UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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:
Common Stock
Securities registered pursuant to Section 12(g) of the Act
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 and posted on its corporate Web site, if any, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
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 March 15, 2017, GWG Holdings, Inc. had 5,779,745 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for our 2017 Annual Meeting of Stockholders, to be filed within 120 days after the end of the fiscal year ended December 31, 2016, are incorporated by reference into Part III of this Form 10-K.
GWG HOLDINGS, INC.
Index to Form 10-K
for the Fiscal Year Ended December 31, 2016
Overview
GWG Holdings, Inc. is a financial services company committed to finding new ways of disrupting and transforming the life insurance and related industries through innovative products and services, business processes, financing strategies, and advanced epigenetic technology. Historically, we have focused on creating opportunities for consumers to obtain significantly more value for their life insurance policies as compared to the traditional options offered by the insurance industry. As part of our business, we create opportunities for investors to receive income and capital appreciation from our various activities.
The life insurance industry provides us with the opportunity to earn non-correlated yield by purchasing life insurance policies in the secondary market at a discount to the face value of the policy benefit. We pay the premiums of the policies that we purchase and collect the policy benefits upon maturity. This practice is disruptive to the life insurance industry since insurance carriers rely on consumer lapse and surrender behavior resulting in the forfeiture of policy benefits. As of December 31, 2016, we had purchased approximately $2.3 billion in face value of policy benefits from consumers for over $398 million, as compared to the $29 million in surrender value offered by insurance carriers on those same policies. As such, we provide unique and valuable services that help meet the financial need of life-insurance-owning consumers 65 years or older.
By purchasing life insurance policies at a discount to the face value of the policy benefit, we have the opportunity to generate attractive investment returns from assets not correlated to traditional financial markets. The potential yield generated from a portfolio of life insurance assets equals the difference between the (i) purchase price of the life insurance assets, plus the premiums and financing costs to maintain those assets; and (ii) the face value of the policy benefits received. As of December 31, 2016, our total investment in our portfolio of life insurance assets, including the purchase price, attendant premiums and financing costs was $494.9 million, and the total face value of our life insurance policy benefits was $1.36 billion.
We seek to build a profitable and large portfolio of life insurance assets that is well diversified in terms of insurance companies and insureds. We believe that diversification is a key factor and risk mitigation strategy to provide consistent cash flows and reliable investment returns. Accordingly, we seek to grow our portfolio and achieve diversification through a variety of financings and securities products offered to investors. We have built a robust operational platform to work with financial advisors and insurance professionals to assist consumers and to access the valuable products and services that we offer.
A critical factor for our overall success is our ability to accurately estimate human life expectancy. Our search for increased precision in estimating human life expectancy led us to a mortality predictive technology developed by Dr. Steve Horvath, a Professor of Human Genetics and Biostatistics at the University of California, Los Angeles (UCLA). We recently exercised an exclusive option to license, for use in the life insurance industry, Dr. Horvath’s “DNA Methylation Based Predictor of Mortality” technology or “M-Panel” technology. We believe M-Panel technology could improve our ability to more precisely predict life expectancy and, in turn, generate more reliable investment returns from our portfolio of the life insurance assets. We are currently in the process of negotiating a license agreement and assessing the intellectual property protection we may receive as a result of such a license.
We believe that M-Panel and related epigenetic technology could revolutionize the life insurance industry’s ability to underwrite insurance risk to more accurately predict human life expectancy. The ability to create more precise, non-invasive underwriting methods that can be delivered in a timely, cost-effective basis could be a significant innovation for the life insurance, long-term care, and annuity industries. Accordingly, we intend to pursue additional lines of business in the life insurance industry that commercialize and capitalize on the use of M-Panel technology. We believe this presents us with significant growth opportunities in what is referred to as the “insurtech” marketplace, where new technologies are disrupting and transforming the historical methods and models of the insurance industry.
To grow our portfolio and achieve the diversification we seek, as well as to pursue additional opportunities in the life insurance and related industries through the use of technology, we offer investors the opportunity to potentially receive income and capital appreciation through a variety of financings and securities offerings.
We are dedicated to finding new ways of disrupting and transforming the life insurance industry, both as it relates to our historical secondary life insurance business and now with the application of advanced epigenetic technology. Today, we provide consumers additional value for their life insurance policies by disrupting the status quo of high policy lapse rates and low surrender values that life insurance carriers have enjoyed for years. In the future, we intend to disrupt the industry further by providing consumers with additional innovative products and services that benefit from the use of advanced epigenetic technologies, such as M-Panel technology we are seeking to license. We believe this advanced epigenetic technology will permit us to reimagine the way in which risk is assessed, selected and priced in the life insurance industry, and possibly also the long-term care and annuity industries.
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Our business was originally organized in February 2006. We added our current parent holding company, GWG Holdings Inc., in March 2008, and in September 2014 we consummated an initial public offering of our common stock on The NASDAQ Capital Market, where our stock trades under the ticker symbol “GWGH.”
