the board of directors of the general partner of Beneficient, resulting in the Company and Beneficient being under common control. The Company and Beneficient will also seek to enter into an agreement pursuant to which the Company will offer and distribute (through a FINRA registered managing broker-dealer) Beneficient’s liquidity products and services. The Company has reduced capital allocated to life insurance assets while it works with Beneficient to build a larger diversified portfolio of alternative asset investment products.

 

A copy of the Purchase and Contribution Agreement is included in our Annual Report on Form 10-K filed with the SEC on July 9, 2019 as Exhibit 99.3.

 

We refer to the Exchange Transaction and the Purchase and Contribution Transaction as the “Beneficient Transactions.”

 

Critical Accounting Policies

 

Critical Accounting Estimates

 

The preparation of our consolidated financial statements in accordance with the Generally Accepted Accounting Principles in the United States of America (GAAP) requires us to make significant judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our judgments, estimates, and assumptions on historical experience and on various other factors believed to be reasonable under the circumstances. Actual results could differ materially from these estimates. We evaluate our judgments, estimates, and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates, and assumptions involved in valuing our investments in life insurance policies, assessing potential impairment of equity method investments and equity security investments, assessing the need for allowance for credit losses on financing receivables and evaluating deferred taxes have the greatest potential impact on our consolidated financial statements and accordingly believe these to be our critical accounting estimates. Below we discuss the critical accounting policies associated with these estimates as well as certain other critical accounting policies.

 

Ownership of Life Insurance Policies — Fair Value Option

 

We account for the purchase of life insurance policies in accordance with Accounting Standards Codification (“ASC”) 325-30, Investments in Insurance Contracts, which requires us to use either the investment method or the fair value method. We have elected to account for all of our life insurance policies using the fair value method.

 

The fair value of our life insurance policies is determined as the net present value of the life insurance portfolio’s future expected cash flows (policy benefits received and required premium payments) that incorporates current life expectancy estimates and discount rate assumptions.

 

 

We initially record our purchase of life insurance policies at the transaction price, which is the amount paid for the policy, inclusive of all external fees and costs associated with the acquisition. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as unrealized gain (loss) in the current period, net of premiums paid. Changes in the fair value of our life insurance portfolio are based on periodic evaluations and are recorded in our condensed consolidated statements of operations as changes in fair value of life insurance policies.

 

Fair Value Components — Life Expectancies

 

Unobservable inputs, as discussed below, are a critical component of our estimate for the fair value of our investments in life insurance policies. We currently use a probabilistic method of estimating and valuing the projected cash flows of our portfolio, which we believe to be the preferred and most prevalent valuation method in the industry. In this regard, the most significant assumptions we make are the life expectancy estimates of the insureds and the discount rate applied to the expected future cash flows to be derived from our life insurance portfolio.

 

The fair value of our portfolio of life insurance policies is determined as the net present value of the life insurance portfolio’s future expected cash flows (the net of policy benefits received and required premium payments). The net present value of the future expected cash flows incorporate life expectancy estimates and current discount rate assumptions. The life expectancy estimates we use for acquiring and valuing life insurance policies has in the past been typically based upon the average of two life expectancy reports received from third-party medical actuarial underwriting firms (“Life Expectancy Providers”). After the acquisition of a life insurance policy, we historically have sought to update these life expectancy reports on a periodic basis.

 

In October and November 2018, two of the primary Life Expectancy Providers used by the Company — ITM TwentyFirst, LLC (“TwentyFirst”) and AVS, LLC (“AVS”) — released updates to their respective mortality tables and medical underwriting methodologies. As disclosed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 filed with the SEC on November 19, 2018, and our amended Quarterly Report on Form 10-Q/A filed on April 22, 2019, the majority of our life insurance policies were valued using life expectancy reports provided by TwentyFirst and/or AVS. The updates from TwentyFirst and AVS suggest a lengthening of prior life expectancy estimates and relate to revised estimates of the originally issued life expectancy reports. These updates do not encompass any change to the insured’s age and health condition since the report was originally issued.

 

We, along with other major secondary market participants, have noted the frequent changes in methodologies made by the Life Expectancy Providers over the years that, short of purchasing revised life expectancy reports at a substantial cost, have lacked detailed information about the impact of these changes on individual policy values. Moreover, our experience is these methodology changes have not resulted in a narrowing of consensus in the life expectancy estimates issued for individual insureds. In other words, the successive changes in the medical underwriting methodologies and mortality tables made by the Life Expectancy Providers have not, in retrospect, proven to be sufficiently accurate with respect to our life insurance portfolio as measured by the ratio of mortality cash flows realized to mortality cash flows predicted (or “expected). We believe, as further described below, that the method we have adopted is a more accurate way of projecting mortality cash flows. Finally, as our life insurance portfolio has grown in size and diversity, our ability to model with greater certainty and predictability through the incorporation of historical portfolio experience in conjunction with the use of life expectancy reports has improved significantly.

 

Performance Based Forecasting and Valuation Methodology (“Actual-to-Expected” or “A2E”)

 

As a result, we undertook a comprehensive study to determine a more accurate, transparent and cost-effective method of pricing, valuing, and modeling the performance of our portfolio of life insurance policies. Our goal was to incorporate life expectancy estimates from Life Expectancy Providers, the historical experience of the portfolio, the diversification and mortality factors of the portfolio, and relevant market-based observations and inputs.

 

The revised methodology we have adopted was derived from back-testing (the process of applying an analytical method to historical data to see how accurately the method would have predicted actual results) the mortality cash flow performance of our life insurance portfolio using the longest life expectancy report received from the Life Expectancy Providers used for pricing at the time the life insurance policies were acquired (the “Longest Life Expectancy”). This contrasts with our historical methodology of projecting mortality cash flows, used prior to the fourth quarter of 2018, which typically used the average of two such life expectancy reports.

 

 

Our Longest Life Expectancy methodology is built from the following pillars:

 

●

The utilization of life expectancy reports from Life Expectancy Providers for the pricing of all life insurance policies;

 

●

The application of a stable valuation methodology driven by the experience of our life insurance portfolio, which is re-evaluated if experience deviates by a specified margin; and

 

●

The use of relevant market-based observations that can be validated and mapped to the discount rate used to value the life insurance portfolio. See “Fair Value Components — Discount Rate” below for a further discussion.

  

Each of the aforementioned pillars of the Longest Life Expectancy methodology, and the associated assumptions, modeling and outcomes, was reviewed by a leading actuarial consulting firm whose longevity services are used worldwide.

 

Our life insurance portfolio modeling and predicted future cash flows are based upon the central limit theorem, which establishes that, in certain situations, random events become normalized and predictable around the mean as the number of observations grow in size. We believe our portfolio of life insurance policies has grown sufficiently large in size and diversity to establish that while individual mortality experience is inherently unpredictable, the actual mortality experience of the portfolio should be expected to approach the mean modeled prediction. In other words, we believe that we have sufficient actual mortality experience from our life insurance portfolio to use as the basis for the Longest Life Expectancy methodology. As of September 30, 2019, our life insurance portfolio, stratified by age of insured in the table below, stood at $2.064 billion in face value of policy benefits and 1,174 policies:

 

												Percentage of Total
Min Age		Max Age		Number of Policies				Policy Benefits				Number of Policies				Policy Benefits				Wtd. Avg. LE (Years)
95		101			18			$	36,052,000				1.5	%			1.8	%			2.2
90		94			145				284,908,000				12.4	%			13.8	%			3.3
85		89			249				587,733,000				21.2	%			28.5	%			5.1
80		84			251				456,526,000				21.4	%			22.1	%			7.9
75		79			223				341,449,000				19.0	%			16.5	%			9.8
70		74			214				284,739,000				18.2	%			13.8	%			11.1
60		69			74				72,749,000				6.3	%			3.5	%			11.6
Total					1,174			$	2,064,156,000				100.0	%			100.0	%			7.3

 

As depicted in the graphs below and after extensive research and modeling, we determined that the Longest Life Expectancy methodology was highly predictive of the actual experience of our portfolio of life insurance policies as compared to our historical methodology using the Average Life Expectancy method.

 

We used the Least Squares statistical method, which can be used to determine a line of best fit by minimizing the sum of squares of the errors (actual vs. expected) and can be used with either linear or non-linear data. In this case, we are fitting non-linear data to a non-linear curve. The Least Squares method was determined to be an efficient means of calculating the required portfolio multiplier (PMM) to maintain the overall shape of the projected curve while maximizing fit to the observed data.

 

The tables below compare the actual to expected mortality cash flow experience of our life insurance portfolio using Average Life Expectancy and Longest Life Expectancy. By using the Longest Life Expectancy methodology, we increased our actual to expected mortality cash flow experience accuracy from 78% to 95%. The net effect on the life insurance portfolio of achieving a higher actual to expected ratio is a significant lengthening of its overall life expectancy.

 

 

 

We believe that a Longest Life Expectancy methodology, which incorporates the actual mortality experience of our portfolio and the use of third-party estimates, is superior to our historical methodology. We believe this methodology should minimize future fluctuations of valuation, decrease our reliance on Life Expectancy Providers for updated reports, and improve our ability to finance and forecast future revenues and cash flows.

 

The implementation of the Longest Life Expectancy methodology required us to take a non-cash charge (net of the impact of a change in discount rate) to revenue of $87.1 million in the fourth quarter of 2018, reflecting a decrease in the fair value of our portfolio of life insurance policies at December 31, 2018. This non-cash charge represented approximately 10% of fair value of the portfolio prior to adjustment.

 

Updates to the Analysis

 

Proper maintenance of an A2E based valuation methodology includes the continual tracking of actual results as well as comparisons to projections. An A2E based valuation methodology rests on the actuarial premise that mortality results for sufficiently large populations follow predictable mortality curves (see discussion above regarding the Central Limit Theorem). As such, through the A2E analysis and the use of the PMM, we are able to “fit” projections to actual results, which provides a basis to forecast future performance more accurately.

 

Should performance sufficiently deviate in the future from these projections, the A2E analysis will be re-examined to determine if the resultant PMM still results in the most accurate fitting of the projections to actual results. Adjustments to the PMM would then be made based on that analysis if warranted.

 

The analysis would utilize the same basic methodology as the initial analysis to ensure consistency in the process:

 

●

Calculation of a static Portfolio PMM;

 

●

A cohort analysis of our life insurance portfolio combined with a durational analysis to determine if either static or vector cohort PMM’s are warranted; and

 

●

Following this updated analysis, any necessary changes to the PMM would then be incorporated into the valuation methodology.

 

The basis for a re-examination of the A2E analysis could be based on either the passage of time or a pre-determined performance trigger. Following further analysis, we determined that a performance-based trigger approach that allows the portfolio to perform within statistical norms (+/- 1 standard deviation) without constant updates is most appropriate. We intend to re-examine the A2E analysis and recalculate the resultant PMM anytime the six-month moving average of the difference between actual portfolio performance and projected performance deviates by more than one standard deviation from the mean and such deviation continues as of the end of any calendar quarter after persisting for three consecutive months. This methodology allows for natural periods of slow or excess maturities to occur without the necessity of changes to the PMM. At present, a one standard deviation move in the six-month moving average of the difference between actual portfolio performance and projected performance would equate to a valuation change of approximately $8 million. The decision to update our valuation methodology in the fourth quarter of 2018 was based in part on an analysis performed by a third-party actuarial consulting firm, which indicated a very strong tendency toward mean reversion within the dataset.

 

 

The analysis above utilizes the Society of Actuaries 2015 Valuation Basic Table (“2015 VBT”). The 2015 VBT is the standard in the secondary market for life insurance and is based on a much larger dataset of insured lives, face amount of policies and more current information compared to the dataset underlying the 2008 Valuation Basic Table. The 2015 VBT dataset includes 266 million policies compared to the 2008 VBT dataset of 75 million. The experience data in the 2015 VBT dataset includes 2.6 million claims on policies from 51 insurance carriers. Life expectancies implied by the 2015 VBT are generally slightly longer for both male and female non-smokers between the ages of 65 and 80. However, insureds of both genders over the age of 80 have significantly longer life expectancies, approximately 8% to 42% longer, as compared to the 2008 VBT. We adopted the 2015 VBT in our valuation process in 2016.

 

Periodic Updates to Life Expectancy (LE) Reports

 

Our senior lender requires, and other lenders we engage may require regular updates to LE Reports. Additionally, should we choose to sell life insurance policies in the secondary market, investors may require updated LE Reports. These lenders and investors may utilize an average LE for valuation, similar to our historical methodology, which may result in significantly different valuations.

 

We intend to continue obtaining LE Reports beyond our policy purchase process to the extent they are needed to comply with existing and future covenants within credit facilities. To the extent such LE Reports are available, we do not expect to immediately incorporate these LE Reports into our revised valuation methodology but will track this data to determine over time if there exists any additive predictive value in relation to the basis of its mortality projections. As such, our policies and procedures surrounding the updating of LE Reports reflect that LE Reports will only be updated when required by third parties.

 

Current A2E Analysis and PMM Implications 

 

Our A2E based methodology and use of a static Portfolio PMM requires that we recalculate the PMM used in our valuation anytime the six-month moving average of the difference between actual portfolio performance and projected performance of cumulative face value maturities deviates by more than one standard deviation from the mean and such deviation persists for three consecutive months and continues as of the current quarter-end month. As of September 30, 2019, the six-month moving average of the difference between actual portfolio performance and projected performance of cumulative face value of maturities was outside of one standard deviation from the mean for the second consecutive month, reflecting actual maturities lagging projected performance. While our valuation methodology did not require an update to our PMM during the current quarter, a continuation of the current difference trend through the end of the next quarter-end date would require that we recalculate our PMM.

 

Portfolio Return Implications

 

At any time, we calculate our returns from our life insurance assets based upon (i) our historical results, and (ii) the future cash flows we expect to realize from our statistical forecasts. To forecast our expected future cash flows and returns, we use the probabilistic method of analysis. The expected internal rate of return (“IRR”) of our portfolio is based upon future cash flow forecasts derived from a probabilistic analysis of policy benefits received and policy premiums paid in relation to our non-GAAP investment cost basis, which includes purchase price, total premiums paid, and total financing costs incurred to date. As of September 30, 2019, the expected internal rate of return on our portfolio of life insurance assets was 5.45% based on our portfolio benefits of $2.1 billion and our non-GAAP investment cost basis of $941.5 million. This calculation excludes returns realized from our matured policy benefits, which are substantial.

 

We seek to further enhance our understanding of our expected future cash flow and returns by using a stochastic analysis, sometimes referred to as a “Monte Carlo simulation,” to provide us with a greater understanding of the variability of our projections. The stochastic analysis we perform, which excludes financing costs to isolate only those cash flows associated with the life insurance policies, provides IRR calculations for different statistical confidence intervals. The results of our stochastic analysis, in which we run 10,000 random mortality scenarios, demonstrates that the scenario ranking at the 50th percentile of all 10,000 results generates an IRR of 8.22%, which is very near to the discount rate of 8.25% that we used to calculate the fair value of our portfolio. Our Expected IRR is based upon future policy related cash flow forecasts derived from a probabilistic analysis of our policy benefits received and policy premiums paid. The stochastic analysis results also reveal that our portfolio is expected to generate an IRR of 7.76% or better in 75% of all generated scenarios, and an IRR of 7.36% or better in 90% of all generated scenarios. We believe the Company’s portfolio of life insurance policies has grown sufficiently large in size and diversity to establish that, while individual mortality experience is inherently unpredictable, the actual mortality experience of the portfolio should be expected to approach the mean modeled prediction.

 

 

Fair Value Components — Required Premium Payments

 

We must pay the premiums on the life insurance policies within our portfolio in order to collect the policy benefit. The same probabilistic model and methodologies used to generate expected cash inflows from the life insurance policy benefits over the expected life of the insured are used to estimate cash outflows due to required premium payments. Premiums paid are offset against revenue in the applicable reporting period.

 

Fair Value Components — Discount Rate

 

A discount rate is used to calculate the net present value of the expected cash flows. The discount rate used to calculate fair value of our portfolio incorporates the guidance provided by ASC 820, Fair Value Measurements and Disclosures.

 

We utilized an 8.25% discount rate to estimate the fair value of our portfolio of life insurance policies at both December 31, 2018 and September 30, 2019.

 

In adopting the Longest Life Expectancy methodology as described above, we preserved the general methodology historically used to calculate the fair value discount rate and have made important enhancements. We also improved the reliability and relevancy of the competitive sales estimates we use to measure the discount rates (on a Longest Life Expectancy basis) observed in the life insurance secondary market. We continue to use fixed income market interest rates, credit exposure to the issuing insurance companies, and our estimate of the operational risk yield premium a purchaser would apply to the future cash flows derived from our portfolio of life insurance policies in our methodology. To the extent we limit or cease acquiring insurance policies, we may not have reliable access to the market-based factors described above and will be required to find suitable alternative proxies.

 

Management has significant discretion regarding the combination of these and other factors when determining the discount rate. The discount rate we choose assumes an orderly and arms-length transaction (i.e., a non-distressed transaction in which neither seller nor buyer is compelled to engage in the transaction), which is consistent with related GAAP guidance. The carrying value of policies acquired during each quarterly reporting period are adjusted to their current fair value using the fair value discount rate applied to the entire portfolio as of that reporting date.

 

We engaged ClearLife Limited, owner of the ClariNet LS actuarial portfolio pricing software we use, to prepare a net present value calculation of our life insurance portfolio. ClearLife Limited processed policy data, future premium data, life expectancy estimate data, and other actuarial information to calculate a net present value for our portfolio using the specified discount rate of 8.25%. ClearLife Limited independently calculated the net present value of our portfolio of 1,174 policies to be $807.5 million and furnished us with a letter documenting its calculation. A copy of such letter is filed as Exhibit 99.1 to this report.

 

See Note 5 to the condensed consolidated financial statements for additional discussion of the sensitivity of the valuation to different discount rates.

 

Equity Method Investment, Equity Security Investment and Financing Receivables from Affiliates

 

GWG has an investment in BEN LP, accounted for using the equity method, an equity security investment in Beneficient and financing receivables for loans it provided to Beneficient and the LiquidTrust Borrowers (see Note 6 to the condensed consolidated financial statements). When circumstances indicate that the carrying value of the equity method investment or equity security may not be recoverable, the fair value of the investment is evaluated by management. The fair value of these investments is not readily determinable as the BEN LP common units are not currently publicly traded on a stock exchange. As a result, management uses other accepted valuation methods to determine fair value such as discounting estimated future cash flows for the business. If the fair value of the investment is determined to be less than its carrying value and the decline in value is considered to be other than temporary, an appropriate write down is recorded to net earnings based on the excess of the carrying value over the best estimate of fair value of the investment. In addition, if based on current information and events it is probable that GWG will be unable to collect all amounts due according to the contractual terms of the financing receivables from affiliates and an amount can be reasonably estimated, GWG will write down the amounts to estimated realizable value. Information and events creating uncertainty about the realization of recorded amounts for financing receivables from affiliates include, but are not limited to, the estimated cash flows generated by the affiliate’s business, the sufficiency of collateral securing the amounts, and the creditworthiness of the counterparties involved. Changes in facts, circumstances and management’s estimates and judgment could result in a material charge to earnings. At September 30, 2019, we determined that no indication of an impairment of the equity method investment or equity security investment existed, and no allowance for credit losses was recorded on the financing receivables from affiliates.

 

 

Deferred Income Taxes

 

Under ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established for deferred tax assets that are not considered “more likely than not” to be realized. Realization of deferred tax assets depends upon having sufficient past or future taxable income in periods to which the deductible temporary differences are expected to be recovered or within any applicable carryback or carryforward periods or sufficient tax planning strategies. After assessing the realization of the net deferred tax assets, we believe that there is substantial uncertainty that our net deferred tax asset will be realized during the applicable carryforward period. As such, a valuation allowance has been recorded against the total net deferred tax asset as of September 30, 2019 and December 31, 2018, respectively.

 

At September 30, 2019 and December 31, 2018, we had net operating loss (“NOL”) carryforwards of $34.8 million and $36.5 million, respectively, for both federal and state taxes. The NOL carryforwards subject to expiration (i.e., those generated prior to 2018) will begin to expire in 2031. Future utilization of NOL carryforwards is subject to limitations under Section 382 of the Internal Revenue Code. This section generally relates to a more than 50 percent change in ownership over a three-year period. As a result of the Exchange Transaction, it is believed that a change in ownership for tax purposes only has occurred as of December 28, 2018. As such, the annual utilization of our net operating losses generated prior to the ownership change is limited. Based on the estimated value of the Company prior to the Exchange Transaction, utilization of pre-ownership change net operating losses is subject to an annual limitation of approximately $7.6 million.

 

Principal Revenue and Expense Items

 

We earn revenues from the following primary sources.

 

●

Life Insurance Policy Benefits Realized. We recognize the difference between the face value of the policy benefits and carrying value when an insured event has occurred and determine that collection of the policy benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. We generally collect the face value of the life insurance policy from the insurance company within 45 days of our notification of the insured’s mortality.

 

●

Change in Fair Value of Life Insurance Policies. We value our life insurance portfolio investments for each reporting period in accordance with the fair value principles discussed herein, which reflects the expected receipt of policy benefits in future periods, net of premium costs, as shown in our condensed consolidated financial statements.

 

●

Interest on Financing Receivables from Affiliates. We recognize and record interest income on outstanding principal as earned.

 

●

Sale of a Life Insurance Policy. In the event of a sale of a policy, we recognize gain or loss as the difference between the sale price and the carrying value of the policy on the date of the receipt of payment on such sale.

 

 

Our main components of expense are summarized below.

 

●

Selling, General and Administrative Expenses. We recognize and record expenses incurred in our business operations, including operations related to the purchasing and servicing of life insurance policies. These expenses include salaries and benefits, sales, marketing, occupancy and other expenditures.

 

●

Interest Expense. We recognize, and record interest expenses associated with the costs of financing our life insurance portfolio and our investment in Beneficient. These expenses include interest paid to our senior lenders under our senior credit facility with LNV Corporation, as well as interest paid on our L Bonds, Seller Trust L Bonds and other outstanding indebtedness. When we issue debt, we amortize the financing costs (commissions and other fees) associated with such indebtedness over the outstanding term of the financing and classify it as interest expense.

 

An additional component of our net earnings includes:

 

●

Earnings (Loss) from Equity Method Investment. We account for our investment in the common units of BEN LP using the equity method. Under this method, we record our share of the net earnings or losses attributable to BEN LP common unitholders, on a one quarter lag, as a separate line on our condensed consolidated statements of operations.

 

Results of Operations — Three and Nine months Ended September 30, 2019 Compared to the Same Periods in 2018

 

The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with our condensed consolidated financial statements and related notes.

 

Revenue.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018				2019				2018
Revenue realized from maturities of life insurance policies		$	20,830,000			$	5,646,000			$	60,242,000			$	36,542,000
Revenue recognized from change in fair value of life insurance policies			14,181,000				24,840,000				48,031,000				56,058,000
Premiums and other annual fees			(17,219,000	)			(14,765,000	)			(49,055,000	)			(39,670,000	)
Gain (loss) on life insurance policies, net			17,792,000				15,721,000				59,218,000				52,930,000
Interest and other income			4,419,000				5,216,000				12,220,000				6,864,000
Total revenue		$	22,211,000			$	20,937,000			$	71,438,000			$	59,794,000
Attribution of gain on life insurance policies, net:
Change in estimated probabilistic cash flows, net of premium and other annual fees paid		$	689,000			$	4,304,000			$	3,106,000			$	15,813,000
Net revenue recognized at matured policy event			16,631,000				2,323,000				49,337,000				20,217,000
Unrealized gain on acquisitions			472,000				9,021,000				6,775,000				21,790,000
Change in discount rates			—				—				—				—
Change in life expectancy evaluation			—				73,000				—				(4,890,000	)
Gain (loss) on life insurance policies, net		$	17,792,000			$	15,721,000			$	59,218,000			$	52,930,000
Number of policies acquired			6				89				81				233
Face value of purchases		$	3,155,000			$	120,430,000			$	96,321,000			$	333,078,000
Purchases (initial cost basis)		$	711,000			$	42,892,000			$	32,250,000			$	98,442,000
Unrealized gain on acquisition (% of face value)			15.0	%			7.5	%			7.0	%			6.5	%
Number of policies matured			22				12				61				44
Face value of matured policies		$	27,470,000			$	7,973,000			$	80,927,000			$	50,100,000
Net revenue recognized at maturity event (% of face value matured)			60.5	%			29.1	%			61.0	%			40.4	%

 

 

The increase of $2.1 million on gain on life insurance policies, net for the three months ended September 30, 2019 over the comparable prior year period primarily resulted from a $14.3 million increase in net revenue recognized on life insurance policy maturities, partially offset by $2.5 million increase in premium costs and $8.5 million lower unrealized gains on acquisitions, and $1.2 million lower change in estimated probabilistic cash flows in the current period. The increase of $6.3 million on gain on life insurance policies, net for the nine months ended September 30, 2019 over the comparable prior year period primarily resulted from $29.1 million higher revenue recognized on life insurance policy maturities and $4.9 lower charges on life expectancy evaluation updates, partially offset by $9.4 million increased premium costs, $15.0 million lower unrealized gain on acquisition and $3.3 million lower change in estimated probabilistic cash flows in the current period.