GWG Holdings, Inc. (“GWG Holdings”) conducts its life insurance related business through a wholly owned subsidiary, GWG Life, LLC (“GWG Life”), and GWG Life’s wholly owned subsidiaries, GWG Life Trust, GWG DLP Funding III, LLC, and GWG DLP Funding IV, LLC. All of these entities are legally organized in Delaware, other than GWG Life Trust, which is governed by the laws of the State of Utah. Actüa Life & Annuity Ltd. is a new wholly owned subsidiary of GWG Holdings formed to engage in the various life insurance related businesses and activities. Unless the context otherwise requires or we specifically so indicate, all references in this prospectus to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to these entities collectively. Our headquarters are based in Minneapolis, Minnesota.
In February 2016, we launched a new operating division in the merchant cash industry through a subsidiary entity, GWG MCA Capital, Inc. (“GWG MCA”). GWG MCA provides secured loans to merchant cash advance funders, and also provides merchant cash advances directly to small businesses across the United States. To begin this operating division, we acquired a $4.3 million portfolio of loans and advances from a subsidiary of Walker Preston Capital. GWG MCA is serviced by Saratov Capital, LLC.
Markets
Consumers Owning Life Insurance and the Life Insurance Secondary Market
The market for life insurance is large. According to the American Council of Life Insurers Fact Book 2016 (ACLI), individual consumers owned over $10.3 trillion in face value of life insurance policy benefits in the United States in 2015. In that same year, the ACLI reports individual consumers purchased an aggregate of $1.6 trillion of new life insurance policy benefits. This figure includes all types of policies, including term insurance and permanent insurance known as whole life and universal life.
The secondary market for life insurance exists as a result of consumer lapse behaviors and inadequate surrender values offered to consumers by the insurance carriers. The ACLI reports that the lapse and surrender rate for individual life insurance policies is 5.4%, amounting to over $638.5 billion in face value of policy benefits lapsed and surrendered in 2015 alone. According to testimony by Gottlieb & Smetters, it is estimated that nearly 88% of all universal life insurance policies sold in the United States do not result in the payment of a benefit claim.
The life insurance secondary market is geared towards consumers, 65 years and older, who own life insurance and are addressing their retirement financial needs. These consumers represent the fastest growing demographic segment in the United States according to the U.S. Census Bureau. And as these consumers age, they and their families will be faced with a variety of financial needs that can benefit from the value-added products and services we offer. Our life insurance secondary market products and services address the convergence of three major trends: under-saving for retirement, longer life expectancies, and high and rising medical expenses. Our approach to the life insurance secondary market allows consumers to more efficiently access an illiquid asset to offset these costs.
Research by Conning Research & Consulting (Conning) reports that the annual net market potential for life insurance policy benefits sold in the secondary market exceeds $141 billion face value of policy benefits in 2016. Of that market potential, Conning estimates that investors purchased approximately $1.7 billion in face value of life insurance benefits in 2015, indicating that the market is dramatically underserved. And with an aging demographic in the United States, Conning expects the net market potential to grow to an annual $170 billion in face value of life insurance benefits by 2025. We share the belief that the life insurance secondary market represents both a dramatically underserved market and a significant long-term growth opportunity. We further believe that GWG is well positioned to address the market need.
Technology and the Life Insurance Industry
The opportunity to apply technology to transform the life insurance industry is significant. According to industry consultants at KPMG, Accenture, and Ernst & Young, there is a major movement afoot to transform the insurance industry through the use and application of advanced technologies. This movement, commonly referred to as “insurtech,” suggests a new era of disruptive entrants into the traditional insurance marketplace that have the potential to upend the insurance industry’s historical approach to assessing and selecting acceptable risks.
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We intend to participate in the life insurance industry’s insurtech movement, initially through the advanced epigenetic technology developed by Dr. Steve Horvath. We began working with Dr. Horvath in 2015 after he reported that human cells have an internal “biological age” and “biological clock” at the DNA molecular level that is indicative of the aging process. The study of chemical modifications of methylation levels to the DNA molecule that reveal aging, and upon which the M-Panel technology is based, is part of the epigenetics field. Epigenetics is the study of how the DNA molecule’s instructions are translated into the production of proteins that make us who we are. Dr. Horvath’s epigenetic research has focused on methylation levels on our DNA in order to study the determinants of aging and mortality. For example, epigenetic methylation levels may be indicative of an individual’s exposure to smoking, cancer, cardiovascular, or other diseases.
In 2016, Dr. Horvath reported a discovery upon the completion of a statistical meta-analysis of over 13,000 individual DNA samples that was reported in the September 2016 issue of Aging. His research identified specific sets of DNA methylation-based bio-markers that was predictive of individual risk of all-cause mortality. We believe the implications of this discovery are simple and profound: individual lifespans can now be estimated with significantly greater precision across large groups of people. We are currently working to translate this technology into an actuarial underwriting methodology that we believe could prove revolutionary to traditional underwriting practices of the life insurance industry.