 

The face value of matured policies was $27.5 million and $8.0 million in the three months ended September 30, 2019 and 2018, respectively, reflecting an increase of face value of matured policies of $19.5 million. The resulting revenue recognized at matured policy event was $16.6 million and $2.3 million, respectively. Revenue changes from maturity events of $14.3 million over the three month comparable prior period resulted from both an increase in the face value of maturities as well as the maturity of less seasoned policies in the current period.

 

The face value of matured policies was $80.9 million and $50.1 million in the nine months ended September 30, 2019 and 2018, respectively, reflecting an increase of face value of matured policies of $30.8 million. The resulting revenue recognized at matured policy event was $49.3 million and $20.2 million, respectively. Revenue changes from maturity events of $29.1 million over the nine month comparable prior period resulted from both an increase in the face value of maturities as well as the maturity of less seasoned policies in the current period.

 

Net revenue charges (gains) from change in life expectancy evaluation were $0 and ($0.1) million during the three months ended and $0 and $4.8 million during the nine months ended September 30, 2019 and 2018, respectively. Activity attributable to changes in life expectancy valuation resulted in a net revenue decrease of $0.1 million for the three months ended and a net revenue increase of $4.9 million for the nine months ended September 30, 2019 over the comparable prior period of 2018.

 

Revenue from changes in estimated probabilistic cash flows, net of premiums paid was $0.7 million and $4.3 million during the three months ended and $3.1 million and $15.8 million for the nine months ended September 30, 2019 and 2018, respectively. Decreases in both the three and nine month periods resulted from increased premium costs and lower accretion resulting from lower discount rates in the current period.

 

The face value of policies purchased was $3.2 million and $120.4 million in the three months ended and $96.3 million and $333.1 million for the nine months ended September 30, 2019 and 2018, respectively, reflecting a decrease of face value purchased of $117.2 million and $236.8 million in the three and nine month current periods. The resulting unrealized gain on acquisition was $0.5 million and $9.0 million for the three months ended and $6.8 million and $21.8 million for the nine months ended September 30, 2019 and 2018, reflecting a decrease of $8.5 million and $15.0 million in the respective current periods. Decreased unrealized gain on acquisition in the current periods are the result of fewer purchases of life insurance resulting from changes in capital allocation in our business.

 

The discount rate used to calculate the fair value of our life insurance policies was 8.25% at September 30, June 30, March 31, 2019 and December 31, 2018. The discount rate was 10.45% at September 30, June 30, March 31, 2018 and December 31, 2017. The discount rate was decreased in the fourth quarter of 2018 in connection with the implementation of our Longest Life Expectancy methodology. We believe this methodology should minimize future valuation fluctuations and improve our ability to finance and forecast future cash flows and revenues from our life insurance portfolio.

 

Interest and other income is comprised of interest from financing receivables, bank interest and other miscellaneous items. The decrease of revenue of ($0.8) million during the three months ended and increase of revenue of $5.4 million during the nine months ended September 30, 2019 compared to the same periods of 2018 were primarily driven by the interest income earned on the financing receivables from Beneficient.

 

Expenses.

 

		Three Months Ended September 30,												Nine Months Ended September 30,
		2019				2018				Increase/ Decrease				2019				2018				Increase/ Decrease
Interest expense (including amortization of deferred financing costs)(1)		$	28,290,000			$	21,799,000			$	6,491,000			$	83,752,000			$	55,011,000			$	28,741,000
Employee compensation and benefits(2)			9,137,000				5,549,000				3,588,000				21,085,000				12,527,000				8,558,000
Legal and professional expenses(3)			2,594,000				1,422,000				1,172,000				10,263,000				3,751,000				6,512,000
Other expenses(4)			3,549,000				2,689,000				860,000				12,315,000				8,262,000				4,053,000
Total expenses		$	43,570,000			$	31,459,000			$	12,111,000			$	127,415,000			$	79,551,000			$	47,864,000

 

(1)

Increase in interest expense is primarily due to the increase in the average debt outstanding from $996.6 million and $803.4 million during the three and nine months ended September 30, 2018 to $1.314 billion and $1.283 billion in the same periods of 2019, contributing $6.5 million and $28.7 million of additional interest expense in the three and nine month current periods.

 

 

(2)

Increase in employee compensation and benefit costs of $3.6 million for the three months ended September 30, 2019 over the comparable prior period in 2018 primarily result from $1.9 million of performance share unit expense resulting from the Purchase and Contribution Transaction, $1.1 million increase in wages and incentive expense and $0.6 million in commission expense. Increase in employee compensation and benefit costs of $8.6 million for the nine months ended September 30, 2019 over the comparable prior period in 2018 primarily result from $4.5 million of performance share unit expense resulting from the Purchase and Contribution Transaction, $2.6 million increase in wages and incentive expense and $1.5 million in commission expense.

 

(3)	Increases in both the three and nine month periods ended September 30, 2019 over the comparable periods in 2018 are the result of higher legal and audit fees associated with the Beneficient Transactions and other professional services, along with higher Board compensation costs.

 

(4)

Increases in other expense costs for the three and nine months ended September 30, 2019 over the comparable periods in 2018 result from increased insurance and excess tail insurance coverage purchased in connection with the Purchase and Contribution Transaction as well as increases in contract labor and information technology costs. See Note 18 to the condensed consolidated financial statements for the detailed breakdown of other expenses.

 

Insurtech Initiatives

 

We incurred expenses of $0.7 million and $1.2 million during the three months ended September 30, 2019 and 2018, respectively, and $4.9 million and $2.9 million during the nine month ended September 30, 2019 and 2018, respectively, in furtherance of our insurtech initiatives, which we believe are potentially transformational. These expenses are primarily related to the development of intellectual property surrounding advanced epigenetic testing technology. On November 11, 2019, GWG contributed the common stock and membership interests of its wholly owned Life Epigenetics.and youSurance subsidiaries to a legal entity, InsurTech Holdings, LLC (“InsurTech Holdings”) in exchange for a membership interest in InsurTech Holdings. Although we currently own 100% of InsurTech Holding’s equity, we do not have a controlling financial interest in InsurTech Holdings because the managing member has substantive participating rights. Therefore, we will account for our ownership interest in InsurTech Holdings as an equity method investment.

 

Deferred Income Taxes

 

Under ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established for deferred tax assets that are not considered “more likely than not” to be realized. Realization of deferred tax assets depends upon having sufficient past or future taxable income in periods to which the deductible temporary differences are expected to be recovered or within any applicable carryback or carryforward periods. After assessing the realization of the net deferred tax assets, we believe there is substantial uncertainty that our net deferred tax asset will be realized during the applicable carryforward period. As such, a valuation allowance has been established against the total net deferred tax asset as of September 30, 2019 and December 31, 2018.

 

Income Tax Expense

 

We realized a net income tax benefit of $0 for both the three and nine months ended September 30, 2019 and 2018. The effective rate was 0% for both the three and nine months ended September 30, 2019 and 2018.

 

The following table provides a reconciliation of our income tax expense at the statutory federal tax rate to our actual income tax expense:

 

		Three Months Ended																Nine Months Ended
		September 30, 2019								September 30, 2018								September 30, 2019								September 30, 2018
Statutory federal income tax (benefit)		$	(4,485,000	)			21.0	%		$	(2,234,000	)			21.0	%		$	(11,755,000	)			21.0	%		$	(4,173,000	)			21.0	%
State income taxes (benefit), net of federal benefit			(1,322,000	)			6.2	%			(866,000	)			8.1	%			(4,103,000	)			7.3	%			(1,558,000	)			7.8	%
Valuation allowance			4,697,000				(22.0	)%			3,215,000				(30.2	)%			15,025,000				(26.8	)%			5,783,000				(29.1	)%
Other permanent differences			1,110,000				(5.2	)%			(115,000	)			1.1	%			833,000				(1.5	)%			(52,000	)			0.3	%
Total income tax expense (benefit)		$	-				0.0	%		$	-				0.0	%		$	-				0.0	%		$	-				0.0	%

  

 

The most significant temporary differences between GAAP net income (loss) and taxable net income (loss) are the treatment of interest costs, policy premiums and servicing costs with respect to the acquisition and maintenance of the life insurance policies and revenue recognition with respect to the fair value of the life insurance portfolio.

 

Revenue and Earnings before Tax by Reportable Segment — Three and Nine Months Ended September 30, 2019 Compared to the Same Period in 2018

 

Comparison of revenue by reportable segment for the periods indicated is as follows:

 

		Three Months Ended September 30,
Revenue:		2019				2018				Increase/  (Decrease)
Secondary Life Insurance		$	18,238,000			$	16,388,000			$	1,850,000
Investment in Beneficient			3,709,000				4,284,000				(575,000	)
Corporate & Other			264,000				265,000				(1,000	)
Total		$	22,211,000			$	20,937,000			$	1,274,000

 

		Nine Months Ended September 30,
Revenue:		2019				2018				Increase/ (Decrease)
Secondary Life Insurance		$	61,199,000			$	55,054,000			$	6,145,000
Investment in Beneficient			9,723,000				4,284,000				5,439,000
Corporate & Other			516,000				456,000				60,000
Total		$	71,438,000			$	59,794,000			$	11,644,000

 

The primary drivers of the changes for the three and nine months ended September 30, 2019 compared to the same period in 2018 were as follows:

 

●

Secondary Life Insurance revenue increased by $1.9 million for the three months ended September 30, 2019 over the comparable period in 2018 primarily as a result of $2.5 million increased premium costs, $8.5 million lower unrealized gains on acquisitions and $1.2 million lower change in estimated probabilistic cash flows, partially offset by $14.3 million higher revenue recognized on life insurance policy maturities. Secondary Life Insurance revenue increased by $6.1 million for the nine months ended September 30, 2019 over the comparable period in 2018 primarily as a result of $29.1 million higher revenue recognized on life insurance policy maturities and $4.9 lower charges on life expectancy evaluation updates, partially offset by $9.4 million increased premium costs, $15.0 million lower unrealized gain on acquisition and $3.3 million lower change in estimated probabilistic cash flows in the current period.

 

●

Investment in Beneficient revenue for the three and nine months ended September 30, 2019 represents interest income on $192 million of financing receivables resulting from the Exchange Transaction with Beneficient in the third and fourth quarters of 2018. Also included is interest income from the loan executed with the LiquidTrust Borrowers in June 2019. See Note 6 to the condensed consolidated financial statements regarding our financing receivables with affiliates.

 

Comparison of earnings before tax by reportable segment for the periods indicated:

 

		Three Months Ended September 30,
Segment Earnings Before Tax:		2019				2018				Increase/ (Decrease)
Secondary Life Insurance		$	(9,169,000	)		$	(4,932,000	)		$	(4,237,000	)
Investment in Beneficient			(2,214,000	)			—				(2,214,000	)
Corporate & Other			(9,020,000	)			(5,590,000	)			(3,430,000	)
Total		$	(20,403,000	)		$	(10,522,000	)		$	(9,881,000	)

 

 

		Nine Months Ended September 30,
Segment Earnings Before Tax:		2019				2018				Increase/ (Decrease)
Secondary Life Insurance		$	(19,792,000	)		$	(4,256,000	)		$	(15,536,000	)
Investment in Beneficient			(11,286,000	)			—				(11,286,000	)
Corporate & Other			(25,270,000	)			(15,502,000	)			(9,768,000	)
Total		$	(56,348,000	)		$	(19,758,000	)		$	(36,590,000	)

 

The primary drivers of the change for the three months ended September 30, 2019 compared to the same period in 2018 were as follows:

 

●

Secondary Life Insurance decreased by $4.2 million due to the following:

 

	●	Increase in interest expense of $3.9 million as a result of higher average debt outstanding.
	●	$2.1 million increase in the gain on life insurance policies, net as described above in the discussion of consolidated results.

 

●

An increase in operating expenses of $2.2 million, primarily resulting from higher compensation costs, higher professional fees and insurance costs.

 

●

Investment in Beneficient results in 2019 primarily consisted of interest income of $3.7 million from financing receivables, offset by $6.9 million of interest expense on the Seller Trust L Bonds issued to finance the Exchange Transaction and $1.0 million of equity method earnings of Beneficient.

 

●

Corporate and Other operating loss increased primarily due to a $0.2 million increase in investments in insurtech initiatives, and a $3.2 million increase in other corporate costs, including professional fees, insurance and incentive costs.

 

The primary drivers of the change for the nine months ended September 30, 2019 compared to the same period in 2018 were as follows:

 

●

Secondary Life Insurance decreased by $15.5 as a result of the following:

 

●

Increase in interest expense of $12.4 million as a result of higher average debt outstanding in 2019.

 

●

$6.3 million increase in the gain on life insurance policies, net as described above in the discussion of consolidated results of operations.

 

●

An increase in operating expenses of $9.3 million, primarily resulting from higher compensation costs, higher professional fees and insurance costs.

 

●

Investment in Beneficient results in 2019 primarily consisted of interest income of $9.7 million from financing receivables, offset by $20.6 million of interest expense on the Seller Trust L Bonds issued to finance the Exchange Transaction and a $0.4 million loss from equity method earnings of Beneficient.

 

●

Corporate and Other operating loss increased primarily due to a $2.7 million increase in investments in insurtech initiatives, and a $7.1 million increase in other corporate costs, including professional fees, insurance and incentive costs.

 

Liquidity and Capital Resources

 

We finance our businesses through a combination of life insurance policy benefit receipts, dividends and interest on investments, equity offerings, debt offerings and our senior credit facility with LNV Corporation. We have traditionally used proceeds from these sources for policy acquisition, policy premiums and servicing costs, working capital and financing expenditures including paying principal, interest and dividends.

 

We currently fund our business mostly with shorter term debt while most of our assets have significantly longer durations. The resulting asset/liability mismatch can result in a liquidity shortage if we are unable to renew maturing short term debt or secure suitable additional financing. In such a situation, we could be forced to sell assets at less than optimal (distressed) prices. As further described below, we were unable to offer our L Bonds, our primary source of debt capital, for the approximately three month period commencing May 1, 2019, and drew down our cash balances during that period as L Bonds matured but were unable to be renewed, and we were unable to offer new L Bonds. We recommenced our L Bond offering on August 8, 2019.

 

 

As of September 30, 2019 and December 31, 2018, we had approximately $91.3 million and $141.9 million, respectively, in combined available cash, cash equivalents, restricted cash and policy benefits receivable.

 

Additional future borrowing base capacity for premiums and servicing costs, created as the premiums and servicing costs of pledged life insurance policies become due and by additional policy pledges to the facility, if any, exists under our senior credit facility with LNV Corporation. We also obtain borrowing base capacity through the offering of our L Bonds, subject to our ability to offer and sell L Bonds. The senior credit facility with LNV Corporation has certain financial and nonfinancial covenants. Due to our failure to deliver GWG Life, LLC audited financial statements for 2018 to LNV Corporation within 90 days after the end of the year, and our failure to comply with a similar requirement to issue GWG Life, LLC unaudited financial statements to LNV Corporation for the first quarter of 2019 within 45 days after March 31, 2019, we were in violation of our debt covenants as of June 30, 2019. CLMG Corp., as administrative agent for LNV Corporation, issued a forbearance extending the delivery date for these financial statements until July 22, 2019. The covenant violations were cured during the forbearance period. We were in compliance with the debt covenants as of September 30, 2019 and are in compliance as of the filing date of this report.

 

On August 10, 2018, we issued $50 million of Series B in connection with the Initial Transfer of the Exchange Transaction. Approximately half of the proceeds from this sale were distributed to common shareholders pursuant to a special dividend paid on September 5, 2018 to shareholders of record on August 27, 2018. The remaining amount was expected to be utilized primarily for our insurtech initiatives. As noted in the subsequent events footnote to our condensed consolidated financial statements, on November 11, 2019, GWG contributed the common stock and membership interests of its wholly owned Life Epigenetics and youSurance subsidiaries to a legal entity, InsurTech Holdings in exchange for a membership interest in the entity. In connection with the transaction, GWG contributed $1.25 million in cash to InsurTech Holdings and is committed to contribute an additional $18.75 million to the entity over the next two years. We do not expect to issue any additional Series B.

 

We heavily rely on our L Bond offering to fund our business operations. As described elsewhere in this report, we suspended our offering on May 1, 2019 due to our delinquency in filing certain periodic reports with the SEC. After regaining compliance with our SEC reporting obligations, we recommenced our offering of L Bonds on August 8, 2019. If we are forced to suspend our L Bond offering in the future for any significant additional length of time and we are unable to obtain replacement financing, our business would be adversely impacted and our ability to service and repay our debt obligations, much of which is short term, would be compromised, thereby negatively affecting our business prospects and viability.

 

Financings Summary

 

We had the following outstanding debt balances as of September 30, 2019 and December 31, 2018:

 

		September 30, 2019								December 31, 2018
Issuer/Borrower		Principal Amount Outstanding				Weighted Average Interest Rate				Principal Amount Outstanding				Weighted Average Interest Rate
GWG DLP Funding IV, LLC – LNV senior credit facility (see Note 9)		$	140,497,000				9.72	%		$	158,209,000				10.45	%
GWG Holdings, Inc. – L Bonds (see Note 10)			842,948,000				7.14	%			662,152,000				7.10	%
GWG Holdings, Inc. – Seller Trust L Bonds (see Note 11)			366,892,000				7.50	%			366,892,000				7.50	%
Total		$	1,350,337,000				7.51	%		$	1,187,253,000				7.67	%

  

The table below reconciles the face amount of our outstanding debt to the carrying value shown on our balance sheets:

 

		September 30, 2019				December 31, 2018
Senior credit facility with LNV Corporation
Face amount outstanding		$	140,497,000			$	158,209,000
Unamortized selling costs			(8,779,000	)			(9,231,000	)
Carrying amount		$	131,718,000			$	148,978,000
L Bonds and Seller Trust L Bonds:
Face amount outstanding		$	1,209,840,000			$	1,029,044,000
Subscriptions in process			19,901,000				13,467,000
Unamortized selling costs			(32,507,000	)			(24,216,000	)
Carrying amount		$	1,197,234,000			$	1,018,295,000

 

 

In November 2011, we began offering Series I Secured Notes, which were governed by an Intercreditor Agreement, a Third Amended and Restated Note Issuance and Security Agreement dated November 1, 2011, as amended, and a related Pledge Agreement. In September 2017, all of the Series I Secured Notes were paid in full and all obligations thereunder were terminated.

 

In June 2011, we concluded a private placement offering of Series A Preferred Stock for new investors, having received an aggregate $24.6 million in subscriptions for our Series A Preferred Stock. These subscriptions consisted of $14.0 million in conversions of outstanding Series I Secured Notes into Series A Preferred Stock and $10.6 million of new investments. In October 2017, we exercised our contractual right to call for the redemption of the Series A Preferred Stock and all related outstanding warrants and paid an aggregate of approximately $22.2 million.

 

In January 2012, we began publicly offering up to $250.0 million in debt securities (initially named “Renewable Secured Debentures” and subsequently renamed “L Bonds”) that was completed in January 2015.

 

On September 24, 2014, we consummated an initial public offering of our common stock resulting in the sale of 800,000 shares of common stock at $12.50 per share and net proceeds of approximately $8.6 million after the deduction of underwriting commissions, discounts and expense reimbursements.

 

In January 2015, we began publicly offering up to $1.0 billion of L Bonds as a follow-on to our earlier $250.0 million public debt offering. In January 2018, we began publicly offering up to $1.0 billion L Bonds as a follow-on to our earlier L Bond offering. Through September 30, 2019, the total amount of L Bonds sold under these two L Bond offerings, including renewals, was $1.5 billion. As of September 30, 2019 and December 31, 2018, respectively, we had approximately $842.9 million and $662.1 million in principal amount of L Bonds outstanding (exclusive of Seller Trust L Bonds).

 

In October 2015, we began publicly offering up to 100,000 shares of our Redeemable Preferred Stock (“RPS”) at a per-share price of $1,000. As of December 31, 2017, we had issued approximately $99.1 million stated value of RPS and terminated that offering.

 

In February 2017, we began publicly offering up to 150,000 shares of our Series 2 Redeemable Preferred Stock (“RPS 2”) at a per-share price of $1,000. As of December 31, 2018, we had issued approximately $150 million stated value of RPS 2 and terminated that offering.

 

On August 10, 2018, GWG Holdings, GWG Life and the Bank of Utah, as trustee, entered into the Supplemental Indenture to the Amended and Restated Indenture. GWG Holdings entered into the Supplemental Indenture to add and modify certain provisions of the Amended and Restated Indenture necessary to provide for the issuance of the Seller Trust L Bonds. We issued Seller Trust L Bonds in the amount of $366.9 million to the Seller Trusts in connection with the Exchange Transaction. The maturity date of the Seller Trust L Bonds is August 9, 2023. The Seller Trust L Bonds bear interest at 7.5% per annum. Interest is payable monthly in cash (see Note 11 to the condensed consolidated financial statements).

 

In August 2018, we offered and sold 5,000,000 shares of our Series B Convertible Preferred Stock in reliance upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933. The Series B shares were issued at $10 per share for cash consideration of $50 million.

 

On December 28, 2018, the Series B converted into 5,000,000 shares of our common stock at a conversion price of $10.00 per share immediately following the Final Closing of the Exchange Transaction.

 

The weighted-average interest rate of our outstanding L Bonds (excluding the Seller Trust L Bonds) as of September 30, 2019 and December 31, 2018 was 7.14% and 7.10%, respectively, and the weighted-average maturity at those dates was 3.14 and 2.83 years, respectively. Our L Bonds have renewal features. Since we first issued our L Bonds, we have experienced $616.1 million in maturities, of which $326.6 million has renewed through September 30, 2019 for an additional term. This has provided us with an aggregate renewal rate of approximately 53.0% for investments in these securities.

 

 

Future contractual maturities of L Bonds and Seller Trust L Bonds at September 30, 2019 are as follows:

 

Years Ending December 31,		L Bonds
Three months ending December 31, 2019		$	29,267,000
2020			158,475,000
2021(1)			541,361,000
2022			125,086,000
2023			72,640,000
2024			92,488,000
Thereafter			190,523,000
		$	1,209,840,000

  

(1)

After the second anniversary of the Final Closing, the holders of the Seller Trust L Bonds will have the right to cause GWG to repurchase, in whole but not in part, the Seller Trust L Bonds held by such holder within 45 days. As such, while the maturity date of the $366,892,000 of Seller Trust L Bonds is in August 2023, their contractual maturity is reflected in 2021, as that is the first period in which they could become payable. The repurchase may be paid, at GWG’s option, in the form of cash, a pro rata portion of (i) the outstanding principal amount and accrued and unpaid interest under the Commercial Loan Agreement and (ii) BEN LP common units, or a combination of cash and such property.

 

The L Bonds and the Seller Trust L Bonds are secured by all of our assets and are subordinate to our senior credit facility with LNV Corporation.

 

On September 27, 2017, we entered into a $300 million amended and restated senior credit facility with LNV Corporation in which DLP IV is the borrower. As of September 30, 2019, we had approximately $140.5 million outstanding under the senior credit facility. On November 1, 2019, we entered into a second amended and restated senior credit facility, which replaced the prior agreement governing the facility. A description of the agreement governing our second amended and restated senior credit facility is set forth below under the caption “Senior Credit Facility with LNV Corporation.” We intend to use the proceeds from this facility to maintain our portfolio of life insurance policies, for liquidity and for general corporate purposes.

 

We expect to meet our ongoing operational capital needs for alternative asset investments, policy premiums and servicing costs, working capital and financing expenditures including paying principal, interest and dividends through a combination of the receipt of policy benefits from our portfolio of life insurance policies, net proceeds from our L Bond offering, dividends and interest from investments (primarily our investments in Beneficient), and funding available from our senior credit facility with LNV Corporation. We estimate that our liquidity and capital resources are sufficient for our current and projected financial needs for at least the next twelve months given current assumptions. However, if we are unable to continue our L Bond offering for any reason, and we are unable to obtain capital from other sources, our business will be materially and adversely affected. In addition, our business will be materially and adversely affected if we do not receive the policy benefits we forecast and if holders of our L Bonds fail to renew with the frequency we have historically experienced. In such a case, we could be forced to sell our investments in life insurance policies to service or satisfy our debt-related and other obligations. A sale under such circumstances may result in significant impairment of the recognized value of our portfolio.

 

Capital expenditures have historically not been material and we do not anticipate making material capital expenditures in 2019 or beyond.

 

Alternative Assets and Secured Indebtedness

 

At September 30, 2019, the fair value of our investments in life insurance policies of $807.5 million plus our cash balance of $65.7 million, restricted cash balance of $8.2 million, life insurance policy benefits receivable of $17.4 million, and other assets of $662.2 million (which are mostly related to our investment in BEN LP and our financing receivables from affiliates) totaled $1,561.0 million, representing an excess of portfolio assets over secured indebtedness of $210.7 million. At December 31, 2018, the fair value of our investments in life insurance policies of $747.9 million plus our cash balance of $114.6 million, restricted cash balance of $10.8 million, life insurance policy benefits receivable of $16.5 million, and other assets of $591.0 million totaled $1,480.8 million, representing an excess of portfolio assets over secured indebtedness of $293.6 million.

 

 

The following forward-looking table seeks to illustrate the impact that a hypothetical sale of our portfolio of life insurance assets (at various discount rates), and the realization of the financing receivables from affiliates, equity method investment in BEN LP (a substantial majority of the net assets of which are currently represented by intangible assets and goodwill) and equity security investment in the Option Agreement (in each case, at their respective carrying amounts and assuming no discount for lack of marketability or transaction costs, which could be substantial) would have on our ability to satisfy our debt obligations as of September 30, 2019. In all cases, the sale of the life insurance assets owned by DLP IV will be used first to satisfy all amounts owing under our senior credit facility with LNV Corporation. The net sale proceeds remaining after satisfying all obligations under our senior credit facility with LNV Corporation would be applied to the L Bonds and Seller Trust L Bonds on a pari passu basis.

 

Life Insurance Portfolio

 

Discount Rate		10%				12%				14%				15%
Value of life insurance portfolio		$	738,285,000			$	671,326,000			$	614,721,000			$	589,632,000
Cash, cash equivalents and policy benefits receivable			91,254,000				91,254,000				91,254,000				91,254,000
Other assets(2)			662,229,000				662,229,000				662,229,000				662,229,000
Total assets			1,491,768,000				1,424,809,000				1,368,204,000				1,343,115,000
Senior credit facility			140,497,000				140,497,000				140,497,000				140,497,000
Net after senior credit facility			1,351,271,000				1,284,312,000				1,227,707,000				1,202,618,000
L Bonds(1)			1,209,840,000				1,209,840,000				1,209,840,000				1,209,840,000
Net remaining		$	141,431,000			$	74,472,000			$	17,867,000			$	(7,222,000	)
Impairment to L Bonds			No impairment				No impairment				No impairment				Impairment

 

(1)	Amount represents L Bonds and Seller Trust L Bonds

 

(2)

Other assets includes equity method investment, financing receivables from affiliates and the equity security investment in the Option Agreement. Beneficient issued to GWG an option (the “Option Agreement”) to acquire the number of common units of BEN LP, interests or other property that would be received by a holder of the NPC-A Prime limited partnership interests of Beneficient Company Holdings, L.P., an affiliate of BEN LP.

 

The above table illustrates that our ability to fully satisfy amounts owing under the L Bonds and Seller Trust L Bonds would likely be impaired upon the sale or realization of the financing receivables from affiliates, equity method investment and equity security investment in the Option Agreement at their respective carrying amounts, plus all our life insurance assets at a price equivalent to a discount rate of approximately 14.70% or higher at September 30, 2019. At December 31, 2018, the likely impairment occurred at a discount rate of approximately 18.70% or higher. The discount rate used to calculate the fair value of our life insurance portfolio was 8.25% as of both September 30, 2019 and December 31, 2018.

 

The table does not include any allowance for transactional fees and expenses (which expenses and fees could be substantial) nor any discount for lack of marketability associated with a portfolio sale or the realization of the financing receivables with affiliates, equity method investment and equity security investment in the Option Agreement, respectively, and is provided to demonstrate how various discount rates used to value our portfolio of life insurance assets could affect our ability to satisfy amounts owing under our debt obligations in light of our senior secured lender’s right to priority payments under our senior credit facility with LNV Corporation.

 

 

The table assumes we will realize the full amounts of our financing receivables, equity method investment, and equity security investment in the Option Agreement. There is currently no market for our financing receivables with affiliates, equity method investment and equity security investment in the Option Agreement, and a market may not develop. Our Commercial Loan receivable and a portion of our equity method investment in BEN LP may be used as consideration for retiring the Seller Trust L Bonds upon a redemption event or at the maturity of the Seller Trust L Bonds (see Notes 6 and 11 to the condensed consolidated financial statements). This table also does not include the yield maintenance fee, which could be substantial, we are required to pay in certain circumstances under our amended and restated senior credit facility with LNV Corporation. You should read the above table in conjunction with the information contained in other sections of this report, including Critical Accounting Policies — Fair Value Components — Discount Rate and the notes to the condensed consolidated financial statements.

 

Amendment of Credit Facility with LNV Corporation

 

Effective November 1, 2019, DLP IV entered into a second amended and restated senior credit facility with LNV Corporation. The second amended and restated senior credit facility makes available a total of up to $300,000,000 in credit to DLP IV with a maturity date of September 27, 2029. Subject to available borrowing base capacity, additional advances are available under the second amended and restated senior credit facility at the LIBOR rate described below. Such advances are available to pay premiums and servicing costs of pledged life insurance policies as such amounts become due. Interest will accrue on amounts borrowed under the second amended and restated senior credit facility at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (a) 12-month LIBOR, plus (b) 7.50% per annum. The effective rate at September 30, 2019 was 9.68%. Interest payments are made on a quarterly basis.

 

Under the second amended and restated senior credit facility, DLP IV has granted the administrative agent, for the benefit of the lenders under the facility, a security interest in all of DLP IV’s assets. As with prior collateral arrangements relating to the senior secured debt of GWG Holdings and its subsidiaries (on a consolidated basis), GWG Life’s excess equity value of DLP IV after satisfying all amounts owing under our second amended and restated credit facility is available as collateral for the obligations of GWG Holdings under the L Bonds and Seller Trust L Bonds (although the life insurance assets owned by DLP IV do not themselves serve as direct collateral for those obligations).

 

We are subject to various financial and non-financial covenants under the second amended and restated senior credit facility with LNV Corporation, including, but not limited to, compliance with laws, preservation of existence, financial reporting, keeping of proper books of record and account, payment of taxes, and ensuring that neither DLP IV nor GWG Life become an investment company. Due to our failure to deliver GWG Life audited financial statements for 2018 to LNV Corporation within 90 days after the end of the year, and our failure to comply with a similar requirement to issue GWG Life, LLC unaudited financial statements to LNV Corporation for the first quarter of 2019 within 45 days after March 31, 2019, we were in violation of our debt covenants as of June 30, 2019. CLMG Corp., as administrative agent for LNV Corporation, issued a forbearance extending the delivery date for these financial statements until July 22, 2019. The covenant violations were cured during the forbearance period and we were in compliance with the debt covenants as of September 30, 2019.

 

Cash Flows

 

Interest and Dividend Payments

 

We finance our businesses through a combination of life insurance policy benefit receipts, dividends and interest on investments (primarily our investments in Beneficient), equity offerings, debt offerings and our senior credit facility with LNV Corporation. We have historically relied on debt (L Bonds and our senior credit facility with LNV Corporation) and equity (preferred stock) financing for the majority of our cash expenditures (for policy acquisition, policy premiums and servicing costs, working capital and financing expenditures including paying principal and interest on existing debt) as the amount of cash flows from the realization of life insurance policy benefits and cash flows from our other investments has been insufficient to meet all of our needs. This has resulted in the Company incurring substantial indebtedness (much of it being of a short term nature) and, to a lesser extent, obligations to make dividend payments on our classes of preferred stock.

 

Our total interest expense of $28.3 million and $21.8 million for the three months ended, and $83.8 million and $55.0 million for the nine months ended September 30, 2019 and 2018, respectively, represent the largest single line item of expense in each period. Preferred stock cash dividends were $4.2 and $4.3 million for the three months ended, and $12.8 million and $12.4 million for the nine months ended September 30, 2019 and 2018, respectively. While reducing our cost of funds and increasing our common equity base (at valuations accretive to our book value) are primary goals of the Company, until we do so we will continue to expend significant amounts of cash for interest and dividend payments and will thus continue to rely heavily on our ability to raise cash from our L Bond offering, senior credit facility with LNV Corporation and other means as they are developed and available.

 

 

Life Insurance Policy Premium Payments

 

The payment of premiums and servicing costs to maintain life insurance policies represents one of our most significant requirements for cash disbursement. When a policy is purchased, we are able to calculate the minimum premium payments required to maintain the policy in-force. Over time as the insured ages, premium payments will increase. Nevertheless, the probability we will be required to pay the premiums decreases as mortality becomes more likely. These scheduled premiums and associated probabilities are factored into our expected internal rate of return and cash-flow modeling. Beyond premiums, we incur policy servicing costs, including annual trustee, policy administration and tracking costs. Additionally, we incur significant financing costs, including principal, interest and dividends. Both policy servicing costs and financing costs are excluded from our internal rate of return calculations. We finance our businesses through a combination of life insurance policy benefit receipts, dividends and interest on other investments, equity offerings, debt offerings, and advances under our senior credit facility with LNV Corporation.

 

The amount of payments for anticipated premiums, including the requirement under our senior credit facility with LNV Corporation to maintain a two month cost-of-insurance threshold within each policy cash value account, and servicing costs that we will be required to make over the next five years to maintain our current portfolio, assuming no mortalities, is set forth in the table below.

 

Years Ending December 31,		Premiums				Servicing				Total
Three months ending December 31, 2019		$	16,553,000			$	430,000			$	16,983,000
2020			76,305,000				1,719,000				78,024,000
2021			88,684,000				1,719,000				90,403,000
2022			101,706,000				1,719,000				103,425,000
2023			113,838,000				1,719,000				115,557,000
2024			123,793,000				1,719,000				125,512,000
		$	520,879,000			$	9,025,000			$	529,904,000

 

Our anticipated premium expenses are subject to the risk of increased cost-of-insurance charges (i.e., “COI” or premium charges) for the life insurance policies we own. During 2018, we received notice of, or support for, COI rate changes on 30 policies with combined face value of $84.6 million in our portfolio. These increased charges resulted in a $5.1 million reduction in the fair value of our life insurance portfolio in 2018. We have not received any notices of COI rate changes in 2019.

 

We have no known pending cost-of-insurance increases on any policies in our portfolio, but we are aware that cost-of-insurance increases have become more prevalent in the industry. Thus, we may see additional insurers implementing cost-of-insurance increases in the future.

 

Life Insurance Policy Benefit Receipts

 

For the quarter-end dates set forth below, the following table illustrates the total amount of face value of policy benefits owned, and the trailing 12 months of life insurance policy benefits realized and premiums paid on our portfolio. The trailing 12-month benefits/premium coverage ratio indicates the ratio of policy benefits realized to premiums paid over the trailing 12-month period from our portfolio of life insurance policies.

 

Quarter End Date		Portfolio Face Amount				12-Month Trailing Benefits Realized				12-Month Trailing Premiums Paid				12-Month Trailing Benefits/Premium Coverage Ratio
March 31, 2015		$	754,942,000			$	46,675,000			$	23,786,000				196.2	%
June 30, 2015			806,274,000				47,125,000				24,348,000				193.5	%
September 30, 2015			878,882,000				44,482,000				25,313,000				175.7	%
December 31, 2015			944,844,000				31,232,000				26,650,000				117.2	%
March 31, 2016			1,027,821,000				21,845,000				28,771,000				75.9	%
June 30, 2016			1,154,798,000				30,924,000				31,891,000				97.0	%
September 30, 2016			1,272,078,000				35,867,000				37,055,000				96.8	%
December 31, 2016			1,361,675,000				48,452,000				40,239,000				120.4	%
March 31, 2017			1,447,558,000				48,189,000				42,753,000				112.7	%
June 30, 2017			1,525,363,000				49,295,000				45,414,000				108.5	%
September 30, 2017			1,622,627,000				53,742,000				46,559,000				115.4	%
December 31, 2017			1,676,148,000				64,719,000				52,263,000				123.8	%
March 31, 2018			1,758,066,000				60,248,000				53,169,000				113.3	%
June 30, 2018			1,849,079,000				76,936,000				53,886,000				142.8	%
September 30, 2018			1,961,598,000				75,161,000				55,365,000				135.8	%
December 31, 2018			2,047,992,000				71,090,000				52,675,000				135.0	%
March 31, 2019			2,098,428,000				87,045,000				56,227,000				154.8	%
June 30, 2019			2,088,445,000				82,421,000				59,454,000				138.6	%
September 30, 2019			2,064,156,000				101,918,000				61,805,000				164.9	%

 

 

We believe the portfolio cash flow results set forth above are consistent with our general investment thesis: that the life insurance policy benefits we receive will continue to increase over time in relation to the premiums we are required to pay on the remaining polices in the portfolio. Nevertheless, we expect that our portfolio cash flow on a period-to-period basis will remain inconsistent as we begin to allocate substantially more capital to Beneficient and reduce capital allocated to acquiring a larger, more diversified portfolio of life insurance policies.

 

Inflation

 

Changes in inflation do not necessarily correlate with changes in interest rates. We presently do not foresee any material impact of inflation on our results of operations in the periods presented in our condensed consolidated financial statements.

 

Off-Balance Sheet Arrangements

 

None.

 

Credit Risk

 

We review the credit risk associated with our portfolio of life insurance policies when estimating its fair value. In evaluating the policies’ credit risk, we consider insurance company solvency, credit risk indicators, economic conditions, ongoing credit evaluations, and company positions. We attempt to manage our credit risk related to life insurance policies typically by purchasing policies issued only from companies with an investment-grade credit rating by either Standard & Poor’s, Moody’s, or A.M. Best Company. As of September 30, 2019, 95.8% of our life insurance policies, by face value benefits, were issued by companies that maintained an investment-grade rating (BBB or better) by Standard & Poor’s.

 

The assets and liabilities exchanged in the Exchange Transaction are excluded from this analysis.

 

Interest Rate Risk

 

Our senior credit facility with LNV Corporation is floating-rate financing. In addition, our ability to offer interest and dividend rates that attract capital (including in our continuous offering of L Bonds) is generally impacted by prevailing interest rates. Furthermore, while our L Bond offering provides us with fixed-rate debt financing, our Debt Coverage Ratio is calculated in relation to the interest rate on all of our debt financing, exclusive of our Seller Trust L Bonds. Therefore, increases in interest rates impact our business by increasing our borrowing costs and reducing availability under our debt financing arrangements. Earnings from our life insurance portfolio are based upon the spread, if any, generated between the return on the portfolio and the total cost of our financing (excluding cost of financing for the Seller Trust L Bonds). As a result, increases in interest rates will reduce the earnings we expect to achieve from our investments in life insurance policies.

 

Increases in interest rates could also adversely affect Beneficient’s earnings, which could result in less earnings for GWG from our equity method investment in Beneficient and/or impairment thereof.

 

 

Non-GAAP Financial Measures – Discontinuation

 

The Company in the past has provided non-GAAP financial measures as additional information to investors in order to provide an alternative method for assessing our financial condition and operating results. These non-GAAP financial measures are not in accordance with GAAP and may be different from non-GAAP measures used by other companies, including other companies within our industry.

 

Historically, we used non-GAAP financial measures for management’s assessment of our financial condition and operating results without regard to GAAP fair value standards. The application of current GAAP fair value standards, especially during a period of significant growth of our life insurance portfolio may result in current period GAAP financial results that may not be reflective of our long-term earnings potential. Management believed our non-GAAP financial measures provided investors an alternative view of our long-term earnings potential without regard to the volatility in GAAP financial results that can occur during the growth stage of our life insurance portfolio and company.

 

Due primarily to the Beneficient Transactions and the Expanded Strategic Relationship with Beneficient, and to a lesser extent the size and actuarial diversity of our portfolio of life insurance policies, we believe that our historical non-GAAP financial measures are no longer relevant. Therefore, we no longer disclose non-GAAP financial measures.

 

Debt Coverage Ratio

 

Our L Bond borrowing covenants require us to maintain a Debt Coverage Ratio of less than 90%. The Debt Coverage Ratio is calculated by dividing the sum of our total interest-bearing indebtedness by the sum of our cash, cash equivalents, restricted cash, life insurance policy benefits receivable, the net present value of the life insurance portfolio, and, without duplication, the value of all of our other assets as reflected on our most recently available balance sheet prepared in accordance with GAAP. The discount rate we use for the net present value of our life insurance portfolio for this calculation may not be the same discount rate we use for our GAAP valuation and is not necessarily reflective of the amount we could realize upon a sale of the portfolio.

 

		September 30,				December 31,
		2019				2018
Life insurance portfolio policy benefits		$	2,064,156,000			$	2,047,992,000
Discount rate of future cash flows(1)			7.51	%			7.75	%
Net present value of life insurance portfolio policy benefits		$	840,381,000			$	770,074,000
All cash and cash equivalents (including restricted cash)			73,885,000				125,436,000
Life insurance policy benefits receivable (net of allowance)			17,369,000				16,461,000
Other assets(2)			662,229,000				591,048,000
Total Coverage		$	1,593,864,000			$	1,503,019,000
Senior credit facility with LNV Corporation		$	140,497,000			$	158,209,000
L Bonds and Seller Trust L Bonds			1,209,840,000				1,029,044,000
Total Indebtedness		$	1,350,337,000			$	1,187,253,000
Debt Coverage Ratio			84.72	%			78.99	%

 

(1)	Weighted-average interest rate paid on indebtedness, excluding that of Seller Trust L Bonds.

 

(2)

The Total Coverage amount as of September 30, 2019 includes “other assets” of GWG Holdings as reflected on its most recently available balance sheet prepared in accordance with GAAP. The definition of the Debt Coverage Ratio was defined in Amendment No. 1 to the Amended and Restated Indenture entered into as of March 27, 2018.

 

As of September 30, 2019 and December 31, 2018, we were in compliance with the Debt Coverage Ratio.

 

 

Portfolio Information

 

Our portfolio of life insurance policies, owned by our subsidiaries as of September 30, 2019, is summarized below:

 

Life Insurance Portfolio Summary

 

Total life insurance portfolio face value of policy benefits		$	2,064,156,000
Average face value per policy		$	1,758,000
Average face value per insured life		$	1,887,000
Average age of insured (years)*			82.3
Average life expectancy estimate (years)*			7.3
Total number of policies			1,174
Number of unique lives			1,094
Demographics			74% Male; 26% Female
Number of smokers			45
Largest policy as % of total portfolio face value			0.64	%
Average policy as % of total portfolio face value			0.09	%
Average annual premium as % of face value			3.2	%

 

*	Averages presented in the table are weighted averages.

 

Our portfolio of life insurance policies, owned by our subsidiaries as of September 30, 2019, organized by the insured’s current age and the associated number of policies and policy benefits, is summarized below:

 

Distribution of Policies and Policy Benefits by Current Age of Insured

 

												Percentage of Total
Min Age		Max Age		Number of Policies				Policy Benefits				Number of Policies				Policy Benefits				Wtd. Avg. LE (Years)
95		101			18			$	36,052,000				1.5	%			1.8	%			2.2
90		94			145				284,908,000				12.4	%			13.8	%			3.3
85		89			249				587,733,000				21.2	%			28.5	%			5.1
80		84			251				456,526,000				21.4	%			22.1	%			7.9
75		79			223				341,449,000				19.0	%			16.5	%			9.8
70		74			214				284,739,000				18.2	%			13.8	%			11.1
60		69			74				72,749,000				6.3	%			3.5	%			11.6
Total					1,174			$	2,064,156,000				100.0	%			100.0	%			7.3

 

Our portfolio of life insurance policies, owned by our subsidiaries as of September 30, 2019, organized by the insured’s estimated life expectancy estimates and associated policy benefits, is summarized below:

 

Distribution of Policies by Current Life Expectancies of Insured

 

												Percentage of Total
Min LE (Months)		Max LE (Months)		Number of Policies				Policy Benefits				Number of Policies				Policy Benefits
1		47			274			$	427,375000				23.4	%			20.7	%
48		71			227				420,572,000				19.3	%			20.4	%
72		95			222				402,460,000				18.9	%			19.5	%
96		119			189				322,231,000				16.1	%			15.6	%
120		143			130				231,096,000				11.1	%			11.2	%
144		179			101				178,008,000				8.6	%			8.6	%
180		246			31				82,414,000				2.6	%			4.0	%
Total					1,174			$	2,064,156,000				100.0	%			100.0	%

 

 

We rely on the payment of policy benefit claims by life insurance companies as a significant source of cash inflow. The life insurance assets we own represent obligations of third-party life insurance companies to pay the benefit amount under the policy upon the mortality of the insured. As a result, we manage this credit risk exposure by generally purchasing policies issued by insurance companies with investment-grade ratings from Standard & Poor’s, and diversifying our life insurance portfolio among a number of insurance companies.

 

The yield to maturity on bonds issued by life insurance carriers reflects, among other things, the credit risk (risk of default) of such insurance carrier. We follow the yields on certain publicly traded life insurance company bonds because this information is part of the data we consider when valuing our portfolio of life insurance policies for our financial statements.

 

The average yield to maturity of publicly traded life insurance company bonds data we consider as inputs to our life insurance portfolio valuation process was 2.80% as of September 30, 2019. We believe that this reflects, in part, the financial market’s judgment that credit risk is low with regard to these carriers’ financial obligations. The obligations of life insurance carriers to pay life insurance policy benefits ranks senior to all of their other financial obligations, including the senior bonds they issue. As of September 30, 2019, approximately 95.8% of the face value of policy benefits in our life insurance portfolio were issued by insurance companies with investment-grade credit ratings from Standard & Poor’s.

 

As of September 30, 2019, our ten largest life insurance company credit exposures and the Standard & Poor’s credit rating of their respective financial strength and claims-paying ability is set forth below:

 

Distribution of Policy Benefits by Top 10 Insurance Companies

 

Rank		Policy Benefits				Percentage of Policy Benefit Amount				Insurance Company		Ins. Co. S&P Rating
1		$	289,492,000				14.2	%		John Hancock Life Insurance Company		AA-
2			231,578,000				11.5	%		Lincoln National Life Insurance Company		AA-
3			219,801,000				10.6	%		AXA Equitable Life Insurance Company		A+
4			195,849,000				9.6	%		Transamerica Life Insurance Company		AA-
5			120,332,000				5.8	%		Metropolitan Life Insurance Company		AA-
6			97,918,000				4.8	%		American General Life Insurance Company		A+
7			85,998,000				4.2	%		Pacific Life Insurance Company		AA-
8			70,258,000				3.4	%		Security Life of Denver Insurance Company		A+
9			69,976,000				3.4	%		ReliaStar Life Insurance Company		A+
10			62,095,000				3.1	%		Massachusetts Mutual Life Insurance Company		AA+
		$	1,443,297,000				70.6	%

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities and Exchange Act of 1934) as of September 30, 2019 (the end of the period covered by this report). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, due to material weaknesses in internal control over financial reporting described in Part II, Item 9A of our 2018 Annual Report on Form 10-K for the year ended December 31, 2018, our disclosure controls and procedures were not effective as of September 30, 2019.

 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under the caption “Remediation Plan”.

 

Remediation Plan

 

We began implementing a remediation plan to address the control deficiencies that led to the material weaknesses mentioned above. The remediation plan includes the following:

 

●

Assessing the sufficiency of accounting resources and personnel to effectively design and execute process level controls over complex non-recurring transactions and obtaining additional resources and/or personnel where required. We are also assessing our level of engagement of external professional services supporting these processes.

 

●

Active engagement with our material equity method investee to define reporting requirements and timelines to help ensure dependencies from them for our reporting deliverables are successfully met.

 

We are in the design and implementation phase of our remediation plan described above. The material weaknesses cannot be considered remediated until the controls have operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate these material weaknesses by December 31, 2019.

 

 

PART II — OTHER INFORMATION

 

ITEM 5.