Investors Seeking Yield from Alternative Assets
Since the credit crisis of 2008, the flow of capital to a variety of alternative asset classes has undergone a structural shift. Alternative assets, broadly defined, are any non-traditional asset with potential economic value that would not be found in a standard investment portfolio. An asset is generally considered “alternative” if it has some or all of the following characteristics: a limited investment history, not commonly found in portfolios, an illiquid market, different performance characteristics, and requires specialized skill to originate and service the asset. Definitions of traditional assets today extend well beyond stocks and bonds, and can include a variety of assets which may have been better classified as “alternative” a decade ago, i.e., real estate, commodities or natural resources. Thus, what is an alternative asset today may largely be considered tomorrow’s mainstream investment asset.
Once dominated by banks, alternative asset markets are in many cases no longer viable for banks to finance due to vast new regulation effected since the crisis, regulation that has in effect reshaped the way in which banks participate in many parts of the economy. At the same time, an increasing number of investors are now turning to alternative asset classes as a means to diversify their investment portfolio and manage risk and volatility, and to obtain greater returns in the low interest rate environment that has persisted since 2008. According to research published by Goldman Sachs, retail investors are expected to shift a significant allocation of their investments towards alternative assess from a current average of 4% to the 20% allocation favored by institutional investors over the next five to ten years (see Goldman Sachs, Retail Liquid Alternatives: The Next Frontier (2013)).
The trend of investors seeking access and exposure to alternative investment products is expected to continue as traditional bank sources of capital for these assets continues to retreat and alternative investment product offering innovations occur within the regulated securities markets. Researchers at McKinsey report that U.S. individual investors are expected to be a primary driver of growth in alternative asset investments. McKinsey reports that high net-worth individuals and the mass affluent are increasingly looking to hedge downside risk, protect principal, manage volatility, and generate income– the same reason institutional investors have favored larger allocations to alternative asset investment classes.
Our Business Model
Our business model is to earn a net profit between the yield generated by the assets we own and the costs we incur to originate and finance those assets. We believe that we are uniquely positioned to acquire life insurance assets in the secondary market directly from consumers needing our services, and to finance our portfolio’s growth by providing investors with the opportunity to participate in the yield we generate from those assets. In addition, upon our implementation of M-Panel or other similar technology, we believe that we will be uniquely positioned to create even more opportunities for capital appreciation by obtaining a competitive edge in our current market space, integrating our technologies in other insurance-related industries, and continuing to bring disruptive and innovative products and services to those industries.
To participate and compete in, and expand, our markets, we spend significant resources: (i) recruiting and developing a professional management team; (ii) establishing strategic relationships for delivering the services we provide; (iii) creating opportunities for investors to participate in the yield and capital appreciation generated by the alternative life insurance assets and technology we own; (iv) creating innovative growth opportunities to participate in the life insurance industry through the use of technology; and (v) developing a robust operational platform and systems for originating life insurance policies and other alternative assets.
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Originating Life Insurance Assets
We generally purchase life insurance assets in the secondary market directly from policy owners who purchased their life insurance in the primary market. Historically, we have purchased these life insurance policies through a network of specialized brokers who assist consumers and financial professionals in accessing the secondary market. We maintain membership affiliations and representation within key industry groups, such as the Life Insurance Settlement Association. We typically attend and sponsor trade events where we maintain contacts and visibility among professionals who submit life insurance policies for our potential purchase.
A key strategic initiative of ours has been to expand our origination capabilities by marketing our products and services directly to consumers through financial professionals. Most recently, we focused these efforts towards financial professionals, namely financial advisors and life insurance agents, through our “Appointed Agent Program.” Our Appointed Agent Program is designed to empower financial professionals to bring the life insurance secondary market’s value proposition to their respective markets. Our Appointed Agent Program emphasizes education, training, regulatory compliance, and marketing support. We have built an extensive team capable of marketing our products and services directly to life insurance professionals. We expect to continue allocating considerable resources towards the development and support of our direct origination team. We believe these resources will be of particular value as we seek to expand our business into other, more conventional, insurance-related industries.
Underwriting and Purchasing Life Insurance Assets
We focus on investing in high quality life insurance assets through our origination practices and underwriting procedures. These practices and procedures strive to meet guidelines and methodologies published by rating agency A.M. Best. At the same time, we seek innovative value-added tools, services, and methodologies to improve both the accuracy and efficiency with which we acquire life insurance assets.
Our secondary market underwriting procedures consist of a careful review and analysis of available materials and information related to a life insurance policy and the insured. The goal of our underwriting procedures is to make an informed purchasing decision. We typically purchase life insurance policies from insureds who are 65 years or older and whose life expectancies are less than 120 months (ten years). The life expectancies we use are estimates, stated in months, which indicate the 50% probability of an individual’s mortality (meaning actuarial analysis predicts half of the individuals with similar age, sex, and medical conditions will experience mortality before that number of months, and half will experience mortality after that number of months). Life expectancies are based on actuarial tables that predict statistical probability of individual mortality.
We obtain life expectancies from independent third-party medical-actuarial underwriting firms, unless the life insurance policy benefit has a face value of $1,000,000 or less (which we generally refer to as a “small face policy”). When we obtain life expectancies from independent third-party medical-actuarial firms, we receive a medical underwriter’s report summarizing the health of the insured based on a review of the insured’s historical medical records. For all life insurance policies we purchase, other than small face policies, we average two life expectancies from two independent medical-actuarial underwriting firms to form the life expectancy we use to price and value our life insurance assets. In some cases, we may obtain more than two life expectancy estimates. In those cases, we average the two life expectancy estimates that we believe are the most reliable of those we have received, based on our own analyses and conclusions. In this regard, the two life expectancy estimates we ultimately choose to average may not always be the most conservative. For small face policies, we use modified procedures to estimate a life expectancy that may, or may not, use life expectancies from independent third-party medical-actuarial underwriting firms. As a result, our practices and procedures for small face policies may not meet the guidelines and methodologies published by the rating agency A.M. Best. If in the future we believe our business model will benefit from changes in our underwriting process and if such revisions are permitted under our borrowing covenants, we may change our underwriting processes and policies.
Our success with our Appointed Agent Program, and in designing and implementing small face policy underwriting procedures, has presented us with the opportunity to purchase a greater number of small face life insurance policies. We believe this opportunity is meaningful since the majority of life insurance policies outstanding are small face policies, and policy diversification is critical in obtaining normalized actuarial performance. Historically, however, small face policies have not been available to purchasers of life insurance policies because secondary market industry participants have significantly relied on life insurance brokers who are paid a commission determined as a percentage of the face value benefit of the purchased policy, to present purchase opportunities. Not surprisingly, because larger commissions are associated with larger face value life insurance policies, brokers have focused on larger policies and the industry has developed origination practices and underwriting procedures to accommodate such practices. As a result, the industry’s traditional approaches to underwriting and purchasing life insurance assets are ill suited for small face policies. For example, procuring complete medical records, two separate life expectancy reports, and engaging in related activities, can be time consuming and expensive, and these same costs cannot be justified when purchasing smaller life insurance assets. In sum, our method is focused on obtaining enough medical information to generate reliable life expectancy estimates, and thereby make informed purchase decisions. Our streamlined procedures have made it possible to complete a preliminary underwriting in a number of days (as opposed to weeks), and complete the entire purchasing process in a number of weeks (as opposed to months).
We expect to further refine our underwriting processes for large- and small-face policies over time and, to the extent possible, use new technologies to enhance this process and our overall business. In 2015 we began an initiative to re-examine the way in which we approached underwriting. Our initiative included a review of new advanced medical technologies capable of predicting aging and related mortality more accurately than traditional methods. One of these technologies uses new developments in the examination of epigenetic biomarkers, and was pioneered by Dr. Steve Horvath, Professor of Human Genetics and Biostatistics at the University of California, Los Angeles (UCLA). Dr. Horvath is a recognized expert on aging who has focused his research on the root causes of aging encoded in the chemical modifications of the DNA molecule.
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Value Proposition – Life Insurance as an Alternative Asset
We realize profits from the life insurance assets we own by earning a spread between the investment cost of our life insurance assets and the face value of the policy benefits we receive. Accordingly, if we purchase life insurance assets in the secondary market, and make all the attendant premium payments to maintain those assets in order to receive the policy benefits, the most significant risk factors (among others that we discuss in the “Risk Factors” section of this report) in the performance of those assets are: (i) the predictability of mortality, or longevity risk; and (ii) the creditworthiness of the issuing life insurance company, or credit risk. We believe the value proposition of our investments in the alternative asset of life insurance is our ability to obtain superior risk-adjusted returns.
Longevity Risk. We believe actuarial mortality is the single largest variable affecting the returns on our investments in life insurance assets and impacting our life insurance portfolio’s performance over time. Accurately predicting an individual’s mortality date is impossible, and the best an actuary can do is provide a set of probabilities of survival over time. Nevertheless, predicting mortality among a group of similarly situated individuals is less difficult—in fact, the larger the group, the more accurate actuarial predictions tend to become. The statistical mathematical concept stating that the results of random events tend to become very predictable as the number of events becomes large is the “Central Limit Theorem” (or more commonly known as the “Law of Large Numbers”). “Mean regression” is another statistical mathematical concept used to describe that, on average, observations (in this case, the actual mortality of insureds) tend to cluster around the mean observation (i.e., our estimate of mortality of insureds as described further under “Value Proposition” below). These statistical mathematical concepts are the basis for many business models, ranging from insurance to the lottery. Insurance carriers, for example, can be very certain of the number of insurance claims they can expect when they have spread their risk over a large book of diversified policies. In this way, insurance carriers can price a large number of insurance policies of any type to collect premiums slightly above the level of expected claims, and thereby expect to earn a surplus or profit. Similarly, a lottery can depend on an expected amount of earnings equal to the small advantage built into the odds of the games.