OTHER INFORMATION

 

Director Resignations; Reduction in Board Size

 

As a result of discussions among members of the Board of Directors (the “Board”) of GWG Holdings, and based in part on a determination that a Board comprised of fewer directors would facilitate that Board’s ability to oversee future Company activities in an efficient and effective manner, Messrs. Richard W. Fisher, David H. Glaser, Sheldon I. Stein and Bruce E. Zimmerman resigned from the Board and the size of the Board was reduced from 14 to ten directors.

 

Certificates of Correction of Certificates of Designation of Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock

 

On November 13, 2019, the Company filed with the Secretary of State of the State of Delaware certificates of correction (the “Certificates of Correction”) of the Company’s Certificates of Designation of its Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock (the “Certificates of Designation”). The Certificates of Correction correct inaccuracies in the liquidation preferences of the Company’s Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock that were set forth in the Certificates of Designation. Copies of the Certificates of Correction of the Certificates of Designation of Redeemable Preferred Stock and Series 2 Redeemable Preferred Stock are attached as Exhibits 3.1 and 3.2, respectively, to this report, and are incorporated herein by reference.

 

Amendment to Purchase and Contribution Agreement

 

On October 25, 2019, the parties to the Purchase and Contribution Agreement entered into an amendment thereto (the “PCA Amendment”) extending the payment date for the cash consideration payable by BEN LP in respect of 2,500,000 shares of the Company’s common stock sold and transferred by Messrs. Jon and Steven Sabes in the Purchase and Contribution Transaction. The PCA Amendment also removed restrictions on BEN LP’s ability to use the proceeds of financing provided by the Company to pay such cash consideration. As required by the Purchase and Contribution Agreement, the Company, which is not a party thereto, consented to the PCA Amendment. Such consent was approved by a special committee of the Board of Directors of the Company composed solely of independent and disinterested directors of the Company. A copy of the PCA Amendment is attached as Exhibit 99.3 to this report and is incorporated herein by reference.

 

Operating Agreement of InsurTech Holdings, LLC

 

On September 13, 2019, the Company formed InsurTech Holdings, LLC, a wholly owned Delaware limited liability company (“InsurTech Holdings”). On November 1, 2019, the Company and InsurTech Management, LLC (“InsurTech Management”) entered into an Operating Agreement for InsurTech Holdings (the “Operating Agreement”). InsurTech Management, which is currently the only other party to the Operating Agreement, is a Delaware limited liability company owned and controlled by Jon Sabes, the Company’s former Chief Executive Officer.

 

Pursuant to the Operating Agreement, and in exchange for units representing limited liability company membership interests in InsurTech Holdings, the Company agreed to contribute to Insurtech Holdings 100% of the capital stock of Life Epigenetics Inc. and 100% of the membership interests of youSourance General Agency, LLC, all intellectual property related thereto, certain specified office equipment and other assets and cash in the amount of $1.25 million. The Company also agreed to make $18.75 million of additional cash contributions to the capital of InsurTech Holdings over the two year period commencing November 1, 2019. The Company has also agreed to allow InsurTech Holdings to remain in its current leased premises in Minneapolis, Minnesota rent free until June 30, 2020. Thereafter, InsurTech Holdings may elect to remain in such leased premises through the end of the Company’s existing lease term (approximately seven years), during which the Company will pay all lease and occupancy expenses. One-half of the present value of such lease and occupancy expenses will be credited toward and reduce the amount of the Company’s obligation to make future capital contributions.

 

The Operating Agreement provides that InsurTech Holdings will be managed by a three member board of managers (the “InsurTech Board”). The InsurTech Board will be comprised of two managers appointed by InsurTech Management, each of whom shall meet the independence criteria under the rules of the Nasdaq Stock Market. The third manager will be InsurTech Holdings’ Chief Executive Officer, who is currently Jon R. Sabes. With the exception of certain major decisions set forth in the Operating Agreement that require unanimous member consent, the InsurTech Board has authority to manage the business and affairs of InsurTech Holdings.

 

Operating and capital distributions will be made in the discretion of the InsurTech Board. Any such distributions will be paid first to the Company until the Company has received aggregate distributions in an amount equal to its unreturned capital contributions. Thereafter, 80% of distributable amounts will be paid to the Company and 20% will be paid to InsurTech Management.

 

 

2019 Annual Stockholders Meeting

 

The Company has scheduled its 2019 annual stockholders meeting (the “Annual Meeting”) to be held on Thursday, December 12, 2019, at 9:00 a.m., at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402. Stockholders of record on November 12, 2019 will be entitled to vote at the Annual Meeting or any adjournments thereof.

 

In accordance with Rule 14a-5(f) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), proposals to be considered for inclusion in the Company’s proxy statement for the Annual Meeting pursuant to Rule 14a-8 promulgated under the Exchange Act must be received by the Company at its principal executive offices on or before November 20, 2019. Proposals must also comply with the applicable requirements of Rule 14a-8 of the Exchange Act regarding the inclusion of stockholder proposals in Company-sponsored proxy materials and other applicable laws. In addition, in order for a stockholder proposal made outside of Rule 14a-8 under the Exchange Act to be considered “timely” within the meaning of Rule 14a-4(c) of the Exchange Act, such proposal must be received by the Company at its principal executive offices on or before November 24, 2019. Proposals should be directed to the attention of the Corporate Secretary, 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402.

 

ITEM 6.

EXHIBITS

 

Exhibit
3.1		Certificate of Correction of Certificate of Designation of Redeemable Preferred Stock (filed herewith).
3.2		Certificate of Correction of Certificate of Designation of Series 2 Redeemable Preferred Stock (filed herewith).
31.1		Section 302 Certification of the Chief Executive Officer (filed herewith).
31.2		Section 302 Certification of the Chief Financial Officer (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.1		Letter from ClearLife Limited, dated November 1, 2019 (filed herewith).
99.2		Portfolio of Life Insurance Policies as of September 30, 2019 (filed herewith).
99.3		Amendment to Purchase and Contribution Agreement (filed herewith).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	GWG HOLDINGS, INC.
Date: November 14, 2019	By:	/s/ Murray T. Holland
		President and Chief Executive Officer
Date: November 14, 2019	By:	/s/ Timothy L. Evans
		Chief Financial Officer

 

 

EXHIBIT INDEX

 

Exhibit
3.1		Certificate of Correction of Certificate of Designation of Redeemable Preferred Stock (filed herewith).
3.2		Certificate of Correction of Certificate of Designation of Series 2 Redeemable Preferred Stock (filed herewith).
31.1		Section 302 Certification of the Chief Executive Officer (filed herewith).
31.2		Section 302 Certification of the Chief Financial Officer (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.1		Letter from ClearLife Limited, dated November 1, 2019 (filed herewith).
99.2		Portfolio of Life Insurance Policies as of September 30, 2019 (filed herewith).
99.3		Amendment to Purchase and Contribution Agreement (filed herewith).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

 

79

Exhibit 3.1

 

STATE OF DELAWARE

 

CERTIFICATE OF CORRECTION

 

GWG HOLDINGS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.

 

DOES HEREBY CERTIFY:

 

1. The name of the corporation is GWG Holdings, Inc.

 

2. That a Certificate of Designation of Redeemable Preferred Stock was filed by the Secretary of State of Delaware on October 30, 2015 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

 

3. The inaccuracy or defect of said Certificate is:

 

Article 5 inaccurately states the liquidation preference of the Redeemable Preferred Stock as established by the Board of Directors. The liquidation preference is payable solely upon the voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs, which are the sole “Liquidation Events,” and not upon the occurrence of the events specified in Article 5(a)(i) or (ii). Therefore, Article 5(a), (b), (c) and (d) are inaccurate.

 

In addition, Article 7 inaccurately states that a notice must be given to holders upon any transaction specified in Article 5(a)(i) or (ii) that constitutes a Liquidation Event. Therefore, the second sentence in Article 7 is inaccurate.

 

4. Article 5 of the Certificate is corrected to read as follows:

 

5. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs (a “Liquidation Event”), before any distribution or payment shall be made to holders of the Company’s common stock or any other class or series of capital stock ranking junior to the Redeemable Preferred Stock, the holders of shares of Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

 

 

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Redeemable Preferred Stock will have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

 

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of the Company’s capital stock, or otherwise, is permitted under Delaware law, amounts that would be needed, if the Company were to be dissolved at the time of any such distribution, to satisfy the preferential rights of the holders of Redeemable Preferred Stock shall not be added to the Company’s total liabilities.

 

5. Article 7 of the Certificate is corrected to read as follows:

 

7. Certain Notices. The Company will provide the holders of Redeemable Preferred Stock with prior written notice of any meeting of the stockholders of the Company, and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the holders of Redeemable Preferred Stock with at least 20 days’ written notice prior to the consummation of a Liquidation Event.

 

IN WITNESS WHEREOF, said corporation has caused this Certificate of Correction to be executed this 13^th day of November, A.D. 2019.

 

	By:	/s/ Murray T. Holland
		Authorized Officer
	Name:	Murray T. Holland
		Print or Type
	Title:	President and CEO

 

 

 

 

Exhibit 3.2

 

STATE OF DELAWARE

 

CERTIFICATE OF CORRECTION

 

GWG HOLDINGS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.

 

DOES HEREBY CERTIFY:

 

1. The name of the corporation is GWG Holdings, Inc.

 

2. That a Certificate of Designation of Series 2 Redeemable Preferred Stock was filed by the Secretary of State of Delaware on February 16, 2017 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

 

3. The inaccuracy or defect of said Certificate is:

 

Article 5 inaccurately states the liquidation preference of the Series 2 Redeemable Preferred Stock as established by the Board of Directors. The liquidation preference is payable solely upon the voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs, which are the sole “Liquidation Events,” and not upon the occurrence of the events specified in Article 5(a)(i) or (ii). Therefore, Article 5(a), (b), (c) and (d) are inaccurate.

 

In addition, Article 7 inaccurately states that a notice must be given to holders upon any transaction specified in Article 5(a)(i) or (ii) that constitutes a Liquidation Event. Therefore, the second sentence in Article 7 is inaccurate.

 

4. Article 5 of the Certificate is corrected to read as follows:

 

5. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company’s affairs (a “Liquidation Event”), before any distribution or payment shall be made to holders of the Company’s common stock or any other class or series of capital stock ranking junior to the Series 2 Redeemable Preferred Stock, the holders of shares of Series 2 Redeemable Preferred Stock shall be entitled to be paid out of the Company’s assets legally available for distribution to the Company’s stockholders, after payment or provision for the Company’s debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.

 

After payment of the full amount of the liquidating distributions to which they are entitled, the holders of the shares of Series 2 Redeemable Preferred Stock will have no right or claim to any of the Company’s remaining assets. The Company’s consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into the Company, the sale or transfer of any or all of the Company’s assets or business, or a statutory share exchange shall not be deemed to constitute a liquidation, dissolution or winding-up of the Company’s affairs.

 

 

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of the Company’s capital stock, or otherwise, is permitted under Delaware law, amounts that would be needed, if the Company were to be dissolved at the time of any such distribution, to satisfy the preferential rights of the holders of Series 2 Redeemable Preferred Stock shall not be added to the Company’s total liabilities.

 

5. Article 7 of the Certificate is corrected to read as follows:

 

7. Certain Notices. The Company will provide the Holders with prior written notice of any meeting of the stockholders of the Company, and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the Holders with at least 20 days’ written notice prior to the consummation of a Liquidation Event.

 

IN WITNESS WHEREOF, said corporation has caused this Certificate of Correction to be executed this 13^th day of November, A.D. 2019.

 

	By:	/s/ Murray T. Holland
		Authorized Officer
	Name:	Murray T. Holland
		Print or Type
	Title:	President and CEO

 

Exhibit 31.1

 

SECTION 302 CERTIFICATION

 

I, Murray T. Holland, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of GWG Holdings, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 14, 2019	/s/ Murray T. Holland
	Chief Executive Officer

 

Exhibit 31.2

 

SECTION 302 CERTIFICATION

 

I, Timothy L. Evans, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of GWG Holdings, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 14, 2019	/s/ Timothy L. Evans
	Chief Financial Officer

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of GWG Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Murray T. Holland, Chief Executive Officer of the Company, and I, Timothy Evans, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Act of 1934; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

	/s/ Murray T. Holland
	Murray T. Holland
	Chief Executive Officer
	November 14, 2019
	/s/ Timothy L. Evans
	Timothy L. Evans
	Chief Financial Officer
	November 14, 2019

 

Exhibit 99.1

 

 

 

November 1, 2019

 

GWG Life, LLC

220 South Sixth Street, Suite 1200

Minneapolis MN 55402

United States of America

 

Dear Sirs

 

Re:

GWG Life Settlements Portfolio – Quarterly Valuation as of September 30, 2019

 

You have asked that we prepare a valuation of your portfolio as of the Valuation Date set out in Appendix A. Terms used in this letter and not otherwise defined herein have the meaning specified in your Subscription Agreement with us or on the ClariNet LS website.

 

Assumptions and Reliance

 

●

In preparing this valuation, we have relied upon the accuracy of the data contained in your ClariNet LS account as of the Pricing Date specified in Appendix A.

 

●

We have performed no testing of such data to determine its accuracy or completeness.

 

●

We have prepared this valuation solely with respect to the Portfolio identified in Appendix A as of the Pricing Date.

 

●

We have used assumptions as to discount rates and survival curve construction which have been specified by you and which are set out in Appendix B.

 

●

We have assumed that you have independently determined that the premium schedule used to value each Case is sufficient to carry the relevant Policy through to maturity.

 

●

The survival curves used in valuation have been generated by reference to mortality factors and underwriting dates supplied by you. We understand that these mortality factors reflect your determination of the Longest LE for the relevant Insured (as defined in Appendix C). We have not made any independent investigation of this determination.

 

Valuation

 

Based on the composition of the Portfolio as of the Pricing Date, we find that the Net Present Value of the Portfolio on the Valuation Date is as specified in Appendix A.

 

Yours faithfully

 

CLEARLIFE LIMITED

 

By:	/s/ Mark Venn
Name:	Mark Venn
Title:	CEO

 

ClearLife Limited, Triscombe House, Triscombe, Taunton TA4 3HG, United Kingdom

 

Tel. +44 (0)20 7100 0600 / info@clearlifeltd.com / www.clearlifeltd.com

ClearLife Limited is a company registered in England & Wales. Registration number 06424296
Registered office: Priory House, Pilgrims Court, Sydenham Road, Guildford GU1 3RX

 

 

 

 

Appendix A

Valuation Inputs and Outputs

 

Description		Current Quarter				Previous Quarter
Valuation Date			September 30, 2019				June 30, 2019
Pricing Date:			October 31, 2019				August 15, 2019
ClariNet LS Portfolio Name:			2019 Q3 Valuation Snapshot				GWG 2019 Q2 Snapshot 2019-08-13 9:27:04 PM
Total Face Amount:		$	2,095,307,569			$	2,119,687,386
Total Net Death Benefit:		$	2,064,155,926			$	2,088,445,176
Number of Active Policies:			1,174				1,190
Discount Rate:			8.25	%			8.25	%
Net Present Value:		$	807,518,088			$	799,266,180

 

Definitions

 

●

Total Face Amount: this is the sum of the Face Amounts for each Case included in the Portfolio on the Valuation Date.

 

●

Total Net Death Benefit: This is the Net Death Benefit on the Valuation Date for each Case included in the Portfolio as of the Pricing Date. This excludes any Retained Death Benefit (“RDB”) amounts. Where the Case has a RDB amount which varies over time, the number shown here reflects the RDB amount as of the Valuation Date. The Net Death Benefit associated with each Case may vary over time and may not equal the Face Amount for the relevant Case.

 

●

Number of Active Policies: This is the number of Cases in the Portfolio on the Valuation Date with a Status other than MAT, PEND, SOLD, EXP, SURR or LAPS.

 

●

Number of Unique Surviving Insureds: This is the number of unique surviving Insureds referenced by the Active Policies in the Portfolio on the Valuation Date. This number may be fewer than the Number of Active Policies, where a single Insured is referenced by more than one Active Policy.

 

●

Net Present Value: This is the sum of the net present values calculated on the Pricing Date for all Active Policies in the Portfolio on the Valuation Date, determined by discounting the future mortality-adjusted cashflows back to the Valuation Date at the Discount Rate.

 

 

 

 

Appendix B

Valuation Template Settings

 

Parameter Name		Current Quarter				Previous Quarter
Fees Template			Zero Fees				Zero Fees
Q(x) Adjustment			None				None
Mortality Table Name			2015 ANB				2015 ANB
Improvement Rates			0	%			0	%
Survival Factor Interpolation Type			Piecewise Constant Qx				Piecewise Constant Qx
Interpolate VBT Table Row Based on DOB at LE Review Date			False				False
Calculation of Joint Life Survival Curve			Frasierized				Frasierized
Smoking Status Override			Non-smoker				Non-smoker
LE Calculation Type			Mean				Mean
Calculation of LE Review Date Given Multiple Reports			Blended				Blended
NDB Collection Lag in Months			0				0
Longevity Calculation Type			Monthly				Monthly
Number of months to stress Qx			0				0
Interest payment during NDB collection lag			None				None
User-defined NDB collection lag interest rate			0	%			0	%
Aging underwriter reports			Regular				Regular
Apply Table Improvement from Underwriting Date			False				False
Blending methodology when combining life expectancy reports			Lx				Lx
Apply Improvement Rate Before Mortality Calculation			False				False
Set Value Date to next Policy monthiversary			True				True
Set LE Report Date(s) to Policy monthiversary			True				True

 

 

Appendix C

Longest LE Definition

 

Longest LE: The LE Estimate used for each Policy within the Portfolio for purposes of calculating A2E analytics and Fair Market Value prospectively:

 

●

For any Policy owned as of December 31, 2018 that was purchased prior to LE underwriting changes by ITM TwentyFirst Services in 2013, the longer of the two LEs utilized in the valuation of the Policy following receipt of the updated LEs ordered in response to the 2013 changes;

 

●

For any Policy owned as of December 31, 2018 that was purchased after the LE underwriting changes by ITM TwentyFirst Services in 2013, the longest LE on file that was utilized in the pricing of the Policy at the closing of the Policy purchase (in instances where additional LE Reports were ordered, these were incorporated into the analysis whether in receipt of the LE Report at the time of closing or not, so long as the LE Report was received by a date no more than 30 calendar days subsequent to the closing date of the Policy purchase); and

 

●

For any Policy purchased subsequent to December 31, 2018 (i.e. future purchases for purposes of the initial A2E analysis), the longest life expectancy utilized in the pricing of the Policy at the closing of the Policy purchase so long as the LE Report is received by a date no more than 30 calendar days subsequent to the closing date of the Policy purchase.

 

 

3

 

 