The implications for our business model are two-fold: first, as we accumulate larger numbers of life insurance policies, we should expect our results to increasingly correlate with our expectations; second, over the long run, we should expect that the actual cash flows will converge with the forecasted cash flows from our portfolio of life insurance assets, and the actual return on our portfolio of life insurance assets will converge with our expected return. Although medical advances and life expectancy changes may significantly impact the longevity risk we face and our understanding of that risk, these concepts nevertheless serve as guiding principles as we seek to build, manage, and forecast the performance of our portfolio of life insurance assets.
These expectations are affirmed in research published by A.M. Best and others, illustrating that as the number of insured lives increase within a portfolio of life insurance policies, there is a corresponding decrease in the standard deviation of the mortality events within the portfolio—i.e., longevity risk decreases as the number of insureds increases. Standard & Poor’s indicates that 1,000 insured lives are required to reach statistical “significance” (where the relationship, in this context, between mortality projections and actual mortality events is not random). A.M. Best concludes that a portfolio of at least 300 insured lives is statistically significant. Our current portfolio covers 622 insured lives and we believe that both the predictability and actual performance will continue to improve with additional size and diversification. Accordingly, we continue to seek to grow the size and diversification of the portfolio in order to mitigate risk and improve our profitability.
Credit Risk. We rely on the payment of policy benefit claims by life insurance companies as our most significant source of revenue collection. The life insurance assets we own represent obligations of third-party life insurance companies to pay the benefit amount under the relevant 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 portfolio among a number of insurance companies.
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Approximately 96.3% of life insurance assets in our portfolio were issued by insurance companies with investment-grade credit ratings from Standard & Poor’s, as of December 31, 2016. Our 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:
Rank | Policy Benefits |
Percentage of Policy Benefit Amount |
Insurance Company | Ins. Co. S&P Rating | ||||||||
1 | $ | 195,555,000 | 14.4 | % | John Hancock Life Insurance Company (U.S.A.) | AA- | ||||||
2 | $ | 182,744,000 | 13.4 | % | AXA Equitable Life Insurance Company | A+ | ||||||
3 | $ | 152,755,000 | 11.2 | % | Lincoln National Life Insurance Company | AA- | ||||||
4 | $ | 130,965,000 | 9.6 | % | Transamerica Life Insurance Company | AA- | ||||||
5 | $ | 89,941,000 | 6.6 | % | Metropolitan Life Insurance Company | AA- | ||||||
6 | $ | 58,250,000 | 4.3 | % | Massachusetts Mutual Life Insurance Company | AA+ | ||||||
7 | $ | 51,425,000 | 3.8 | % | American General Life Insurance Company | A+ | ||||||
8 | $ | 48,670,000 | 3.6 | % | Reliastar Life Insurance Company | A | ||||||
9 | $ | 44,250,000 | 3.2 | % | Pacific Life Insurance Company | AA- | ||||||
10 | $ | 41,790,000 | 3.1 | % | West Coast Life Insurance Company | AA- | ||||||
$ | 996,347,000 | 73.2 | % |
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 since this information is part of the data we consider when valuing our portfolio of life insurance policies for our financial statements.
Name of Bond | Maturity | YTM | Duration (Years) |
Bond S&P Rating | ||||||||
AXA 7.125% | 12/15/2020 | 1.69 | % | 4.0 | BBB | |||||||
Manulife Finl 4.15% | 3/4/2026 | 3.67 | % | 9.2 | A | |||||||
Lincoln National Corp Ind 3.35% | 3/9/2025 | 3.59 | % | 8.7 | A- | |||||||
Amer Intl Grp 4.875% | 6/1/2022 | 3.12 | % | 5.4 | A- | |||||||
Protective Life 7.375% | 10/15/2019 | 2.62 | % | 2.8 | A- | |||||||
Metlife 3.048% | 12/15/2022 | 2.93 | % | 6.0 | AA- | |||||||
Prudential Finl Inc Mtns Book 3.5% | 5/15/2024 | 3.52 | % | 7.9 | A | |||||||
Average yield on insurance bonds | 2.58 | % | 6.3 |
The table above indicates the current yields to maturity (YTM) for the senior bonds of selected life insurance carriers with durations, on average, that are similar to our life insurance portfolio. The average yield to maturity of these bonds was 2.58%, which we believe reflects, in part, the financial market’s judgment that credit risk is low with regard to these carriers’ financial obligations. It should be noted that the obligations of life insurance carriers to pay life insurance policy benefits ranks senior to all of their other financial obligations, such as the bonds they issue. This “super senior” priority is not reflected in the yield to maturity in the table and, if considered, would result in a lower yield to maturity all else being equal. As such, as long as the respective premium payments have been made, it is highly likely that the owner of the insurance policy will collect the insurance policy benefit upon the mortality of the insured.