Exhibit 99.2

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
1	$	5,000,000		F		94		12		Lincoln National Life Insurance Company		AA-
2	$	687,006		M		84		51		The State Life Insurance Company		AA-
3	$	325,000		M		89		29		Lincoln National Life Insurance Company		AA-
4	$	5,000,000		M		92		31		American General Life Insurance Company		A+
5	$	2,000,000		M		90		57		Transamerica Life Insurance Company		AA-
6	$	1,000,000		M		88		55		John Hancock Life Insurance Company (U.S.A.)		AA-
7	$	3,500,000		F		93		43		Lincoln National Life Insurance Company		AA-
8	$	1,200,000		M		91		46		Transamerica Life Insurance Company		AA-
9	$	1,000,000		M		83		117		Transamerica Life Insurance Company		AA-
10	$	800,000		M		83		117		Columbus Life Insurance Company		AA-
11	$	2,000,000		M		78		101		American General Life Insurance Company		A+
12	$	1,203,520		M		94		33		Columbus Life Insurance Company		AA-
13	$	1,000,000		M		84		99		Protective Life Insurance Company		AA-
14	$	5,000,000		M		80		120		Massachusetts Mutual Life Insurance Company		AA+
15	$	5,000,000		M		80		120		Massachusetts Mutual Life Insurance Company		AA+
16	$	6,799,139		M		83		114		AXA Equitable Life Insurance Company		A+
17	$	1,000,000		F		89		66		John Hancock Life Insurance Company (U.S.A.)		AA-
18	$	2,000,000		M		81		90		Lincoln National Life Insurance Company		AA-
19	$	1,358,500		M		82		64		Metropolitan Life Insurance Company		AA-
20	$	500,000		F		82		102		Columbus Life Insurance Company		AA-
21	$	1,000,000		F		90		69		Security Life of Denver Insurance Company		A+
22	$	5,000,000		F		94		31		ReliaStar Life Insurance Company		A+
23	$	1,000,000		M		89		39		John Hancock Life Insurance Company (U.S.A.)		AA-
24	$	5,000,000		F		86		47		Transamerica Life Insurance Company		AA-
25	$	2,500,000		F		93		41		American General Life Insurance Company		A+
26	$	1,000,000		M		82		94		Metropolitan Life Insurance Company		AA-
27	$	450,000		M		76		97		Jackson National Life Insurance Company		AA-
28	$	3,261,000		M		89		47		Pacific Life Insurance Company		AA-
29	$	500,000		M		84		44		Transamerica Life Insurance Company		AA-
30	$	750,000		M		87		60		John Hancock Life Insurance Company (U.S.A.)		AA-
31	$	5,000,000		M		92		36		AXA Equitable Life Insurance Company		A+
32	$	7,600,000		M		88		78		Transamerica Life Insurance Company		AA-
33	$	2,000,000		M		88		25		Lincoln Benefit Life Company		BBB
34	$	500,000		M		87		76		Metropolitan Life Insurance Company		AA-
35	$	2,225,000		F		93		61		Transamerica Life Insurance Company		AA-
36	$	2,000,000		F		86		92		Transamerica Life Insurance Company		AA-
37	$	5,000,000		F		89		76		American General Life Insurance Company		A+
38	$	4,000,000		F		92		57		Transamerica Life Insurance Company		AA-
39	$	550,000		M		85		82		Genworth Life Insurance Company		B-
40	$	500,000		M		78		59		American General Life Insurance Company		A+
41	$	1,000,000		M		83		72		Sun Life Assurance Company of Canada (U.S.)		AA
42	$	350,000		M		86		33		Jackson National Life Insurance Company		AA-
43	$	5,000,000		M		86		80		American General Life Insurance Company		A+
44	$	2,500,000		M		89		40		Metropolitan Life Insurance Company		AA-
45	$	1,803,455		F		92		34		Metropolitan Life Insurance Company		AA-
46	$	1,529,270		F		92		34		Metropolitan Life Insurance Company		AA-
47	$	1,841,877		M		76		115		Metropolitan Life Insurance Company		AA-
48	$	2,000,000		F		96		9		Pruco Life Insurance Company		AA-
49	$	600,000		M		81		73		Protective Life Insurance Company		AA-
50	$	6,000,000		F		88		82		American General Life Insurance Company		A+
51	$	1,000,000		M		83		89		Metropolitan Tower Life Insurance Company		NR
52	$	2,500,000		F		88		54		American General Life Insurance Company		A+
53	$	1,000,000		M		86		104		Metropolitan Tower Life Insurance Company		NR
54	$	2,000,000		M		88		30		Metropolitan Life Insurance Company		AA-
55	$	2,247,450		F		88		35		Transamerica Life Insurance Company		AA-
56	$	5,000,000		F		88		76		AXA Equitable Life Insurance Company		A+
57	$	500,000		F		92		48		Sun Life Assurance Company of Canada (U.S.)		AA
58	$	10,000,000		M		85		42		Hartford Life and Annuity Insurance Company		BBB
59	$	1,285,000		F		88		67		Connecticut General Life Insurance Company		A
60	$	5,000,000		F		95		43		American General Life Insurance Company		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
61	$	1,800,000		M		90		40		John Hancock Life Insurance Company (U.S.A.)		AA-
62	$	500,000		M		94		29		Massachusetts Mutual Life Insurance Company		AA+
63	$	6,608,699		F		87		84		Phoenix Life Insurance Company		BB
64	$	5,000,000		M		87		62		Lincoln National Life Insurance Company		AA-
65	$	1,500,000		M		83		59		John Hancock Life Insurance Company (U.S.A.)		AA-
66	$	1,500,000		M		83		55		John Hancock Life Insurance Company (U.S.A.)		AA-
67	$	8,500,000		M		91		59		Massachusetts Mutual Life Insurance Company		AA+
68	$	1,800,000		F		88		36		Lincoln National Life Insurance Company		AA-
69	$	3,000,000		F		92		60		Massachusetts Mutual Life Insurance Company		AA+
70	$	1,000,000		M		80		81		Pacific Life Insurance Company		AA-
71	$	750,000		M		88		63		West Coast Life Insurance Company		AA-
72	$	2,000,000		M		92		25		John Hancock Life Insurance Company (U.S.A.)		AA-
73	$	8,000,000		M		85		77		AXA Equitable Life Insurance Company		A+
74	$	2,000,000		M		90		41		AXA Equitable Life Insurance Company		A+
75	$	1,750,000		M		90		41		AXA Equitable Life Insurance Company		A+
76	$	4,785,380		F		92		22		John Hancock Life Insurance Company (U.S.A.)		AA-
77	$	1,365,000		F		90		68		Transamerica Life Insurance Company		AA-
78	$	2,000,000		M		84		76		Transamerica Life Insurance Company		AA-
79	$	5,000,000		M		85		71		AXA Equitable Life Insurance Company		A+
80	$	7,000,000		F		87		77		John Hancock Life Insurance Company (U.S.A.)		AA-
81	$	10,000,000		M		86		67		Lincoln National Life Insurance Company		AA-
82	$	500,000		M		92		44		Lincoln National Life Insurance Company		AA-
83	$	3,601,500		M		83		70		Transamerica Life Insurance Company		AA-
84	$	10,000,000		M		87		58		AXA Equitable Life Insurance Company		A+
85	$	5,000,000		F		91		23		Transamerica Life Insurance Company		AA-
86	$	1,500,000		M		87		77		Lincoln National Life Insurance Company		AA-
87	$	7,600,000		F		88		79		Transamerica Life Insurance Company		AA-
88	$	1,680,000		F		85		34		AXA Equitable Life Insurance Company		A+
89	$	3,000,000		M		88		49		Metropolitan Life Insurance Company		AA-
90	$	1,500,000		M		92		38		Ameritas Life Insurance Corporation		A+
91	$	4,200,000		F		88		90		Transamerica Life Insurance Company		AA-
92	$	2,000,000		F		88		82		Lincoln Benefit Life Company		BBB
93	$	5,000,000		M		94		24		John Hancock Life Insurance Company (U.S.A.)		AA-
94	$	3,000,000		M		86		54		Protective Life Insurance Company		AA-
95	$	1,000,000		M		91		44		John Hancock Life Insurance Company (U.S.A.)		AA-
96	$	2,000,000		M		91		44		John Hancock Life Insurance Company (U.S.A.)		AA-
97	$	3,500,000		F		89		82		Lincoln Benefit Life Company		BBB
98	$	5,000,000		M		92		35		John Hancock Life Insurance Company (U.S.A.)		AA-
99	$	1,000,000		F		93		46		Transamerica Life Insurance Company		AA-
100	$	3,000,000		F		85		80		West Coast Life Insurance Company		AA-
101	$	2,000,000		M		88		65		Pacific Life Insurance Company		AA-
102	$	7,500,000		M		92		31		Lincoln National Life Insurance Company		AA-
103	$	5,000,000		F		95		20		John Hancock Life Insurance Company (U.S.A.)		AA-
104	$	250,000		M		85		54		American General Life Insurance Company		A+
105	$	1,900,000		M		87		42		American National Insurance Company		A
106	$	1,500,000		F		89		82		Lincoln Benefit Life Company		BBB
107	$	2,000,000		F		82		53		Transamerica Life Insurance Company		AA-
108	$	611,737		F		83		42		Beneficial Life Insurance Company		NR
109	$	500,000		M		82		52		John Hancock Life Insurance Company (U.S.A.)		AA-
110	$	2,500,000		M		91		26		Transamerica Life Insurance Company		AA-
111	$	2,500,000		M		93		22		Pacific Life Insurance Company		AA-
112	$	5,000,000		M		86		48		Transamerica Life Insurance Company		AA-
113	$	5,000,000		M		89		60		Security Life of Denver Insurance Company		A+
114	$	2,250,000		M		83		74		Massachusetts Mutual Life Insurance Company		AA+
115	$	4,445,467		M		92		38		Penn Mutual Life Insurance Company		A+
116	$	5,000,000		M		80		54		West Coast Life Insurance Company		AA-
117	$	4,000,000		M		88		18		John Hancock Life Insurance Company (U.S.A.)		AA-
118	$	1,009,467		M		83		37		John Hancock Life Insurance Company (U.S.A.)		AA-
119	$	1,000,000		F		93		36		United of Omaha Life Insurance Company		AA-
120	$	3,000,000		M		85		72		John Hancock Life Insurance Company (U.S.A.)		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
121	$	4,000,000		F		89		21		ReliaStar Life Insurance Company of New York		A+
122	$	3,000,000		M		85		100		Principal Life Insurance Company		A+
123	$	4,000,000		M		82		59		Metropolitan Life Insurance Company		AA-
124	$	5,000,000		M		83		48		John Hancock Life Insurance Company (U.S.A.)		AA-
125	$	800,000		M		91		38		National Western Life Insurance Company		A-
126	$	4,500,000		M		87		50		AXA Equitable Life Insurance Company		A+
127	$	1,000,000		M		80		90		North American Company for Life and Health Insurance		A+
128	$	5,000,000		F		93		39		Massachusetts Mutual Life Insurance Company		AA+
129	$	5,000,000		M		82		36		John Hancock Life Insurance Company (U.S.A.)		AA-
130	$	1,000,000		M		70		57		Lincoln National Life Insurance Company		AA-
131	$	5,000,000		M		83		55		Pacific Life Insurance Company		AA-
132	$	10,000,000		M		85		88		John Hancock Life Insurance Company (U.S.A.)		AA-
133	$	2,000,000		F		87		73		Lincoln National Life Insurance Company		AA-
134	$	3,500,000		F		87		61		AXA Equitable Life Insurance Company		A+
135	$	1,167,000		M		76		35		Transamerica Life Insurance Company		AA-
136	$	5,000,000		M		84		69		John Hancock Life Insurance Company (U.S.A.)		AA-
137	$	5,000,000		M		88		49		Lincoln National Life Insurance Company		AA-
138	$	5,000,000		M		79		39		Lincoln Benefit Life Company		BBB
139	$	2,000,000		M		90		46		Lincoln National Life Insurance Company		AA-
140	$	2,500,000		M		82		73		Massachusetts Mutual Life Insurance Company		AA+
141	$	2,500,000		M		82		73		Massachusetts Mutual Life Insurance Company		AA+
142	$	5,000,000		M		85		55		AXA Equitable Life Insurance Company		A+
143	$	3,500,000		F		94		50		John Hancock Life Insurance Company (U.S.A.)		AA-
144	$	200,000		M		79		51		ReliaStar Life Insurance Company		A+
145	$	2,000,000		F		84		76		Pacific Life Insurance Company		AA-
146	$	4,000,000		M		84		59		Lincoln National Life Insurance Company		AA-
147	$	1,000,000		M		85		36		AXA Equitable Life Insurance Company		A+
148	$	1,000,000		F		88		58		John Hancock Life Insurance Company (U.S.A.)		AA-
149	$	2,000,000		M		90		17		Transamerica Life Insurance Company		AA-
150	$	2,500,000		F		87		66		ReliaStar Life Insurance Company		A+
151	$	3,000,000		F		89		58		Sun Life Assurance Company of Canada (U.S.)		AA
152	$	300,000		M		80		52		Penn Mutual Life Insurance Company		A+
153	$	2,000,000		F		89		68		AXA Equitable Life Insurance Company		A+
154	$	400,000		M		87		71		Voya Retirement Insurance and Annuity Company		AA-
155	$	1,000,000		F		91		32		West Coast Life Insurance Company		AA-
156	$	3,500,000		M		87		55		AXA Equitable Life Insurance Company		A+
157	$	5,000,000		M		83		89		Principal Life Insurance Company		A+
158	$	5,000,000		M		82		106		Lincoln National Life Insurance Company		AA-
159	$	2,000,000		F		91		32		West Coast Life Insurance Company		AA-
160	$	1,000,000		M		87		51		Lincoln National Life Insurance Company		AA-
161	$	3,000,000		M		83		87		Principal Life Insurance Company		A+
162	$	3,000,000		M		91		33		Transamerica Life Insurance Company		AA-
163	$	5,000,000		M		91		57		Lincoln National Life Insurance Company		AA-
164	$	1,000,000		M		85		63		AXA Equitable Life Insurance Company		A+
165	$	3,000,000		F		79		115		General American Life Insurance Company		NR
166	$	130,000		M		84		31		Genworth Life Insurance Company		B-
167	$	800,000		M		76		107		Protective Life Insurance Company		AA-
168	$	2,000,000		F		80		107		Accordia Life and Annuity Company		A-
169	$	500,000		M		77		77		Lincoln National Life Insurance Company		AA-
170	$	4,300,000		F		84		84		American National Insurance Company		A
171	$	6,000,000		M		83		90		AXA Equitable Life Insurance Company		A+
172	$	3,000,000		M		77		71		AXA Equitable Life Insurance Company		A+
173	$	2,000,000		F		84		87		Transamerica Life Insurance Company		AA-
174	$	1,000,000		M		79		92		Transamerica Life Insurance Company		AA-
175	$	3,000,000		M		84		96		ReliaStar Life Insurance Company		A+
176	$	750,000		M		83		54		Lincoln National Life Insurance Company		AA-
177	$	2,840,000		M		81		97		Transamerica Life Insurance Company		AA-
178	$	1,000,000		M		89		33		Lincoln National Life Insurance Company		AA-
179	$	2,500,000		M		76		87		American General Life Insurance Company		A+
180	$	2,000,000		M		86		48		Ohio National Life Assurance Corporation		A-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
181	$	1,000,000		M		86		48		Ohio National Life Assurance Corporation		A-
182	$	500,000		M		89		7		Genworth Life Insurance Company		B-
183	$	3,000,000		M		91		68		AXA Equitable Life Insurance Company		A+
184	$	800,000		M		92		51		Lincoln National Life Insurance Company		AA-
185	$	156,538		F		72		78		New York Life Insurance Company		AA+
186	$	500,000		M		90		65		Metropolitan Life Insurance Company		AA-
187	$	3,000,000		M		87		32		U.S. Financial Life Insurance Company		NR
188	$	3,000,000		M		79		72		First Allmerica Financial Life Insurance Company		A-
189	$	250,000		M		92		55		Metropolitan Life Insurance Company		AA-
190	$	7,000,000		M		85		71		Genworth Life Insurance Company		B-
191	$	5,000,000		M		83		67		John Hancock Life Insurance Company (U.S.A.)		AA-
192	$	8,000,000		M		79		83		Metropolitan Life Insurance Company		AA-
193	$	2,275,000		M		87		68		ReliaStar Life Insurance Company		A+
194	$	1,250,000		M		85		106		Metropolitan Life Insurance Company		AA-
195	$	1,750,000		M		85		79		AXA Equitable Life Insurance Company		A+
196	$	7,000,000		F		80		115		Pacific Life Insurance Company		AA-
197	$	3,000,000		F		88		2		AXA Equitable Life Insurance Company		A+
198	$	490,620		M		81		67		Ameritas Life Insurance Corporation		A+
199	$	1,250,000		M		91		13		Columbus Life Insurance Company		AA-
200	$	300,000		M		91		13		Columbus Life Insurance Company		AA-
201	$	1,500,000		M		86		54		American General Life Insurance Company		A+
202	$	1,703,959		M		88		45		Lincoln National Life Insurance Company		AA-
203	$	10,000,000		F		91		50		West Coast Life Insurance Company		AA-
204	$	1,556,751		F		98		23		Accordia Life and Annuity Company		A-
205	$	5,000,000		M		80		143		Pruco Life Insurance Company		AA-
206	$	2,000,000		M		91		72		Security Life of Denver Insurance Company		A+
207	$	2,000,000		M		91		72		Security Life of Denver Insurance Company		A+
208	$	2,000,000		M		91		72		Security Life of Denver Insurance Company		A+
209	$	1,000,000		M		88		40		Hartford Life and Annuity Insurance Company		BBB
210	$	3,000,000		M		83		47		Pacific Life Insurance Company		AA-
211	$	1,000,000		F		97		39		Transamerica Life Insurance Company		AA-
212	$	3,000,000		M		83		47		Minnesota Life Insurance Company		AA-
213	$	3,000,000		M		83		47		Pruco Life Insurance Company		AA-
214	$	1,500,000		M		83		78		MetLife Insurance Company USA		AA-
215	$	1,682,773		F		95		37		Hartford Life and Annuity Insurance Company		BBB
216	$	5,000,000		F		83		103		ReliaStar Life Insurance Company		A+
217	$	1,000,000		F		85		75		Lincoln National Life Insurance Company		AA-
218	$	6,000,000		M		83		86		AXA Equitable Life Insurance Company		A+
219	$	2,500,000		M		84		91		AXA Equitable Life Insurance Company		A+
220	$	854,980		M		80		89		John Hancock Life Insurance Company (U.S.A.)		AA-
221	$	2,500,000		M		84		91		AXA Equitable Life Insurance Company		A+
222	$	5,000,000		M		87		60		AXA Equitable Life Insurance Company		A+
223	$	2,000,000		M		72		47		Metropolitan Life Insurance Company		AA-
224	$	2,000,000		M		72		47		Metropolitan Life Insurance Company		AA-
225	$	250,000		F		85		73		Accordia Life and Annuity Company		A-
226	$	5,000,000		M		89		57		Security Life of Denver Insurance Company		A+
227	$	4,000,000		M		81		50		Massachusetts Mutual Life Insurance Company		AA+
228	$	6,000,000		F		91		44		Sun Life Assurance Company of Canada (U.S.)		AA
229	$	4,000,000		F		79		121		American General Life Insurance Company		A+
230	$	3,000,000		F		87		67		Metropolitan Life Insurance Company		AA-
231	$	1,000,000		F		81		81		John Hancock Life Insurance Company (U.S.A.)		AA-
232	$	4,513,823		F		91		16		Accordia Life and Annuity Company		A-
233	$	1,000,000		M		90		27		Massachusetts Mutual Life Insurance Company		AA+
234	$	1,000,000		F		90		12		State Farm Life Insurance Company		AA
235	$	1,000,000		M		71		141		Lincoln National Life Insurance Company		AA-
236	$	5,000,000		M		83		55		Pacific Life Insurance Company		AA-
237	$	400,000		M		81		92		John Hancock Life Insurance Company (U.S.A.)		AA-
238	$	3,000,000		M		75		78		John Hancock Life Insurance Company (U.S.A.)		AA-
239	$	3,100,000		F		94		19		Lincoln Benefit Life Company		BBB
240	$	1,000,000		M		83		113		Metropolitan Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
241	$	2,328,547		M		90		22		Metropolitan Life Insurance Company		AA-
242	$	2,000,000		M		90		22		Metropolitan Life Insurance Company		AA-
243	$	3,000,000		M		95		38		West Coast Life Insurance Company		AA-
244	$	2,000,000		M		72		118		Transamerica Life Insurance Company		AA-
245	$	1,000,000		M		72		118		Genworth Life Insurance Company		B-
246	$	700,000		M		75		73		John Hancock Life Insurance Company (U.S.A.)		AA-
247	$	1,400,000		F		80		118		John Hancock Life Insurance Company (U.S.A.)		AA-
248	$	500,000		M		76		104		Ameritas Life Insurance Corporation		A+
249	$	370,000		M		76		104		Ameritas Life Insurance Corporation		A+
250	$	250,000		M		79		127		Protective Life Insurance Company		AA-
251	$	6,000,000		M		84		100		AXA Equitable Life Insurance Company		A+
252	$	500,000		M		76		133		Protective Life Insurance Company		AA-
253	$	2,141,356		M		75		99		New York Life Insurance Company		AA+
254	$	1,210,000		M		85		42		Lincoln National Life Insurance Company		AA-
255	$	2,204,843		M		75		99		New York Life Insurance Company		AA+
256	$	1,000,000		M		86		31		American General Life Insurance Company		A+
257	$	300,000		M		80		76		Jackson National Life Insurance Company		AA-
258	$	3,000,000		M		80		89		Protective Life Insurance Company		AA-
259	$	500,000		M		93		23		Allianz Life Insurance Company of North America		AA
260	$	250,000		F		93		46		Transamerica Life Insurance Company		AA-
261	$	476,574		M		83		56		Transamerica Life Insurance Company		AA-
262	$	750,000		M		79		117		Protective Life Insurance Company		AA-
263	$	2,502,000		M		85		131		Transamerica Life Insurance Company		AA-
264	$	1,050,000		M		92		29		John Hancock Life Insurance Company (U.S.A.)		AA-
265	$	5,500,000		M		87		41		Lincoln National Life Insurance Company		AA-
266	$	1,000,000		M		72		172		AXA Equitable Life Insurance Company		A+
267	$	750,000		M		76		111		Security Life of Denver Insurance Company		A+
268	$	2,500,000		M		75		121		Lincoln National Life Insurance Company		AA-
269	$	2,500,000		M		75		121		John Hancock Life Insurance Company (U.S.A.)		AA-
270	$	1,656,744		F		92		38		New York Life Insurance Company		AA+
271	$	2,500,000		M		80		119		John Hancock Life Insurance Company (U.S.A.)		AA-
272	$	2,500,000		M		80		119		John Hancock Life Insurance Company (U.S.A.)		AA-
273	$	1,103,922		F		93		38		Sun Life Assurance Company of Canada (U.S.)		AA
274	$	1,000,000		M		88		39		Lincoln Benefit Life Company		BBB
275	$	1,500,000		F		90		77		Transamerica Life Insurance Company		AA-
276	$	2,000,000		M		80		98		Transamerica Life Insurance Company		AA-
277	$	200,000		M		80		93		Pruco Life Insurance Company		AA-
278	$	320,987		F		84		77		John Hancock Life Insurance Company (U.S.A.)		AA-
279	$	1,000,000		F		83		95		John Hancock Life Insurance Company (U.S.A.)		AA-
280	$	200,000		F		90		57		Lincoln National Life Insurance Company		AA-
281	$	150,000		M		80		88		Genworth Life Insurance Company		B-
282	$	1,000,000		M		81		55		Transamerica Life Insurance Company		AA-
283	$	200,000		M		84		47		Protective Life Insurance Company		AA-
284	$	150,000		M		84		47		Protective Life Insurance Company		AA-
285	$	150,000		M		84		47		Protective Life Insurance Company		AA-
286	$	350,000		M		84		47		Lincoln National Life Insurance Company		AA-
287	$	1,000,000		M		72		65		Protective Life Insurance Company		AA-
288	$	300,000		F		85		46		Hartford Life and Annuity Insurance Company		BBB
289	$	100,000		F		92		27		American General Life Insurance Company		A+
290	$	100,000		F		92		27		American General Life Insurance Company		A+
291	$	200,000		M		72		161		Protective Life Insurance Company		AA-
292	$	800,000		M		84		51		North American Company for Life and Health Insurance		A+
293	$	100,946		F		80		136		Genworth Life and Annuity Insurance Company		B-
294	$	150,000		M		71		102		Protective Life Insurance Company		AA-
295	$	775,000		M		83		104		Lincoln National Life Insurance Company		AA-
296	$	9,635,575		M		87		112		ReliaStar Life Insurance Company		A+
297	$	10,000,000		F		78		136		ReliaStar Life Insurance Company		A+
298	$	250,000		M		86		114		ReliaStar Life Insurance Company		A+
299	$	3,000,000		M		84		124		Metropolitan Life Insurance Company		AA-
300	$	2,400,000		M		88		19		Genworth Life Insurance Company		B-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
301	$	250,000		M		74		37		Protective Life Insurance Company		AA-
302	$	1,000,000		M		70		65		Transamerica Life Insurance Company		AA-
303	$	2,000,000		M		81		81		Genworth Life Insurance Company		B-
304	$	385,000		M		87		45		Metropolitan Life Insurance Company		AA-
305	$	500,000		M		87		45		Metropolitan Life Insurance Company		AA-
306	$	3,500,000		M		88		42		Pacific Life Insurance Company		AA-
307	$	4,000,000		M		90		33		Metropolitan Life Insurance Company		AA-
308	$	1,000,000		M		81		79		Accordia Life and Annuity Company		A-
309	$	5,616,468		M		71		164		John Hancock Life Insurance Company (U.S.A.)		AA-
310	$	3,000,000		M		79		103		John Hancock Life Insurance Company (U.S.A.)		AA-
311	$	5,000,000		M		79		103		John Hancock Life Insurance Company (U.S.A.)		AA-
312	$	200,000		M		84		31		Pruco Life Insurance Company		AA-
313	$	800,000		M		78		91		Lincoln National Life Insurance Company		AA-
314	$	2,147,816		F		88		91		John Hancock Life Insurance Company (U.S.A.)		AA-
315	$	2,500,000		M		77		96		John Hancock Life Insurance Company (U.S.A.)		AA-
316	$	3,000,000		M		80		83		Pruco Life Insurance Company		AA-
317	$	500,000		F		94		28		Massachusetts Mutual Life Insurance Company		AA+
318	$	1,000,000		F		94		28		Hartford Life and Annuity Insurance Company		BBB
319	$	1,000,000		F		94		28		Massachusetts Mutual Life Insurance Company		AA+
320	$	250,000		M		70		145		Pruco Life Insurance Company		AA-
321	$	500,000		M		78		85		United of Omaha Life Insurance Company		AA-
322	$	3,500,000		M		96		31		ReliaStar Life Insurance Company		A+
323	$	650,000		F		74		55		Security Life of Denver Insurance Company		A+
324	$	1,000,000		M		83		60		Lincoln National Life Insurance Company		AA-
325	$	2,000,000		M		89		26		Metropolitan Life Insurance Company		AA-
326	$	3,000,000		M		89		26		Metropolitan Life Insurance Company		AA-
327	$	3,000,000		M		82		70		American General Life Insurance Company		A+
328	$	3,000,000		M		70		96		ReliaStar Life Insurance Company		A+
329	$	2,000,000		M		70		96		AXA Equitable Life Insurance Company		A+
330	$	5,000,000		F		75		162		West Coast Life Insurance Company		AA-
331	$	1,433,572		M		88		33		Security Mutual Life Insurance Company of New York		NR
332	$	500,000		M		77		119		Pruco Life Insurance Company		AA-
333	$	5,014,318		M		78		120		American General Life Insurance Company		A+
334	$	250,000		M		88		3		Midland National Life Insurance Company		A+
335	$	500,000		M		78		71		AXA Equitable Life Insurance Company		A+
336	$	2,000,000		M		78		103		Pruco Life Insurance Company		AA-
337	$	250,000		M		79		80		Midland National Life Insurance Company		A+
338	$	2,000,000		M		79		129		John Hancock Life Insurance Company (U.S.A.)		AA-
339	$	1,250,000		M		74		101		West Coast Life Insurance Company		AA-
340	$	400,000		M		88		29		Transamerica Life Insurance Company		AA-
341	$	2,000,000		F		88		47		New York Life Insurance Company		AA+
342	$	300,000		F		79		116		Minnesota Life Insurance Company		AA-
343	$	700,000		M		85		71		Banner Life Insurance Company		AA-
344	$	3,000,000		M		92		76		Transamerica Life Insurance Company		AA-
345	$	1,000,000		M		86		45		Hartford Life and Annuity Insurance Company		BBB
346	$	2,000,000		M		70		96		AXA Equitable Life Insurance Company		A+
347	$	1,000,000		M		86		45		Jackson National Life Insurance Company		AA-
348	$	2,500,000		M		82		110		American General Life Insurance Company		A+
349	$	400,000		M		73		144		Lincoln National Life Insurance Company		AA-
350	$	1,000,000		M		78		87		Transamerica Life Insurance Company		AA-
351	$	1,000,000		F		78		129		John Hancock Life Insurance Company (U.S.A.)		AA-
352	$	420,000		M		75		104		RiverSource Life Insurance Company		AA-
353	$	100,000		M		83		47		North American Company for Life and Health Insurance		A+
354	$	250,000		F		73		109		Ohio National Life Assurance Corporation		A-
355	$	300,000		F		84		70		Metropolitan Life Insurance Company		AA-
356	$	100,000		F		72		156		North American Company for Life and Health Insurance		A+
357	$	1,000,000		F		76		115		United of Omaha Life Insurance Company		AA-
358	$	3,000,000		M		67		136		U.S. Financial Life Insurance Company		NR
359	$	5,000,000		M		75		120		John Hancock Life Insurance Company (U.S.A.)		AA-
360	$	250,000		M		76		53		American General Life Insurance Company		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
361	$	7,500,000		F		79		159		Security Life of Denver Insurance Company		A+
362	$	3,000,000		F		75		207		John Hancock Life Insurance Company (U.S.A.)		AA-
363	$	1,000,000		M		80		82		First Allmerica Financial Life Insurance Company		A-
364	$	200,000		F		80		118		West Coast Life Insurance Company		AA-
365	$	500,000		M		79		78		AXA Equitable Life Insurance Company		A+
366	$	200,000		M		84		50		Kansas City Life Insurance Company		NR
367	$	417,300		M		86		70		Jackson National Life Insurance Company		AA-
368	$	2,000,000		M		80		60		Athene Annuity & Life Assurance Company		A
369	$	1,445,000		F		83		80		AXA Equitable Life Insurance Company		A+
370	$	1,500,000		F		83		80		AXA Equitable Life Insurance Company		A+
371	$	3,500,000		M		85		58		Metropolitan Life Insurance Company		AA-
372	$	10,000,000		M		87		49		Lincoln National Life Insurance Company		AA-
373	$	1,000,000		M		87		33		Texas Life Insurance Company		NR
374	$	2,500,000		M		72		155		Pruco Life Insurance Company		AA-
375	$	2,500,000		M		72		155		Pruco Life Insurance Company		AA-
376	$	572,429		F		95		18		ReliaStar Life Insurance Company		A+
377	$	3,000,000		M		77		83		Transamerica Life Insurance Company		AA-
378	$	200,000		M		83		33		Lincoln National Life Insurance Company		AA-
379	$	3,000,000		F		82		65		New York Life Insurance Company		AA+
380	$	340,000		F		87		55		Jackson National Life Insurance Company		AA-
381	$	1,000,000		F		88		69		West Coast Life Insurance Company		AA-
382	$	750,000		M		71		145		The Northwestern Mutual Life Insurance Company		AA+
383	$	2,000,000		M		86		64		New York Life Insurance Company		AA+
384	$	300,000		M		76		93		New England Life Insurance Company		A+
385	$	10,000,000		M		76		114		AXA Equitable Life Insurance Company		A+
386	$	400,000		M		77		63		Protective Life Insurance Company		AA-
387	$	1,784,686		M		77		139		Transamerica Life Insurance Company		AA-
388	$	1,700,000		M		85		39		Lincoln National Life Insurance Company		AA-
389	$	1,014,136		M		89		27		AXA Equitable Life Insurance Company		A+
390	$	375,000		M		93		20		Lincoln National Life Insurance Company		AA-
391	$	1,500,000		M		73		98		Midland National Life Insurance Company		A+
392	$	750,000		M		74		113		Transamerica Life Insurance Company		AA-
393	$	1,000,000		F		84		60		Lincoln Benefit Life Company		BBB
394	$	150,000		M		74		23		Protective Life Insurance Company		AA-
395	$	500,000		M		83		58		American General Life Insurance Company		A+
396	$	1,500,000		F		74		149		Pruco Life Insurance Company		AA-
397	$	1,500,000		M		77		120		Lincoln National Life Insurance Company		AA-
398	$	1,500,000		M		77		120		Lincoln National Life Insurance Company		AA-
399	$	1,500,000		M		77		120		Lincoln National Life Insurance Company		AA-
400	$	500,000		F		86		84		AXA Equitable Life Insurance Company		A+
401	$	750,000		M		69		111		Pacific Life Insurance Company		AA-
402	$	1,000,000		F		81		102		John Hancock Life Insurance Company (U.S.A.)		AA-
403	$	355,700		M		79		81		Security Life of Denver Insurance Company		A+
404	$	750,000		M		72		110		North American Company for Life and Health Insurance		A+
405	$	500,000		M		94		37		ReliaStar Life Insurance Company		A+
406	$	6,637,021		M		81		178		John Hancock Life Insurance Company (U.S.A.)		AA-
407	$	209,176		M		90		48		Lincoln National Life Insurance Company		AA-
408	$	400,000		M		70		152		Lincoln National Life Insurance Company		AA-
409	$	400,000		M		75		177		Protective Life Insurance Company		AA-
410	$	1,000,000		M		77		118		John Hancock Life Insurance Company (U.S.A.)		AA-
411	$	500,000		F		92		15		Transamerica Life Insurance Company		AA-
412	$	400,000		F		92		15		Lincoln Benefit Life Company		BBB
413	$	750,000		M		81		69		North American Company for Life and Health Insurance		A+
414	$	1,000,000		M		81		69		John Hancock Life Insurance Company (U.S.A.)		AA-
415	$	8,500,000		M		88		82		John Hancock Life Insurance Company (U.S.A.)		AA-
416	$	1,000,000		M		79		136		Security Mutual Life Insurance Company of New York		NR
417	$	550,000		M		82		53		Pruco Life Insurance Company		AA-
418	$	300,000		M		82		53		Pruco Life Insurance Company		AA-
419	$	1,269,017		M		91		10		Hartford Life and Annuity Insurance Company		BBB
420	$	1,220,000		M		82		81		ReliaStar Life Insurance Company of New York		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
421	$	500,000		M		89		26		New England Life Insurance Company		A+
422	$	1,500,000		M		73		72		Lincoln National Life Insurance Company		AA-
423	$	300,000		M		76		147		Banner Life Insurance Company		AA-
424	$	600,000		M		76		147		Banner Life Insurance Company		AA-
425	$	1,000,000		M		79		107		Transamerica Life Insurance Company		AA-
426	$	350,000		M		69		91		RiverSource Life Insurance Company		AA-
427	$	4,547,770		F		77		163		Principal Life Insurance Company		A+
428	$	3,000,000		F		80		80		John Hancock Life Insurance Company (U.S.A.)		AA-
429	$	250,000		F		71		60		Transamerica Life Insurance Company		AA-
430	$	600,000		M		88		109		AXA Equitable Life Insurance Company		A+
431	$	1,275,000		M		87		30		General American Life Insurance Company		NR
432	$	370,000		F		78		107		Minnesota Life Insurance Company		AA-
433	$	754,428		M		78		22		North American Company for Life and Health Insurance		A+
434	$	6,000,000		M		85		79		Transamerica Life Insurance Company		AA-
435	$	500,000		M		81		69		North American Company for Life and Health Insurance		A+
436	$	500,000		M		74		102		Ohio National Life Assurance Corporation		A-
437	$	1,500,000		M		90		38		AXA Equitable Life Insurance Company		A+
438	$	850,000		F		85		68		Zurich Life Insurance Company		A
439	$	5,500,000		M		84		97		Metropolitan Life Insurance Company		AA-
440	$	700,000		M		73		110		Massachusetts Mutual Life Insurance Company		AA+
441	$	1,500,000		M		85		43		Lincoln Benefit Life Company		BBB
442	$	250,000		M		70		179		Protective Life Insurance Company		AA-
443	$	7,097,434		M		80		138		Lincoln National Life Insurance Company		AA-
444	$	8,000,000		M		84		107		Metropolitan Life Insurance Company		AA-
445	$	4,000,000		M		84		76		Lincoln National Life Insurance Company		AA-
446	$	330,000		M		91		42		AXA Equitable Life Insurance Company		A+
447	$	175,000		M		91		42		Metropolitan Life Insurance Company		AA-
448	$	335,000		M		91		42		Metropolitan Life Insurance Company		AA-
449	$	500,000		F		95		49		John Hancock Life Insurance Company (U.S.A.)		AA-
450	$	1,250,000		M		82		77		AXA Equitable Life Insurance Company		A+
451	$	5,000,000		M		74		149		Metropolitan Life Insurance Company		AA-
452	$	2,000,000		M		76		104		Security Life of Denver Insurance Company		A+
453	$	500,000		F		93		19		Nationwide Life and Annuity Insurance Company		A+
454	$	1,000,000		M		70		92		The Savings Bank Mutual Life Insurance Company of Massachusetts		NR
455	$	5,000,000		M		78		111		American General Life Insurance Company		A+
456	$	350,000		M		80		85		AXA Equitable Life Insurance Company		A+
457	$	320,000		M		70		148		Transamerica Life Insurance Company		AA-
458	$	2,500,000		M		75		55		Transamerica Life Insurance Company		AA-
459	$	3,000,000		F		85		56		AXA Equitable Life Insurance Company		A+
460	$	850,000		M		87		30		American General Life Insurance Company		A+
461	$	1,000,000		M		71		120		Transamerica Life Insurance Company		AA-
462	$	5,000,000		F		89		30		Security Life of Denver Insurance Company		A+
463	$	1,500,000		M		76		104		Security Life of Denver Insurance Company		A+
464	$	172,245		F		78		37		Symetra Life Insurance Company		A
465	$	500,000		M		77		44		William Penn Life Insurance Company of New York		AA-
466	$	420,000		M		75		133		Protective Life Insurance Company		AA-
467	$	800,000		M		77		102		John Hancock Life Insurance Company (U.S.A.)		AA-
468	$	100,000		M		75		125		Protective Life Insurance Company		AA-
469	$	150,000		M		74		23		AXA Equitable Life Insurance Company		A+
470	$	4,000,000		M		75		131		MONY Life Insurance Company of America		A+
471	$	750,000		M		87		56		AXA Equitable Life Insurance Company		A+
472	$	5,000,000		M		91		71		West Coast Life Insurance Company		AA-
473	$	250,000		M		88		48		ReliaStar Life Insurance Company		A+
474	$	2,500,000		M		88		42		AXA Equitable Life Insurance Company		A+
475	$	1,000,000		M		81		96		Principal Life Insurance Company		A+
476	$	1,980,000		M		89		24		New York Life Insurance Company		AA+
477	$	325,000		M		87		34		Genworth Life and Annuity Insurance Company		B-
478	$	175,000		F		73		91		Lincoln National Life Insurance Company		AA-
479	$	500,000		M		76		87		William Penn Life Insurance Company of New York		AA-
480	$	1,000,000		M		70		140		Sun Life Assurance Company of Canada (U.S.)		AA

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
481	$	250,000		F		72		138		Protective Life Insurance Company		AA-
482	$	1,000,000		M		88		24		Metropolitan Tower Life Insurance Company		NR
483	$	300,000		M		76		97		Protective Life Insurance Company		AA-
484	$	300,000		M		72		84		Protective Life Insurance Company		AA-
485	$	2,000,000		M		76		127		John Hancock Life Insurance Company (U.S.A.)		AA-
486	$	3,000,000		M		71		188		John Hancock Life Insurance Company (U.S.A.)		AA-
487	$	1,500,000		F		84		65		Protective Life Insurance Company		AA-
488	$	500,000		F		69		154		Banner Life Insurance Company		AA-
489	$	2,000,000		M		81		90		Lincoln National Life Insurance Company		AA-
490	$	1,100,000		M		80		117		Accordia Life and Annuity Company		A-
491	$	125,000		M		89		36		Jackson National Life Insurance Company		AA-
492	$	1,187,327		M		84		71		Transamerica Life Insurance Company		AA-
493	$	267,988		M		76		37		Minnesota Life Insurance Company		AA-
494	$	1,200,000		M		72		139		Massachusetts Mutual Life Insurance Company		AA+
495	$	5,000,000		M		74		106		Transamerica Life Insurance Company		AA-
496	$	600,000		M		80		85		AXA Equitable Life Insurance Company		A+
497	$	160,000		M		75		80		RiverSource Life Insurance Company		AA-
498	$	1,000,000		F		92		35		Metropolitan Life Insurance Company		AA-
499	$	125,000		F		97		-		Lincoln National Life Insurance Company		AA-
500	$	300,000		M		74		176		John Hancock Life Insurance Company (U.S.A.)		AA-
501	$	500,000		M		73		93		Lincoln Benefit Life Company		BBB
502	$	1,000,000		F		87		50		American General Life Insurance Company		A+
503	$	1,200,000		F		81		114		Athene Annuity & Life Assurance Company		A
504	$	300,000		M		72		117		Farmers New World Life Insurance Company		NR
505	$	3,000,000		M		88		66		Transamerica Life Insurance Company		AA-
506	$	175,000		M		87		34		Genworth Life and Annuity Insurance Company		B-
507	$	100,000		M		76		91		Protective Life Insurance Company		AA-
508	$	100,000		M		78		131		Protective Life Insurance Company		AA-
509	$	1,000,000		M		75		110		American General Life Insurance Company		A+
510	$	250,000		M		76		104		Protective Life Insurance Company		AA-
511	$	5,000,000		M		70		95		Athene Annuity & Life Assurance Company		A
512	$	4,000,000		F		82		80		Transamerica Life Insurance Company		AA-
513	$	10,000,000		M		87		104		Pacific Life Insurance Company		AA-
514	$	250,000		F		77		151		Protective Life Insurance Company		AA-
515	$	92,000		F		73		180		Protective Life Insurance Company		AA-
516	$	200,000		M		69		145		Pruco Life Insurance Company		AA-
517	$	200,000		M		69		145		Pruco Life Insurance Company		AA-
518	$	190,000		F		75		172		Protective Life Insurance Company		AA-
519	$	1,000,000		M		79		59		Metropolitan Life Insurance Company		AA-
520	$	190,000		M		78		83		Protective Life Insurance Company		AA-
521	$	5,000,000		M		80		118		AXA Equitable Life Insurance Company		A+
522	$	650,000		M		70		167		Lincoln National Life Insurance Company		AA-
523	$	1,000,000		M		74		42		John Hancock Life Insurance Company (U.S.A.)		AA-
524	$	1,000,000		M		83		76		Lincoln National Life Insurance Company		AA-
525	$	846,510		M		70		114		Lincoln National Life Insurance Company		AA-
526	$	846,210		M		70		114		Lincoln National Life Insurance Company		AA-
527	$	2,000,000		F		80		148		Lincoln National Life Insurance Company		AA-
528	$	900,000		M		70		109		Banner Life Insurance Company		AA-
529	$	202,700		M		74		98		Farmers New World Life Insurance Company		NR
530	$	500,000		M		78		75		Delaware Life Insurance Company		BBB+
531	$	10,000,000		M		77		125		John Hancock Life Insurance Company (U.S.A.)		AA-
532	$	1,000,000		M		88		59		Lincoln National Life Insurance Company		AA-
533	$	232,000		M		74		160		Protective Life Insurance Company		AA-
534	$	809,320		M		76		71		Commonwealth Annuity and Life Insurance Company		A-
535	$	2,200,000		F		80		133		ReliaStar Life Insurance Company		A+
536	$	100,000		M		79		41		AXA Equitable Life Insurance Company		A+
537	$	3,500,000		M		68		188		Pruco Life Insurance Company		AA-
538	$	492,547		M		70		99		AXA Equitable Life Insurance Company		A+
539	$	1,000,000		F		95		16		Lincoln National Life Insurance Company		AA-
540	$	250,000		M		73		165		Lincoln National Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
541	$	1,000,000		M		72		113		Transamerica Life Insurance Company		AA-
542	$	150,000		M		83		63		Metropolitan Life Insurance Company		AA-
543	$	5,000,000		M		74		90		John Hancock Life Insurance Company (U.S.A.)		AA-
544	$	1,000,000		M		90		19		Sun Life Assurance Company of Canada (U.S.)		AA
545	$	1,000,000		M		72		134		John Hancock Life Insurance Company (U.S.A.)		AA-
546	$	1,000,000		M		69		104		Pruco Life Insurance Company		AA-
547	$	3,000,000		M		71		146		Transamerica Life Insurance Company		AA-
548	$	8,800,000		F		84		82		John Hancock Life Insurance Company (U.S.A.)		AA-
549	$	3,000,000		M		71		137		Genworth Life Insurance Company		B-
550	$	1,200,000		M		71		139		Genworth Life Insurance Company		B-
551	$	2,000,000		M		84		55		Metropolitan Life Insurance Company		AA-
552	$	2,000,000		M		84		55		Metropolitan Life Insurance Company		AA-
553	$	2,000,000		F		68		176		Metropolitan Life Insurance Company		AA-
554	$	5,000,000		M		87		48		Transamerica Life Insurance Company		AA-
555	$	100,000		M		73		83		Massachusetts Mutual Life Insurance Company		AA+
556	$	2,000,000		M		73		165		John Hancock Life Insurance Company (U.S.A.)		AA-
557	$	8,600,000		M		77		135		AXA Equitable Life Insurance Company		A+
558	$	4,000,000		M		82		130		John Hancock Life Insurance Company (U.S.A.)		AA-
559	$	250,000		F		78		135		AXA Equitable Life Insurance Company		A+
560	$	284,924		M		89		31		Transamerica Life Insurance Company		AA-
561	$	1,000,000		M		72		113		Protective Life Insurance Company		AA-
562	$	4,000,000		M		78		102		Security Mutual Life Insurance Company of New York		NR
563	$	1,000,000		M		84		71		John Hancock Life Insurance Company (U.S.A.)		AA-
564	$	185,000		M		74		112		Genworth Life Insurance Company		B-
565	$	2,500,000		M		77		124		Banner Life Insurance Company		AA-
566	$	600,000		M		78		58		United of Omaha Life Insurance Company		AA-
567	$	10,000,000		M		80		106		AXA Equitable Life Insurance Company		A+
568	$	250,000		F		75		88		Protective Life Insurance Company		AA-
569	$	500,000		M		68		55		Transamerica Life Insurance Company		AA-
570	$	5,000,000		F		85		49		Security Mutual Life Insurance Company of New York		NR
571	$	1,000,000		M		72		144		Accordia Life and Annuity Company		A-
572	$	400,000		F		72		130		MONY Life Insurance Company of America		A+
573	$	250,000		M		78		55		Genworth Life and Annuity Insurance Company		B-
574	$	302,432		F		87		74		AXA Equitable Life Insurance Company		A+
575	$	2,000,000		M		71		169		John Hancock Life Insurance Company (U.S.A.)		AA-
576	$	600,000		M		71		72		William Penn Life Insurance Company of New York		AA-
577	$	600,000		M		87		40		Massachusetts Mutual Life Insurance Company		AA+
578	$	500,000		F		69		114		American General Life Insurance Company		A+
579	$	5,000,000		F		81		79		John Hancock Life Insurance Company (U.S.A.)		AA-
580	$	80,000		F		87		29		Protective Life Insurance Company		AA-
581	$	540,000		M		68		154		Protective Life Insurance Company		AA-
582	$	200,000		M		79		49		Metropolitan Life Insurance Company		AA-
583	$	100,000		M		79		48		Metropolitan Life Insurance Company		AA-
584	$	1,100,000		M		71		137		John Hancock Life Insurance Company (U.S.A.)		AA-
585	$	730,000		M		80		82		Transamerica Life Insurance Company		AA-
586	$	2,000,000		M		93		19		John Hancock Life Insurance Company (U.S.A.)		AA-
587	$	1,000,000		F		76		123		ReliaStar Life Insurance Company		A+
588	$	1,000,000		M		79		78		General American Life Insurance Company		NR
589	$	250,000		M		83		66		AXA Equitable Life Insurance Company		A+
590	$	1,029,871		M		84		120		Principal Life Insurance Company		A+
591	$	4,000,000		M		72		116		MetLife Insurance Company USA		AA-
592	$	100,000		M		79		95		Transamerica Life Insurance Company		AA-
593	$	265,000		M		68		141		Protective Life Insurance Company		AA-
594	$	89,626		F		78		96		Ameritas Life Insurance Corporation		A+
595	$	8,000,000		F		101		16		Massachusetts Mutual Life Insurance Company		AA+
596	$	2,000,000		F		86		58		Lincoln National Life Insurance Company		AA-
597	$	5,000,000		M		81		95		Lincoln National Life Insurance Company		AA-
598	$	70,000		M		82		29		Pioneer Mutual Life Insurance Company		NR
599	$	252,259		M		74		85		Massachusetts Mutual Life Insurance Company		AA+
600	$	1,350,000		M		75		101		Lincoln National Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
601	$	1,000,000		M		72		71		AXA Equitable Life Insurance Company		A+
602	$	150,000		M		77		83		Genworth Life Insurance Company		B-
603	$	8,000,000		F		78		121		West Coast Life Insurance Company		AA-
604	$	500,000		F		89		10		Transamerica Life Insurance Company		AA-
605	$	500,000		M		84		31		Genworth Life and Annuity Insurance Company		B-
606	$	1,000,000		F		89		44		AXA Equitable Life Insurance Company		A+
607	$	100,000		M		84		55		Pruco Life Insurance Company		AA-
608	$	50,000		M		81		23		Lincoln National Life Insurance Company		AA-
609	$	400,000		M		69		114		Jackson National Life Insurance Company		AA-
610	$	500,000		F		87		74		AXA Equitable Life Insurance Company		A+
611	$	500,000		F		93		15		Transamerica Life Insurance Company		AA-
612	$	838,529		M		86		92		Transamerica Life Insurance Company		AA-
613	$	229,725		F		70		88		Hartford Life and Annuity Insurance Company		BBB
614	$	500,000		M		76		78		Lincoln National Life Insurance Company		AA-
615	$	250,000		M		68		103		Transamerica Life Insurance Company		AA-
616	$	1,000,000		M		80		122		AXA Equitable Life Insurance Company		A+
617	$	1,000,000		M		80		122		AXA Equitable Life Insurance Company		A+
618	$	250,000		M		91		19		Wilton Reassurance Life Insurance Company		NR
619	$	500,000		M		79		74		American General Life Insurance Company		A+
620	$	1,000,000		M		77		131		John Hancock Life Insurance Company (U.S.A.)		AA-
621	$	150,000		M		62		82		Jackson National Life Insurance Company		AA-
622	$	1,200,000		F		82		99		AXA Equitable Life Insurance Company		A+
623	$	500,000		F		82		113		Ohio National Life Assurance Corporation		A-
624	$	313,413		M		92		31		American General Life Insurance Company		A+
625	$	1,000,000		M		84		64		Penn Mutual Life Insurance Company		A+
626	$	10,000,000		M		68		81		Lincoln National Life Insurance Company		AA-
627	$	1,000,000		M		86		125		ReliaStar Life Insurance Company		A+
628	$	475,000		F		79		116		American General Life Insurance Company		A+
629	$	1,000,000		F		78		121		Companion Life Insurance Company		AA-
630	$	57,500		M		73		76		Lincoln National Life Insurance Company		AA-
631	$	105,333		F		70		116		Lincoln Benefit Life Company		BBB
632	$	67,602		F		70		116		Allstate Life Insurance Company of New York		A+
633	$	13,250,000		M		72		194		TIAA-CREF Life Insurance Company		AA+
634	$	240,000		M		85		17		Lincoln National Life Insurance Company		AA-
635	$	2,000,000		F		89		58		John Hancock Life Insurance Company (U.S.A.)		AA-
636	$	415,000		M		78		95		American General Life Insurance Company		A+
637	$	500,000		M		72		102		Lincoln National Life Insurance Company		AA-
638	$	250,000		F		68		181		Principal Life Insurance Company		A+
639	$	1,000,000		F		75		138		American General Life Insurance Company		A+
640	$	500,000		M		73		142		Protective Life Insurance Company		AA-
641	$	750,000		M		69		69		Massachusetts Mutual Life Insurance Company		AA+
642	$	5,000,000		M		74		107		John Hancock Life Insurance Company (U.S.A.)		AA-
643	$	300,000		M		92		23		John Hancock Life Insurance Company (U.S.A.)		AA-
644	$	10,000,000		M		74		149		Principal Life Insurance Company		A+
645	$	2,000,072		M		78		154		American General Life Insurance Company		A+
646	$	485,000		M		76		133		Metropolitan Life Insurance Company		AA-
647	$	300,000		M		78		71		First Allmerica Financial Life Insurance Company		A-
648	$	1,000,000		M		91		15		Security Life of Denver Insurance Company		A+
649	$	300,000		M		88		29		New England Life Insurance Company		A+
650	$	306,552		M		69		141		First Allmerica Financial Life Insurance Company		A-
651	$	750,000		F		79		68		Delaware Life Insurance Company		BBB+
652	$	5,000,000		M		74		107		John Hancock Life Insurance Company (U.S.A.)		AA-
653	$	600,000		M		84		23		Lincoln National Life Insurance Company		AA-
654	$	500,000		M		81		107		Pruco Life Insurance Company		AA-
655	$	560,000		M		71		123		AXA Equitable Life Insurance Company		A+
656	$	800,000		M		82		69		Minnesota Life Insurance Company		AA-
657	$	100,000		M		78		123		Genworth Life Insurance Company		B-
658	$	450,000		M		89		33		American General Life Insurance Company		A+
659	$	180,000		F		84		64		Midland National Life Insurance Company		A+
660	$	1,000,000		M		79		69		Transamerica Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
661	$	5,000,000		M		70		115		Lincoln National Life Insurance Company		AA-
662	$	1,000,000		M		83		61		Transamerica Life Insurance Company		AA-
663	$	750,000		M		82		88		General American Life Insurance Company		NR
664	$	500,000		F		87		64		Metropolitan Life Insurance Company		AA-
665	$	500,000		F		93		13		Lincoln National Life Insurance Company		AA-
666	$	215,000		M		80		100		Texas Life Insurance Company		NR
667	$	500,000		M		76		61		Phoenix Life Insurance Company		BB
668	$	656,656		M		78		69		MONY Life Insurance Company of America		A+
669	$	1,000,000		M		71		30		MONY Life Insurance Company of America		A+
670	$	3,000,000		F		85		51		AXA Equitable Life Insurance Company		A+
671	$	390,025		M		75		125		Genworth Life and Annuity Insurance Company		B-
672	$	400,000		M		93		17		Lincoln National Life Insurance Company		AA-
673	$	300,000		M		78		58		American General Life Insurance Company		A+
674	$	250,000		M		83		46		United of Omaha Life Insurance Company		AA-
675	$	500,000		M		83		61		Transamerica Life Insurance Company		AA-
676	$	500,000		M		77		95		New York Life Insurance Company		AA+
677	$	500,000		M		77		95		New York Life Insurance Company		AA+
678	$	1,500,000		F		91		24		Transamerica Life Insurance Company		AA-
679	$	500,000		F		91		24		Transamerica Life Insurance Company		AA-
680	$	800,000		F		83		73		John Alden Life Insurance Company		NR
681	$	100,000		M		71		105		Phoenix Life Insurance Company		BB
682	$	1,000,000		F		92		39		General American Life Insurance Company		NR
683	$	3,000,000		F		79		139		ReliaStar Life Insurance Company		A+
684	$	2,400,000		M		75		83		Transamerica Life Insurance Company		AA-
685	$	1,000,000		M		80		101		Security Life of Denver Insurance Company		A+
686	$	5,000,000		M		73		128		John Hancock Life Insurance Company (U.S.A.)		AA-
687	$	4,000,000		M		73		128		MONY Life Insurance Company of America		A+
688	$	66,000		M		85		60		Transamerica Life Insurance Company		AA-
689	$	8,000,000		M		77		169		Metropolitan Life Insurance Company		AA-
690	$	694,487		M		89		44		Lincoln National Life Insurance Company		AA-
691	$	1,000,000		M		67		129		John Hancock Life Insurance Company (U.S.A.)		AA-
692	$	350,000		M		68		106		Hartford Life and Annuity Insurance Company		BBB
693	$	1,532,043		M		72		138		John Hancock Life Insurance Company (U.S.A.)		AA-
694	$	1,000,000		M		91		48		AXA Equitable Life Insurance Company		A+
695	$	1,500,000		M		77		111		American General Life Insurance Company		A+
696	$	1,500,000		M		77		111		American General Life Insurance Company		A+
697	$	250,995		M		71		159		State Farm Life Insurance Company		AA
698	$	200,000		M		71		159		State Farm Life Insurance Company		AA
699	$	2,400,000		M		87		48		Phoenix Life Insurance Company		BB
700	$	2,000,000		M		73		148		Hartford Life and Annuity Insurance Company		BBB
701	$	2,000,000		M		88		54		American National Insurance Company		A
702	$	1,000,000		M		76		86		John Hancock Life Insurance Company (U.S.A.)		AA-
703	$	100,000		M		84		81		Protective Life Insurance Company		AA-
704	$	4,383,532		M		71		164		John Hancock Life Insurance Company (U.S.A.)		AA-
705	$	10,000,000		F		85		38		Transamerica Life Insurance Company		AA-
706	$	900,000		M		70		168		American General Life Insurance Company		A+
707	$	306,854		M		81		57		Voya Retirement Insurance and Annuity Company		AA-
708	$	314,000		M		74		136		Genworth Life Insurance Company		B-
709	$	120,000		F		87		63		Lincoln National Life Insurance Company		AA-
710	$	77,000		F		87		63		Lincoln National Life Insurance Company		AA-
711	$	1,000,000		M		73		142		Transamerica Life Insurance Company		AA-
712	$	250,000		M		74		136		Genworth Life Insurance Company		B-
713	$	100,000		M		76		112		Transamerica Life Insurance Company		AA-
714	$	200,000		M		87		43		John Hancock Life Insurance Company (U.S.A.)		AA-
715	$	385,741		M		73		81		Security Life of Denver Insurance Company		A+
716	$	4,000,000		M		75		136		AXA Equitable Life Insurance Company		A+
717	$	5,000,000		M		74		167		John Hancock Life Insurance Company (U.S.A.)		AA-
718	$	250,000		M		69		144		American General Life Insurance Company		A+
719	$	1,000,000		M		73		149		Protective Life Insurance Company		AA-
720	$	1,000,000		F		80		123		American General Life Insurance Company		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
721	$	1,000,000		M		75		83		Accordia Life and Annuity Company		A-
722	$	989,361		M		69		139		General American Life Insurance Company		NR
723	$	1,000,000		M		82		72		Massachusetts Mutual Life Insurance Company		AA+
724	$	240,000		M		71		109		New York Life Insurance Company		AA+
725	$	217,578		M		71		77		Sunset Life Insurance Company of America		NR
726	$	1,470,000		M		73		116		Brighthouse Life Insurance Company		AA-
727	$	6,805,007		M		82		190		Metropolitan Life Insurance Company		AA-
728	$	2,400,000		M		77		96		Phoenix Life Insurance Company		BB
729	$	200,000		M		91		41		American General Life Insurance Company		A+
730	$	1,500,000		M		86		68		General American Life Insurance Company		NR
731	$	1,000,000		F		86		106		Transamerica Life Insurance Company		AA-
732	$	3,042,627		M		76		107		Massachusetts Mutual Life Insurance Company		AA+
733	$	315,577		F		74		123		Lincoln National Life Insurance Company		AA-
734	$	250,000		M		81		121		Accordia Life and Annuity Company		A-
735	$	500,000		M		88		49		Connecticut General Life Insurance Company		A
736	$	6,000,000		M		74		181		AXA Equitable Life Insurance Company		A+
737	$	1,000,000		M		77		103		John Hancock Life Insurance Company (U.S.A.)		AA-
738	$	1,150,000		M		76		60		Penn Mutual Life Insurance Company		A+
739	$	218,362		M		84		99		Lincoln National Life Insurance Company		AA-
740	$	500,000		M		81		52		Lincoln Benefit Life Company		BBB
741	$	750,000		M		79		49		Genworth Life Insurance Company		B-
742	$	1,500,000		M		77		103		John Hancock Life Insurance Company (U.S.A.)		AA-
743	$	1,000,000		F		90		46		Transamerica Life Insurance Company		AA-
744	$	750,000		M		77		104		Midland National Life Insurance Company		A+
745	$	3,500,000		M		75		158		Ameritas Life Insurance Corporation		A+
746	$	1,500,000		M		75		158		Ameritas Life Insurance Corporation		A+
747	$	650,000		M		73		115		Protective Life Insurance Company		AA-
748	$	3,250,000		F		88		74		Metropolitan Life Insurance Company		AA-
749	$	3,075,000		F		88		74		Metropolitan Life Insurance Company		AA-
750	$	3,000,000		M		72		142		Guardian Life Insurance Company of America		AA+
751	$	250,000		M		68		130		Wilco Life Insurance Company		NR
752	$	750,000		M		77		131		Lincoln Benefit Life Company		BBB
753	$	5,000,000		M		87		77		Banner Life Insurance Company		AA-
754	$	10,000,000		M		85		77		Pacific Life Insurance Company		AA-
755	$	500,000		M		73		163		Lincoln National Life Insurance Company		AA-
756	$	855,000		M		86		74		Hartford Life and Annuity Insurance Company		BBB
757	$	4,000,000		F		89		75		John Hancock Life Insurance Company (U.S.A.)		AA-
758	$	1,000,000		M		77		150		John Hancock Life Insurance Company (U.S.A.)		AA-
759	$	500,000		M		72		155		United of Omaha Life Insurance Company		AA-
760	$	1,000,000		M		72		148		Lincoln Benefit Life Company		BBB
761	$	1,000,000		M		78		142		North American Company for Life and Health Insurance		A+
762	$	1,000,000		M		67		167		John Hancock Life Insurance Company (U.S.A.)		AA-
763	$	1,000,000		M		86		47		Security Mutual Life Insurance Company of New York		NR
764	$	300,000		M		80		88		Lincoln National Life Insurance Company		AA-
765	$	1,000,000		M		71		133		Brighthouse Life Insurance Company		AA-
766	$	340,000		M		80		88		Lincoln National Life Insurance Company		AA-
767	$	250,000		M		75		63		U.S. Financial Life Insurance Company		NR
768	$	1,000,000		M		74		137		Nationwide Life and Annuity Insurance Company		A+
769	$	785,000		M		84		90		Pacific Life Insurance Company		AA-
770	$	184,000		M		77		98		Protective Life Insurance Company		AA-
771	$	500,000		F		80		123		Accordia Life and Annuity Company		A-
772	$	750,000		M		73		130		USAA Life Insurance Company		AA+
773	$	1,500,000		M		82		108		John Hancock Life Insurance Company (U.S.A.)		AA-
774	$	10,074,335		F		87		73		Security Life of Denver Insurance Company		A+
775	$	3,000,000		M		85		73		John Hancock Life Insurance Company (U.S.A.)		AA-
776	$	300,000		F		89		62		Accordia Life and Annuity Company		A-
777	$	2,000,000		M		86		45		John Hancock Life Insurance Company (U.S.A.)		AA-
778	$	1,600,000		M		85		60		John Hancock Life Insurance Company (U.S.A.)		AA-
779	$	1,700,000		M		85		60		John Hancock Life Insurance Company (U.S.A.)		AA-
780	$	1,000,000		F		92		54		Lincoln National Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
781	$	1,000,000		M		82		64		Ameritas Life Insurance Corporation		A+
782	$	2,000,000		M		82		64		Metropolitan Life Insurance Company		AA-
783	$	1,000,000		M		73		77		Protective Life Insurance Company		AA-
784	$	2,216,571		F		87		73		Security Life of Denver Insurance Company		A+
785	$	500,000		M		68		132		Protective Life Insurance Company		AA-
786	$	1,000,000		M		71		133		Brighthouse Life Insurance Company		AA-
787	$	1,500,000		M		79		52		Security Life of Denver Insurance Company		A+
788	$	750,000		M		83		106		John Hancock Life Insurance Company (U.S.A.)		AA-
789	$	500,000		F		68		106		MONY Life Insurance Company of America		A+
790	$	1,500,000		M		89		37		Voya Retirement Insurance and Annuity Company		AA-
791	$	250,000		F		68		183		West Coast Life Insurance Company		AA-
792	$	1,000,000		M		79		116		Genworth Life and Annuity Insurance Company		B-
793	$	1,000,000		F		92		36		Metropolitan Life Insurance Company		AA-
794	$	4,000,000		M		67		89		William Penn Life Insurance Company of New York		AA-
795	$	750,000		F		72		161		John Hancock Life Insurance Company (U.S.A.)		AA-
796	$	400,000		M		70		107		Metropolitan Life Insurance Company		AA-
797	$	402,500		M		87		50		John Hancock Life Insurance Company (U.S.A.)		AA-
798	$	700,000		M		92		45		Ohio National Life Assurance Corporation		A-
799	$	1,500,000		M		71		130		AXA Equitable Life Insurance Company		A+
800	$	10,000,000		M		88		34		Lincoln National Life Insurance Company		AA-
801	$	1,000,000		M		76		154		Banner Life Insurance Company		AA-
802	$	3,000,000		M		78		134		Massachusetts Mutual Life Insurance Company		AA+
803	$	300,000		F		83		63		Columbus Life Insurance Company		AA-
804	$	323,027		F		82		138		Lincoln National Life Insurance Company		AA-
805	$	250,000		M		67		108		Pacific Life Insurance Company		AA-
806	$	1,000,000		M		72		174		Transamerica Life Insurance Company		AA-
807	$	500,000		M		76		105		Protective Life Insurance Company		AA-
808	$	3,000,000		M		85		89		ReliaStar Life Insurance Company		A+
809	$	500,000		M		83		114		Transamerica Life Insurance Company		AA-
810	$	1,000,000		M		83		99		Pruco Life Insurance Company		AA-
811	$	2,000,000		M		80		134		Lincoln National Life Insurance Company		AA-
812	$	1,000,000		F		76		135		Security Life of Denver Insurance Company		A+
813	$	750,000		M		84		36		Security Life of Denver Insurance Company		A+
814	$	450,000		M		88		32		North American Company for Life and Health Insurance		A+
815	$	700,000		M		78		134		Brighthouse Life Insurance Company		AA-
816	$	100,000		M		94		42		Sun Life Assurance Company of Canada (U.S.)		AA
817	$	400,000		M		77		83		Massachusetts Mutual Life Insurance Company		AA+
818	$	1,000,000		M		74		144		John Hancock Life Insurance Company (U.S.A.)		AA-
819	$	300,000		F		91		23		Lincoln National Life Insurance Company		AA-
820	$	3,528,958		F		85		83		Lincoln National Life Insurance Company		AA-
821	$	1,000,000		M		74		84		Transamerica Life Insurance Company		AA-
822	$	500,000		M		92		18		Transamerica Life Insurance Company		AA-
823	$	500,000		M		89		27		Lincoln National Life Insurance Company		AA-
824	$	10,000,000		F		75		192		John Hancock Life Insurance Company (U.S.A.)		AA-
825	$	1,500,000		M		69		141		John Hancock Life Insurance Company (U.S.A.)		AA-
826	$	355,468		M		76		73		Great American Life Insurance Company		A+
827	$	343,000		M		79		109		AXA Equitable Life Insurance Company		A+
828	$	2,000,000		M		88		83		Lincoln National Life Insurance Company		AA-
829	$	1,000,000		F		88		78		ReliaStar Life Insurance Company		A+
830	$	850,000		M		71		133		Brighthouse Life Insurance Company		AA-
831	$	1,000,000		F		91		35		Nationwide Life and Annuity Insurance Company		A+
832	$	2,500,000		M		84		105		West Coast Life Insurance Company		AA-
833	$	250,000		M		64		149		American General Life Insurance Company		A+
834	$	1,000,000		M		86		90		Lincoln National Life Insurance Company		AA-
835	$	1,000,000		M		86		62		Hartford Life and Annuity Insurance Company		BBB
836	$	534,703		M		72		108		Pacific Life Insurance Company		AA-
837	$	150,000		M		95		6		Transamerica Life Insurance Company		AA-
838	$	100,000		M		81		27		Time Insurance Company		NR
839	$	100,000		M		68		73		State Farm Life Insurance Company		AA
840	$	500,000		F		91		49		Metropolitan Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
841	$	200,000		M		71		141		Allstate Life Insurance Company of New York		A+
842	$	600,000		M		90		44		Ohio National Life Assurance Corporation		A-
843	$	6,500,000		M		83		108		Pacific Life Insurance Company		AA-
844	$	2,000,000		M		89		82		Protective Life Insurance Company		AA-
845	$	1,900,000		F		91		18		John Hancock Life Insurance Company (U.S.A.)		AA-
846	$	1,000,000		M		79		88		Lincoln National Life Insurance Company		AA-
847	$	350,000		M		86		38		Lincoln National Life Insurance Company		AA-
848	$	100,000		M		69		143		Shenandoah Life Insurance Company		NR
849	$	500,000		M		68		135		United of Omaha Life Insurance Company		AA-
850	$	280,000		M		72		132		Genworth Life and Annuity Insurance Company		B-
851	$	1,000,000		M		71		133		Brighthouse Life Insurance Company		AA-
852	$	500,000		M		81		92		John Hancock Life Insurance Company (U.S.A.)		AA-
853	$	2,000,000		M		83		128		AXA Equitable Life Insurance Company		A+
854	$	800,000		M		82		109		Lincoln National Life Insurance Company		AA-
855	$	360,000		M		98		10		John Hancock Life Insurance Company (U.S.A.)		AA-
856	$	3,500,000		M		69		156		AXA Equitable Life Insurance Company		A+
857	$	1,000,000		M		67		167		Banner Life Insurance Company		AA-
858	$	12,450,000		M		80		126		Brighthouse Life Insurance Company		AA-
859	$	150,000		M		67		70		John Hancock Life Insurance Company (U.S.A.)		AA-
860	$	250,000		M		72		48		Brighthouse Life Insurance Company		AA-
861	$	570,000		M		71		124		Nationwide Life Insurance Company		A+
862	$	200,000		M		75		35		First Penn-Pacific Life Insurance Company		A-
863	$	338,259		M		93		10		Voya Retirement Insurance and Annuity Company		AA-
864	$	1,697,278		M		80		100		John Hancock Life Insurance Company (U.S.A.)		AA-
865	$	450,000		F		82		72		Lincoln National Life Insurance Company		AA-
866	$	1,000,000		M		70		123		USAA Life Insurance Company		AA+
867	$	1,050,000		M		85		65		American General Life Insurance Company		A+
868	$	12,000,000		M		80		99		Brighthouse Life Insurance Company		AA-
869	$	5,000,000		F		90		49		Phoenix Life Insurance Company		BB
870	$	805,000		M		99		21		John Hancock Life Insurance Company (U.S.A.)		AA-
871	$	2,000,000		M		82		105		Brighthouse Life Insurance Company		AA-
872	$	6,000,000		M		80		202		Principal Life Insurance Company		A+
873	$	1,000,000		M		81		144		Transamerica Life Insurance Company		AA-
874	$	250,000		M		71		126		Genworth Life and Annuity Insurance Company		B-
875	$	200,000		M		69		194		North American Company for Life and Health Insurance		A+
876	$	1,750,000		M		89		29		American General Life Insurance Company		A+
877	$	1,750,000		M		89		29		American General Life Insurance Company		A+
878	$	1,000,000		M		73		77		Protective Life Insurance Company		AA-
879	$	1,000,000		M		73		77		Protective Life Insurance Company		AA-
880	$	1,000,000		M		72		182		Ameritas Life Insurance Corporation		A+
881	$	2,000,000		M		76		137		Brighthouse Life Insurance Company		AA-
882	$	1,060,000		M		78		98		Metropolitan Life Insurance Company		AA-
883	$	1,500,000		M		66		163		Metropolitan Life Insurance Company		AA-
884	$	4,000,000		M		74		88		Lincoln National Life Insurance Company		AA-
885	$	100,000		M		78		80		MONY Life Insurance Company of America		A+
886	$	5,000,000		M		72		190		Lincoln National Life Insurance Company		AA-
887	$	4,000,000		F		80		178		John Hancock Life Insurance Company (U.S.A.)		AA-
888	$	600,000		M		88		24		William Penn Life Insurance Company of New York		AA-
889	$	750,000		M		71		152		Pekin Life Insurance Company		NR
890	$	1,000,000		M		72		88		AXA Equitable Life Insurance Company		A+
891	$	750,000		M		86		72		Metropolitan Life Insurance Company		AA-
892	$	125,000		M		85		37		Accordia Life and Annuity Company		A-
893	$	3,000,000		F		89		38		North American Company for Life and Health Insurance		A+
894	$	1,000,000		F		86		75		Nationwide Life and Annuity Insurance Company		A+
895	$	6,000,000		M		77		169		United of Omaha Life Insurance Company		AA-
896	$	12,000,000		M		74		153		American General Life Insurance Company		A+
897	$	491,028		M		71		153		Lincoln Benefit Life Company		BBB
898	$	500,000		F		86		70		Lincoln National Life Insurance Company		AA-
899	$	450,000		M		80		181		Genworth Life and Annuity Insurance Company		B-
900	$	100,000		M		84		74		ReliaStar Life Insurance Company		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
901	$	2,000,000		M		74		127		ReliaStar Life Insurance Company		A+
902	$	400,000		M		72		84		Protective Life Insurance Company		AA-
903	$	300,000		M		88		45		Transamerica Life Insurance Company		AA-
904	$	563,879		F		90		74		AXA Equitable Life Insurance Company		A+
905	$	1,000,000		M		77		108		Genworth Life and Annuity Insurance Company		B-
906	$	2,000,000		M		70		103		North American Company for Life and Health Insurance		A+
907	$	100,000		M		81		14		William Penn Life Insurance Company of New York		AA-
908	$	100,000		M		81		14		William Penn Life Insurance Company of New York		AA-
909	$	100,000		M		81		14		William Penn Life Insurance Company of New York		AA-
910	$	100,000		M		81		70		Genworth Life and Annuity Insurance Company		B-
911	$	50,000		M		81		14		William Penn Life Insurance Company of New York		AA-
912	$	10,000,000		F		91		53		Pacific Life Insurance Company		AA-
913	$	5,400,000		M		90		47		Lincoln National Life Insurance Company		AA-
914	$	800,000		F		96		46		Lincoln National Life Insurance Company		AA-
915	$	1,000,000		F		90		56		American General Life Insurance Company		A+
916	$	100,000		M		88		58		North American Company for Life and Health Insurance		A+
917	$	570,000		M		74		84		Transamerica Life Insurance Company		AA-
918	$	500,000		M		83		70		Protective Life Insurance Company		AA-
919	$	1,000,000		M		81		94		Lincoln National Life Insurance Company		AA-
920	$	500,000		M		82		105		John Hancock Life Insurance Company (U.S.A.)		AA-
921	$	182,134		M		72		84		Genworth Life and Annuity Insurance Company		B-
922	$	850,000		M		68		189		Principal Life Insurance Company		A+
923	$	4,000,000		M		93		28		Lincoln National Life Insurance Company		AA-
924	$	500,000		F		86		70		Lincoln National Life Insurance Company		AA-
925	$	100,000		F		75		107		State Farm Life Insurance Company		AA
926	$	350,000		M		71		41		Lincoln National Life Insurance Company		AA-
927	$	100,000		F		80		125		Genworth Life Insurance Company		B-
928	$	350,000		M		86		45		AXA Equitable Life Insurance Company		A+
929	$	500,000		M		84		112		Lincoln National Life Insurance Company		AA-
930	$	500,000		M		84		112		Lincoln National Life Insurance Company		AA-
931	$	500,000		M		75		104		Pruco Life Insurance Company		AA-
932	$	5,600,000		M		81		116		ReliaStar Life Insurance Company		A+
933	$	500,000		M		76		99		Protective Life Insurance Company		AA-
934	$	250,000		F		69		179		Transamerica Life Insurance Company		AA-
935	$	500,000		F		78		126		John Hancock Life Insurance Company (U.S.A.)		AA-
936	$	1,000,000		M		89		42		Lincoln National Life Insurance Company		AA-
937	$	3,000,000		M		85		47		Transamerica Life Insurance Company		AA-
938	$	876,519		M		81		189		Brighthouse Life Insurance Company		AA-
939	$	2,000,000		M		70		140		Transamerica Life Insurance Company		AA-
940	$	800,000		F		89		35		Lincoln National Life Insurance Company		AA-
941	$	1,000,000		M		75		122		Banner Life Insurance Company		AA-
942	$	600,000		M		76		152		AXA Equitable Life Insurance Company		A+
943	$	350,000		M		81		91		Hartford Life and Annuity Insurance Company		BBB
944	$	500,000		M		71		155		Hartford Life and Annuity Insurance Company		BBB
945	$	1,500,000		M		77		140		Principal Life Insurance Company		A+
946	$	250,000		M		81		74		Brighthouse Life Insurance Company		AA-
947	$	300,000		M		71		164		Protective Life Insurance Company		AA-
948	$	1,000,000		M		79		88		Pacific Life Insurance Company		AA-
949	$	265,000		M		77		125		ReliaStar Life Insurance Company		A+
950	$	4,000,000		F		85		83		Lincoln National Life Insurance Company		AA-
951	$	1,000,000		F		97		20		ReliaStar Life Insurance Company		A+
952	$	2,000,000		M		71		95		Ohio National Life Assurance Corporation		A-
953	$	3,000,000		M		67		242		AXA Equitable Life Insurance Company		A+
954	$	1,500,000		M		82		60		AXA Equitable Life Insurance Company		A+
955	$	1,000,000		F		69		226		Transamerica Life Insurance Company		AA-
956	$	1,650,000		M		91		29		Massachusetts Mutual Life Insurance Company		AA+
957	$	500,000		M		66		140		Security Mutual Life Insurance Company of New York		NR
958	$	225,000		M		86		80		Farm Bureau Life Insurance Company		NR
959	$	1,790,000		M		76		242		John Hancock Life Insurance Company (U.S.A.)		AA-
960	$	1,000,000		F		87		26		American General Life Insurance Company		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
961	$	1,000,000		M		68		180		AXA Equitable Life Insurance Company		A+
962	$	3,750,000		M		78		62		Brighthouse Life Insurance Company		AA-
963	$	100,000		M		83		99		John Hancock Life Insurance Company (U.S.A.)		AA-
964	$	1,000,000		M		80		88		North American Company for Life and Health Insurance		A+
965	$	1,000,000		M		74		184		John Hancock Life Insurance Company (U.S.A.)		AA-
966	$	3,500,000		M		89		92		Brighthouse Life Insurance Company		AA-
967	$	3,718,702		F		86		87		ReliaStar Life Insurance Company		A+
968	$	150,000		M		69		114		Massachusetts Mutual Life Insurance Company		AA+
969	$	250,000		M		71		86		Protective Life Insurance Company		AA-
970	$	600,000		M		73		96		Lincoln National Life Insurance Company		AA-
971	$	750,000		M		75		154		Genworth Life and Annuity Insurance Company		B-
972	$	1,000,000		F		73		99		United of Omaha Life Insurance Company		AA-
973	$	1,000,000		M		76		101		Protective Life Insurance Company		AA-
974	$	100,000		F		78		139		Midland National Life Insurance Company		A+
975	$	400,000		M		66		46		Ohio National Life Assurance Corporation		A-
976	$	100,000		M		81		35		Jackson National Life Insurance Company		AA-
977	$	5,500,000		M		93		15		Transamerica Life Insurance Company		AA-
978	$	1,000,000		M		71		177		Accordia Life and Annuity Company		A-
979	$	250,000		F		76		122		Wilton Reassurance Life Insurance Company		NR
980	$	750,000		M		76		165		Lincoln National Life Insurance Company		AA-
981	$	500,000		M		71		155		Hartford Life and Annuity Insurance Company		BBB
982	$	1,400,000		M		80		77		Pruco Life Insurance Company		AA-
983	$	800,000		M		77		60		Protective Life Insurance Company		AA-
984	$	916,983		F		86		87		Pacific Life Insurance Company		AA-
985	$	6,000,000		M		85		54		Hartford Life and Annuity Insurance Company		BBB
986	$	500,000		M		81		83		ReliaStar Life Insurance Company of New York		A+
987	$	250,000		M		81		83		ReliaStar Life Insurance Company of New York		A+
988	$	1,000,000		M		67		145		Pruco Life Insurance Company		AA-
989	$	800,000		M		76		140		Protective Life Insurance Company		AA-
990	$	2,000,000		M		67		203		Accordia Life and Annuity Company		A-
991	$	1,000,000		M		84		106		North American Company for Life and Health Insurance		A+
992	$	2,000,000		M		83		190		AXA Equitable Life Insurance Company		A+
993	$	500,000		M		91		39		Lincoln National Life Insurance Company		AA-
994	$	3,000,000		M		81		116		Transamerica Life Insurance Company		AA-
995	$	3,500,000		F		93		30		AXA Equitable Life Insurance Company		A+
996	$	1,000,000		M		73		86		Transamerica Life Insurance Company		AA-
997	$	250,000		M		66		70		Lincoln National Life Insurance Company		AA-
998	$	2,100,000		F		85		77		Lincoln National Life Insurance Company		AA-
999	$	1,000,000		M		71		166		American General Life Insurance Company		A+
1000	$	500,000		M		71		166		American General Life Insurance Company		A+
1001	$	4,000,000		F		88		38		Pacific Life Insurance Company		AA-
1002	$	400,000		M		90		38		Brighthouse Life Insurance Company		AA-
1003	$	500,000		M		74		121		Massachusetts Mutual Life Insurance Company		AA+
1004	$	500,000		M		84		74		Pacific Life Insurance Company		AA-
1005	$	500,000		M		71		144		Protective Life Insurance Company		AA-
1006	$	657,820		M		88		53		Athene Annuity & Life Assurance Company		A
1007	$	100,000		M		88		22		Protective Life Insurance Company		AA-
1008	$	5,000,000		M		91		41		Transamerica Life Insurance Company		AA-
1009	$	100,000		M		90		38		John Hancock Life Insurance Company (U.S.A.)		AA-
1010	$	350,000		M		69		137		Transamerica Life Insurance Company		AA-
1011	$	300,000		M		84		70		John Hancock Life Insurance Company (U.S.A.)		AA-
1012	$	300,000		M		84		70		John Hancock Life Insurance Company (U.S.A.)		AA-
1013	$	500,000		M		71		151		Lincoln Benefit Life Company		BBB
1014	$	500,000		M		73		56		Banner Life Insurance Company		AA-
1015	$	1,251,474		M		73		132		AXA Equitable Life Insurance Company		A+
1016	$	1,500,000		M		83		79		Hartford Life and Annuity Insurance Company		BBB
1017	$	1,000,000		M		73		112		Protective Life Insurance Company		AA-
1018	$	1,945,741		M		80		74		Security Life of Denver Insurance Company		A+
1019	$	1,650,000		M		73		112		Protective Life Insurance Company		AA-
1020	$	3,000,000		M		72		112		Lincoln National Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
1021	$	3,000,000		M		72		112		Lincoln National Life Insurance Company		AA-
1022	$	1,000,000		M		69		94		Metropolitan Tower Life Insurance Company		NR
1023	$	1,000,000		M		76		128		Protective Life Insurance Company		AA-
1024	$	500,000		M		87		62		Protective Life Insurance Company		AA-
1025	$	350,000		M		77		100		Protective Life Insurance Company		AA-
1026	$	600,000		M		80		94		Hartford Life and Annuity Insurance Company		BBB
1027	$	1,500,000		M		92		43		Transamerica Life Insurance Company		AA-
1028	$	2,000,000		F		92		43		Security Life of Denver Insurance Company		A+
1029	$	247,000		M		74		41		Jackson National Life Insurance Company		AA-
1030	$	1,250,000		M		74		164		John Hancock Life Insurance Company (U.S.A.)		AA-
1031	$	500,000		M		92		36		Pacific Life Insurance Company		AA-
1032	$	700,000		M		80		74		William Penn Life Insurance Company of New York		AA-
1033	$	300,000		M		80		74		William Penn Life Insurance Company of New York		AA-
1034	$	1,000,000		M		74		147		Security Life of Denver Insurance Company		A+
1035	$	700,000		F		89		64		Lincoln National Life Insurance Company		AA-
1036	$	1,000,000		M		85		68		Wilco Life Insurance Company		NR
1037	$	353,743		M		79		80		AXA Equitable Life Insurance Company		A+
1038	$	1,000,000		M		76		184		North American Company for Life and Health Insurance		A+
1039	$	1,000,000		M		93		28		John Hancock Life Insurance Company (U.S.A.)		AA-
1040	$	250,000		M		81		115		Ohio National Life Assurance Corporation		A-
1041	$	100,000		M		84		84		Protective Life Insurance Company		AA-
1042	$	400,000		M		83		87		Security Mutual Life Insurance Company of New York		NR
1043	$	200,000		M		78		34		Midland National Life Insurance Company		A+
1044	$	9,000,000		F		88		59		Security Life of Denver Insurance Company		A+
1045	$	7,000,000		M		75		154		Protective Life Insurance Company		AA-
1046	$	439,500		M		71		171		Federal Employee Group Life Insurance		NR
1047	$	1,000,000		M		79		106		Lincoln National Life Insurance Company		AA-
1048	$	3,000,000		F		90		41		Lincoln National Life Insurance Company		AA-
1049	$	205,000		F		72		76		Brighthouse Life Insurance Company		AA-
1050	$	1,000,000		M		70		153		Metropolitan Life Insurance Company		AA-
1051	$	300,000		M		89		71		MetLife Insurance Company USA		AA-
1052	$	250,000		F		70		121		Genworth Life and Annuity Insurance Company		B-
1053	$	1,000,000		M		75		168		Protective Life Insurance Company		AA-
1054	$	750,000		M		76		77		Security Life of Denver Insurance Company		A+
1055	$	200,000		M		76		97		Transamerica Life Insurance Company		AA-
1056	$	500,000		M		81		83		Protective Life Insurance Company		AA-
1057	$	1,000,000		M		68		152		Security Life of Denver Insurance Company		A+
1058	$	500,000		M		79		60		Transamerica Life Insurance Company		AA-
1059	$	1,500,000		M		79		136		Transamerica Life Insurance Company		AA-
1060	$	150,000		M		84		74		Jackson National Life Insurance Company		AA-
1061	$	300,000		M		69		99		Protective Life Insurance Company		AA-
1062	$	500,000		M		71		108		AXA Equitable Life Insurance Company		A+
1063	$	4,000,000		M		82		72		Metropolitan Life Insurance Company		AA-
1064	$	500,000		M		71		63		Symetra Life Insurance Company		A
1065	$	200,000		M		75		58		AXA Equitable Life Insurance Company		A+
1066	$	1,008,097		M		85		55		AXA Equitable Life Insurance Company		A+
1067	$	500,000		F		71		82		Kansas City Life Insurance Company		NR
1068	$	900,000		M		69		132		Protective Life Insurance Company		AA-
1069	$	900,000		F		92		57		John Hancock Life Insurance Company (U.S.A.)		AA-
1070	$	250,000		M		68		151		Pruco Life Insurance Company		AA-
1071	$	500,000		M		76		98		AXA Equitable Life Insurance Company		A+
1072	$	500,000		M		76		98		AXA Equitable Life Insurance Company		A+
1073	$	600,000		F		91		69		Lincoln National Life Insurance Company		AA-
1074	$	250,000		M		88		24		First Penn-Pacific Life Insurance Company		A-
1075	$	500,000		M		71		117		Allstate Life Insurance Company of New York		A+
1076	$	1,015,462		M		79		34		Transamerica Life Insurance Company		AA-
1077	$	850,000		M		72		156		Protective Life Insurance Company		AA-
1078	$	1,000,000		M		71		112		Protective Life Insurance Company		AA-
1079	$	2,500,000		M		75		128		American General Life Insurance Company		A+
1080	$	600,000		M		70		183		Lincoln National Life Insurance Company		AA-