Value Proposition. We define the value proposition presented by our portfolio of life insurance assets as our ability to earn superior risk-adjusted returns. 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, we use the probabilistic method of analysis. The actuarial software we use to produce our expected future cash flows and conduct our probabilistic analysis was developed by the actuarial firm Milliman and is now owned by Modeling Actuarial Pricing Systems, Inc. (“MAPS”). The expected internal rate of return of our portfolio is based upon future cash flow forecasts derived from a probabilistic analysis of our policy benefits received in relation to our investment cost basis. As of December 31, 2016, the expected internal rate of return on our portfolio of life insurance assets was 11.34% based on our portfolio benefits of $1.362 billion and our investment cost basis of $494.9 million (including purchase price, premiums paid, and financing costs incurred to date).
We seek to further enhance our understanding of our expected future cash flow forecast by applying a stochastic analysis, sometimes referred to as a “Monte Carlo simulation,” to provide us with a greater understanding of the variability of our future cash flow projections. The stochastic analysis we perform is built within the MAPS actuarial software and provides internal rate of return 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 internal rate of return of 11.29%, which is near to our expected internal rate of return of 11.34%. The stochastic analysis results also reveal that our portfolio is expected to generate an internal rate of return of 10.75% or better in 75% of all generated scenarios; and an internal rate of return of 10.30% or better in 90% of all generated scenarios. As the portfolio continues to grow, all else equal, the percentage of observations that result in an internal rate of return at or very near 11.29% (currently our median, or 50th percentile, internal rate of return expectation) is expected to increase, thereby lowering future cash flow volatility and potentially justifying our use of lower discount rates to value our portfolio.
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In sum, we believe our statistical analyses show that, if we can continue to grow and maintain our investments in life insurance assets, then, in the absence of significant negative events affecting our most significant risks, including but not limited to longevity and credit risk, and interest rate and financing risk, those investments will provide superior risk-adjusted returns for our company and provide us with the means to generate attractive returns for our investors.
Portfolio Information
Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2016, is summarized below:
Total portfolio face value of policy benefits | $ | 1,361,675,000 | ||
Average face value per policy | $ | 1,973,000 | ||
Average face value per insured life | $ | 2,189,000 | ||
Average age of insured (yrs.) | 81.6 | |||
Average life expectancy estimate (yrs.) | 6.9 | |||
Total number of policies | 690 | |||
Number of unique lives | 622 | |||
Demographics | 73% Males; 27% Females | |||
Number of smokers | 29 | |||
Largest policy as % of total portfolio | 0.97 | % | ||
Average policy as % of total portfolio | 0.14 | % | ||
Average annual premium as % of face value | 3.29 | % |
Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2016, organized by the insured’s current age and the associated policy benefits, is summarized below:
Distribution of Policy Benefits by Current Age of Insured
Min Age | Max Age | Policy Benefits | Weighted Average Life Expectancy (yrs.) | Percentage
of Total Policy Benefits | ||||||||
90 | 96 | $ | 123,491,000 | 2.6 | 9.1 | % | ||||||
85 | 89 | $ | 355,249,000 | 4.8 | 26.1 | % | ||||||
80 | 84 | $ | 381,592,000 | 6.5 | 28.0 | % | ||||||
75 | 79 | $ | 253,761,000 | 9.2 | 18.6 | % | ||||||
70 | 74 | $ | 150,403,000 | 10.1 | 11.1 | % | ||||||
65 | 69 | $ | 97,179,000 | 11.2 | 7.1 | % | ||||||
Total | $ | 1,361,675,000 | 6.9 | 100.0 | % |
Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2016, organized by the insured’s current age and number of policies owned, is summarized below:
Distribution of Policies by Current Age of Insured
Min Age | Max Age | Policies | Weighted Average Life Expectancy (yrs.) | Percentage
of Total Policies | ||||||||
90 | 95 | 67 | 2.6 | 9.7 | % | |||||||
85 | 89 | 171 | 4.8 | 24.8 | % | |||||||
80 | 84 | 152 | 6.5 | 22.0 | % | |||||||
75 | 79 | 130 | 9.2 | 18.8 | % | |||||||
70 | 74 | 102 | 10.1 | 14.8 | % | |||||||
65 | 69 | 68 | 11.2 | 9.9 | % | |||||||
Total | 690 | 6.9 | 100.0 | % |
7 |
Our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2016, 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
Min LE (Months) | Max LE (Months) | Policies | Policy Benefits | Percentage
of Total Policy Benefits | ||||||||||
3 | 47 | 177 | $ | 303,598,000 | 22.3 | % | ||||||||
48 | 71 | 156 | 308,318,000 | 22.6 | % | |||||||||
72 | 95 | 133 | 269,022,000 | 19.8 | % | |||||||||
96 | 119 | 103 | 224,796,000 | 16.5 | % | |||||||||
120 | 143 | 66 | 141,918,000 | 10.4 | % | |||||||||
144 | 205 | 55 | 114,023,000 | 8.4 | % | |||||||||
Total | 690 | $ | 1,361,675,000 | 100.0 | % |
We track concentrations of pre-existing medical conditions among insured individuals within our portfolio based on information contained in life expectancy reports. We track these medical conditions within the following ten primary disease categories: (1) cancer, (2) cardiovascular, (3) cerebrovascular, (4) dementia, (5) diabetes, (6) multiple, (7) neurological disorders, (8) no disease, (9) other, and (10) respiratory diseases. Our primary disease categories are summary generalizations based on the ICD-9 codes we track on each insured individuals within our portfolio. ICD-9 codes, published by the World Health Organization, are used worldwide for medical diagnoses and treatment systems, as well as morbidity and mortality statistics. Currently, the only primary disease category within our portfolio that represents a concentration of over 10% is cardiovascular, which constitutes 20.3% of the face amount of insured benefits of our portfolio as at December 31, 2016.