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
1081	$	2,000,000		M		91		27		Lincoln National Life Insurance Company		AA-
1082	$	750,000		M		66		160		John Hancock Life Insurance Company (U.S.A.)		AA-
1083	$	500,000		M		86		74		Lincoln National Life Insurance Company		AA-
1084	$	1,000,000		M		82		127		Pacific Life Insurance Company		AA-
1085	$	2,500,000		M		91		66		Brighthouse Life Insurance Company		AA-
1086	$	2,500,000		M		91		66		Brighthouse Life Insurance Company		AA-
1087	$	530,000		F		86		34		Lincoln National Life Insurance Company		AA-
1088	$	500,000		M		89		53		Lincoln National Life Insurance Company		AA-
1089	$	1,000,000		M		77		130		AXA Equitable Life Insurance Company		A+
1090	$	4,000,000		M		78		132		AXA Equitable Life Insurance Company		A+
1091	$	1,000,000		M		74		134		Security Life of Denver Insurance Company		A+
1092	$	250,000		M		89		53		Lincoln National Life Insurance Company		AA-
1093	$	250,000		M		89		53		Lincoln National Life Insurance Company		AA-
1094	$	400,000		M		93		30		Lincoln National Life Insurance Company		AA-
1095	$	1,000,000		M		83		100		American General Life Insurance Company		A+
1096	$	500,000		M		68		47		Athene Annuity & Life Assurance Company		A
1097	$	6,628,020		F		85		61		Transamerica Life Insurance Company		AA-
1098	$	250,000		M		83		44		North American Company for Life and Health Insurance		A+
1099	$	750,000		M		83		44		North American Company for Life and Health Insurance		A+
1100	$	1,000,000		M		87		65		Banner Life Insurance Company		AA-
1101	$	1,000,000		M		73		64		Transamerica Life Insurance Company		AA-
1102	$	5,000,000		M		86		54		John Hancock Life Insurance Company (U.S.A.)		AA-
1103	$	5,000,000		M		86		54		Pacific Life Insurance Company		AA-
1104	$	2,000,000		M		70		180		AXA Equitable Life Insurance Company		A+
1105	$	310,062		M		84		49		State Farm Life Insurance Company		AA
1106	$	1,000,000		F		92		33		Protective Life Insurance Company		AA-
1107	$	400,000		M		66		170		Transamerica Life Insurance Company		AA-
1108	$	1,000,000		M		81		91		Protective Life Insurance Company		AA-
1109	$	200,000		F		67		36		Pruco Life Insurance Company		AA-
1110	$	200,000		M		87		24		AXA Equitable Life Insurance Company		A+
1111	$	1,008,022		M		75		145		AXA Equitable Life Insurance Company		A+
1112	$	200,000		M		80		41		AXA Equitable Life Insurance Company		A+
1113	$	248,280		M		69		106		Ohio National Life Assurance Corporation		A-
1114	$	300,000		M		72		155		MetLife Insurance Company USA		AA-
1115	$	200,000		M		75		30		North American Company for Life and Health Insurance		A+
1116	$	250,000		M		74		93		American General Life Insurance Company		A+
1117	$	350,000		M		67		28		EMC National Life Company		NR
1118	$	300,000		M		67		22		Symetra Life Insurance Company		A
1119	$	250,000		M		72		100		American General Life Insurance Company		A+
1120	$	300,000		F		75		33		North American Company for Life and Health Insurance		A+
1121	$	250,000		M		66		81		Transamerica Life Insurance Company		AA-
1122	$	500,000		M		72		56		Security Life of Denver Insurance Company		A+
1123	$	1,000,000		F		87		43		Transamerica Life Insurance Company		AA-
1124	$	1,000,000		M		75		50		Genworth Life and Annuity Insurance Company		B-
1125	$	300,000		M		75		50		Genworth Life and Annuity Insurance Company		B-
1126	$	1,000,000		M		71		157		Lincoln National Life Insurance Company		AA-
1127	$	500,000		M		71		157		Lincoln National Life Insurance Company		AA-
1128	$	250,000		F		68		107		Lincoln National Life Insurance Company		AA-
1129	$	250,000		F		68		107		Lincoln National Life Insurance Company		AA-
1130	$	409,053		F		91		35		ReliaStar Life Insurance Company		A+
1131	$	500,000		M		72		122		Protective Life Insurance Company		AA-
1132	$	1,000,000		M		87		65		Banner Life Insurance Company		AA-
1133	$	5,000,000		F		73		173		AXA Equitable Life Insurance Company		A+
1134	$	1,000,000		M		83		26		Protective Life Insurance Company		AA-
1135	$	1,000,000		M		79		101		Protective Life Insurance Company		AA-
1136	$	2,000,000		F		89		53		John Hancock Life Insurance Company (U.S.A.)		AA-
1137	$	1,701,487		M		89		45		Lincoln National Life Insurance Company		AA-
1138	$	600,000		M		79		75		Athene Annuity & Life Assurance Company		A
1139	$	2,500,000		M		65		122		Transamerica Life Insurance Company		AA-
1140	$	500,000		M		75		75		Ameritas Life Insurance Corporation		A+