The complete detail of our portfolio of life insurance policies, owned by our subsidiaries as of December 31, 2016, organized by the current age of the insured and the associated policy benefits, sex, estimated life expectancy, issuing insurance carrier, and the credit rating of the issuing insurance carrier, is set forth below.
Life Insurance Portfolio Detail
(as of December 31, 2016)
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
1 | $ | 4,000,000 | Male | 96 | 24 | Metropolitan Life Insurance Company | AA- | |||||||
2 | $ | 1,100,000 | Male | 96 | 16 | Reliastar Life Insurance Company | A | |||||||
3 | $ | 184,000 | Male | 95 | 36 | Reliastar Life Insurance Company | A | |||||||
4 | $ | 219,000 | Male | 95 | 36 | Reliastar Life Insurance Company | A | |||||||
5 | $ | 1,500,000 | Female | 95 | 22 | Accordia Life and Annuity Company | A- | |||||||
6 | $ | 125,000 | Female | 95 | 4 | Lincoln National Life Insurance Company | AA- | |||||||
7 | $ | 1,000,000 | Female | 94 | 21 | Transamerica Life Insurance Company | AA- | |||||||
8 | $ | 250,000 | Male | 94 | 21 | North American Company for Life and Health Insurance | A+ | |||||||
9 | $ | 8,000,000 | Female | 94 | 13 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
10 | $ | 264,000 | Female | 94 | 11 | Lincoln Benefit Life Company | BBB+ | |||||||
11 | $ | 572,429 | Female | 93 | 24 | Reliastar Life Insurance Company | A | |||||||
12 | $ | 3,500,000 | Male | 93 | 27 | Reliastar Life Insurance Company | A | |||||||
13 | $ | 3,000,000 | Male | 93 | 28 | West Coast Life Insurance Company | AA- | |||||||
14 | $ | 500,000 | Male | 93 | 5 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
15 | $ | 2,000,000 | Female | 93 | 5 | Pruco Life Insurance Company | AA- | |||||||
16 | $ | 500,000 | Female | 93 | 39 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
17 | $ | 250,000 | Male | 93 | 6 | Transamerica Life Insurance Company | AA- | |||||||
18 | $ | 1,682,773 | Female | 92 | 39 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
19 | $ | 500,000 | Female | 92 | 53 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
20 | $ | 5,000,000 | Female | 92 | 44 | American General Life Insurance Company | A+ | |||||||
21 | $ | 400,000 | Female | 92 | 57 | Principal Life Insurance Company | A+ | |||||||
22 | $ | 5,000,000 | Female | 92 | 22 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
23 | $ | 1,000,000 | Female | 92 | 24 | Lincoln National Life Insurance Company | AA- | |||||||
24 | $ | 500,000 | Male | 92 | 38 | Reliastar Life Insurance Company | A |
8 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
25 | $ | 300,000 | Female | 92 | 15 | West Coast Life Insurance Company | AA- | |||||||
26 | $ | 500,000 | Male | 91 | 38 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
27 | $ | 5,000,000 | Male | 91 | 21 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
28 | $ | 3,500,000 | Female | 91 | 59 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
29 | $ | 3,100,000 | Female | 91 | 24 | Lincoln Benefit Life Company | BBB+ | |||||||
30 | $ | 1,500,000 | Female | 91 | 53 | Lincoln National Life Insurance Company | AA- | |||||||
31 | $ | 2,500,000 | Female | 91 | 3 | AXA Equitable Life Insurance Company | A+ | |||||||
32 | $ | 2,500,000 | Female | 91 | 3 | AXA Equitable Life Insurance Company | A+ | |||||||
33 | $ | 3,000,000 | Female | 91 | 23 | Lincoln National Life Insurance Company | AA- | |||||||
34 | $ | 5,000,000 | Female | 91 | 29 | Reliastar Life Insurance Company | A | |||||||
35 | $ | 144,000 | Male | 91 | 48 | Lincoln National Life Insurance Company | AA- | |||||||
36 | $ | 5,000,000 | Female | 91 | 11 | Lincoln National Life Insurance Company | AA- | |||||||
37 | $ | 1,000,000 | Female | 91 | 61 | Lincoln National Life Insurance Company | AA- | |||||||
38 | $ | 1,000,000 | Male | 91 | 9 | Voya Retirement Insurance and Annuity Company | A | |||||||
39 | $ | 1,203,520 | Male | 91 | 32 | Columbus Life Insurance Company | AA | |||||||