 

 

		Face Amount		Gender		Age (ALB) (1)		LE (mo.) (2)		Insurance Company		S&P Rating
1141	$	250,000		M		71		118		American General Life Insurance Company		A+
1142	$	493,000		M		76		87		Lincoln National Life Insurance Company		AA-
1143	$	250,000		M		74		102		North American Company for Life and Health Insurance		A+
1144	$	250,000		M		71		118		Principal Life Insurance Company		A+
1145	$	375,000		M		71		96		U.S. Financial Life Insurance Company		NR
1146	$	1,500,000		M		67		166		New York Life Insurance Company		AA+
1147	$	539,300		M		73		100		Farmers New World Life Insurance Company		NR
1148	$	5,000,000		M		69		224		Lincoln National Life Insurance Company		AA-
1149	$	6,000,000		M		73		166		Protective Life Insurance Company		AA-
1150	$	365,000		M		87		64		Nationwide Life and Annuity Insurance Company		A+
1151	$	380,000		F		90		42		Security Life of Denver Insurance Company		A+
1152	$	100,000		F		70		29		Nationwide Life and Annuity Insurance Company		A+
1153	$	305,000		M		73		104		MetLife Insurance Company USA		AA-
1154	$	500,000		M		71		63		Protective Life Insurance Company		AA-
1155	$	1,000,000		M		86		64		Massachusetts Mutual Life Insurance Company		AA+
1156	$	1,000,000		M		86		64		Massachusetts Mutual Life Insurance Company		AA+
1157	$	250,000		M		77		71		Transamerica Life Insurance Company		AA-
1158	$	1,000,000		M		66		50		Pruco Life Insurance Company		AA-
1159	$	750,000		M		86		68		Lincoln Benefit Life Company		BBB
1160	$	700,000		M		90		41		Ameritas Life Insurance Corporation		A+
1161	$	501,515		M		73		146		New England Life Insurance Company		A+
1162	$	300,000		M		73		147		Security Life of Denver Insurance Company		A+
1163	$	1,000,000		M		70		169		Transamerica Life Insurance Company		AA-
1164	$	295,800		M		76		94		First Allmerica Financial Life Insurance Company		A-
1165	$	1,000,000		M		70		189		Principal Life Insurance Company		A+
1166	$	1,000,000		M		66		25		John Hancock Life Insurance Company (U.S.A.)		AA-
1167	$	1,000,000		F		85		89		American General Life Insurance Company		A+
1168	$	4,000,000		M		88		36		William Penn Life Insurance Company of New York		AA-
1169	$	5,000,000		F		78		108		Lincoln National Life Insurance Company		AA-
1170	$	3,000,000		M		91		28		John Hancock Life Insurance Company (U.S.A.)		AA-
1171	$	800,000		M		78		15		Banner Life Insurance Company		AA-
1172	$	500,000		M		69		126		Transamerica Life Insurance Company		AA-
1173	$	750,000		M		75		88		Genworth Life and Annuity Insurance Company		B-
1174	$	1,000,000		M		81		26		Protective Life Insurance Company		AA-
		2,064,155,926

  

(1)	Age Last Birthday (“ALB”) – the insured’s age is current as of the measurement date.
(2)	The insured’s life expectancy estimate, other than for a small face value insurance policy (i.e., a policy with $1 million in face value benefits or less), is the average of two life expectancy estimates provided by independent third-party medical-actuarial underwriting firms at the time of purchase, actuarially adjusted through the measurement date.

 

 

Page 20

 

Exhibit 99.3

 

AMENDMENT TO PURCHASE AND CONTRIBUTION AGREEMENT

 

This AMENDMENT (this “Amendment”), dated October 25, 2019, to the Purchase and Contribution Agreement, dated April 15, 2019 (the “Agreement”), by and among (a) The Beneficient Company Group, L.P. (“Parent”); (b) Beneficient Company Holdings, L.P., a Delaware limited partnership (the “Partnership”); (c) AltiVerse Capital Markets, L.L.C., a Delaware limited liability company (the “Company”); (d) Sabes AV Holdings, LLC, a Delaware limited liability company (“Sabes AV”); and (e) Jon R. Sabes, Steven F. Sabes, Insurance Strategies Fund, LLC, a Delaware limited liability company, and SFS Holdings, LLC, a Nevada limited liability company (collectively, the “Investors” and, together with Sabes AV, the “Sabes Parties”). The Partnership, the Company, the Sabes Parties and Parent are each referred to herein as a “Party” and, collectively, as the “Parties.”

 

RECITALS

 

WHEREAS, the Parties desire to amend certain provisions of the Agreement pursuant to Section 9.5 thereof, as set forth in this Amendment.

 

WHEREAS, the Special Committee of the Board of Directors of GWG Holdings, Inc., a Delaware corporation (“GWG”), has unanimously approved and recommended to the Board of Directors of GWG the terms of this Amendment and that this Amendment is fair, advisable, and in the best interests of GWG and its stockholders.

 

COVENANTS

 

NOW, THEREFORE, in consideration of the mutual agreements set forth in the Agreement and this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties and GWG hereby agree as follows:

 

ARTICLE 1

AMENDMENTS; OTHER AGREEMENTS

 

Section 1.1 Amendment to Closing Payment Date. Section 2.l (a) of the Agreement is hereby amended and restated in its entirety as follows:

 

(a) Upon the terms and subject to the conditions of this Agreement, Sabes AV will sell, assign, convey, transfer and deliver to the Partnership, and the Partnership will acquire from Sabes AV, free and clear of all Liens (other than the Amended Indenture Pledge Agreement), all of Sabes AV’s right, title and interest in 2,500,000 of the GWG Shares in exchange for an aggregate amount in cash equal to $25,000,000 (the “Cash Purchase Price”) plus interest due thereon. The Partnership shall pay the Cash Purchase Price from cash on hand, operations and new debt and equity issuances or capital contributions. The Partnership shall pay or cause to be paid the Cash Purchase Price to Sabes AV by wire transfer of immediately available funds in accordance with the wire instructions set forth on Exhibit A no later than January 3, 2020. Interest shall accrue on the Cash Purchase price from October 26, 2019 at a rate of 2% per annum. In addition, upon any nonpayment of the Cash Purchase Price on or prior to January 3, 2020, The Partnership shall pay any documented out-of-pocket attorney’s fees and other documented out-of-pocket costs and expenses directly related to the collection of the Cash Purchase Price and interest thereon incurred and paid by Sabes AV, whether or not suit is commenced.

 

 

Section 1.2 Certain Payments. Concurrently with the execution of this Amendment, the Partnership will pay to Sabes AV an extension fee an amount in cash equal to $285,000, which amount will be paid by wire transfer of immediately available funds to an account set forth on Exhibit A. In addition, the Partnership will reimburse Sabes AV for any documented third party out-of-pocket legal costs incurred by it in connection with (a) the negotiation and execution of this Amendment, and (b) the collection of the Cash Purchase Price and interest thereon.

 

ARTICLE 2

MISCELLANEOUS

 

Section 2.1 No Other Amendments; No Waiver of Rights. Except as amended by this Amendment, the Agreement shall remain unmodified and in full force and effect.

 

Section 2.2 Governing Law. This Amendment shall be governed by and construed in accordance with the internal Laws of the State of Delaware without regard to the conflicts of law provision or rule (whether of the State of Delaware or any other jurisdiction).

 

Section 2.3 Waiver of Jury Trial. Each Party hereby waives to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Amendment. Each Party (a) certifies that no Representative of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other Parties hereto have been induced to enter into this Amendment by, among other things, the mutual waivers and certifications in this Section 2.3.

 

Section 2.4 Counterparts. This Amendment may be executed in two or more counterparts, each of which will be deemed an original but all of which will constitute but one instrument. This Amendment is effective upon delivery of one executed counterpart from each Party to the other Parties. The signatures of all of the Parties need not appear on the same counterpart. The delivery of signed counterparts by email which includes a copy of the sending party’s signature(s) (including by “.pdf ‘ format) is as effective as signing and delivering the counterpart in person.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, each of the Parties and GWG has caused this Amendment to be executed by its respective duly authorized officers as of the date first above written.

 

	COMPANY:
	ALTIVERSE CAPITAL MARKETS, L.L.C.
	By: Hicks Holdings Operating, LLC, its manager
	By:	/s/ Britt Brown
	Title:	EVP

 

	PARTNERSHIP:
	BENEFICIENT COMPANY HOLDINGS, L.P.
	By: THE BENEFICIENT COMPANY GROUP, L.P., its general partner
	By: Beneficient Management, L.L.C., its general partner
	By:
	Title:

  

 

IN WITNESS WHEREOF, each of the Parties and GWG has caused this Amendment to be executed by its respective duly authorized officers as of the date first above written.

 

	COMPANY:
	ALTIVERSE CAPITAL MARKETS, L.L.C.
	By: HEP Partners, LLC, its manager
	By:
	Name:
	Title:

 

	PARTNERSHIP:
	BENEFICIENT COMPANY HOLDINGS, L.P.
	By: THE BENEFICIENT COMPANY GROUP, L.P., its general partner
	By: Beneficient Management, L.L.C., its general partner
	By:	/s/ Brad K. Heppner
	Name:	Brad K. Heppner
	Title:	CEO

  

 

	PARENT:
	THE BENEFICIENT COMPANY GROUP, L.P.
	By: Beneficient Management, L.L.C., its general partner
	By:	/s/ Brad K. Heppner
	Name:	Brad K. Heppner
	Title:	CEO

  

	SABES AV:
	SABES AV HOLDINGS, LLC
	By:	/s/ Jon R. Sabes
	Name:	Jon R. Sabes
	Title:	Manager

 

	INVESTORS
	/s/ Jon R. Sabes
	Jon R. Sabes

 

	/s/ Steven F. Sabes
	Steven F. Sabes

  

 

	INSURANCE STRATEGIES FUND, LLC
	By:	/c/ Jon Sabes
	Title:	Manager
	SFS HOLDINGS, LLC
	By:	/c/ Steven F. Sabes
	Title:	Manager
	GWG HOLDINGS, INC.
	By:	/s/ Murray T. Holland
	Name:	Murray T. Holland
	Title:	President

 

6