40 | $ | 1,350,000 | Female | 91 | 25 | Lincoln National Life Insurance Company | AA- | |||||||
41 | $ | 600,000 | Female | 91 | 13 | Columbus Life Insurance Company | AA | |||||||
42 | $ | 1,000,000 | Female | 91 | 37 | Pan-American Assurance Company | N/A | |||||||
43 | $ | 5,000,000 | Female | 90 | 36 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
44 | $ | 2,500,000 | Female | 90 | 36 | American General Life Insurance Company | A+ | |||||||
45 | $ | 2,500,000 | Male | 90 | 43 | Pacific Life Insurance Company | AA- | |||||||
46 | $ | 1,000,000 | Female | 90 | 39 | United of Omaha Life Insurance Company | AA- | |||||||
47 | $ | 5,000,000 | Male | 90 | 40 | AXA Equitable Life Insurance Company | A+ | |||||||
48 | $ | 1,200,000 | Male | 90 | 39 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
49 | $ | 1,200,000 | Male | 90 | 39 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
50 | $ | 375,000 | Male | 90 | 30 | Lincoln National Life Insurance Company | AA- | |||||||
51 | $ | 1,103,922 | Female | 90 | 49 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
52 | $ | 1,000,000 | Female | 90 | 52 | Transamerica Life Insurance Company | AA- | |||||||
53 | $ | 250,000 | Female | 90 | 52 | Transamerica Life Insurance Company | AA- | |||||||
54 | $ | 500,000 | Female | 90 | 32 | Transamerica Life Insurance Company | AA- | |||||||
55 | $ | 5,000,000 | Male | 90 | 41 | AIG Life Insurance Company | A+ | |||||||
56 | $ | 500,000 | Male | 90 | 50 | Lincoln National Life Insurance Company | AA- | |||||||
57 | $ | 800,000 | Male | 90 | 51 | Lincoln National Life Insurance Company | AA- | |||||||
58 | $ | 400,000 | Male | 90 | 35 | Lincoln National Life Insurance Company | AA- | |||||||
59 | $ | 977,000 | Male | 90 | 33 | New York Life Insurance Company | AA+ | |||||||
60 | $ | 2,000,000 | Male | 90 | 30 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
61 | $ | 500,000 | Female | 90 | 24 | Nationwide Life and Annuity Insurance Company | A+ | |||||||
62 | $ | 715,000 | Female | 90 | 43 | Lincoln National Life Insurance Company | AA- | |||||||
63 | $ | 2,225,000 | Female | 90 | 72 | Transamerica Life Insurance Company | AA- | |||||||
64 | $ | 3,000,000 | Female | 90 | 68 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
65 | $ | 1,500,000 | Male | 90 | 34 | Union Central Life Insurance Company | N/A | |||||||
66 | $ | 3,500,000 | Female | 90 | 30 | Lincoln National Life Insurance Company | AA- | |||||||
67 | $ | 1,500,000 | Male | 90 | 90 | Transamerica Life Insurance Company | AA- | |||||||
68 | $ | 1,000,000 | Female | 89 | 42 | Metropolitan Life Insurance Company | AA- | |||||||
69 | $ | 248,859 | Female | 89 | 23 | Lincoln National Life Insurance Company | AA- | |||||||
70 | $ | 500,000 | Female | 89 | 55 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
71 | $ | 3,000,000 | Male | 89 | 34 | Transamerica Life Insurance Company | AA- | |||||||
72 | $ | 250,000 | Male | 89 | 58 | Metropolitan Life Insurance Company | AA- |
9 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
73 | $ | 4,000,000 | Female | 89 | 59 | Transamerica Life Insurance Company | AA- | |||||||
74 | $ | 2,000,000 | Female | 89 | 38 | Beneficial Life Insurance Company | N/A | |||||||
75 | $ | 250,000 | Female | 89 | 38 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
76 | $ | 1,050,000 | Male | 89 | 32 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
77 | $ | 3,000,000 | Male | 89 | 82 | Transamerica Life Insurance Company | AA- | |||||||
78 | $ | 1,000,000 | Male | 89 | 42 | AXA Equitable Life Insurance Company | A+ | |||||||
79 | $ | 1,250,000 | Male | 89 | 25 | Columbus Life Insurance Company | AA | |||||||
80 | $ | 300,000 | Male | 89 | 25 | Columbus Life Insurance Company | AA | |||||||
81 | $ | 4,785,380 | Female | 89 | 30 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
82 | $ | 2,500,000 | Male | 89 | 44 | Transamerica Life Insurance Company | AA- | |||||||
83 | $ | 1,000,000 | Female | 89 | 39 | West Coast Life Insurance Company | AA- | |||||||
84 | $ | 2,000,000 | Female | 89 | 39 | West Coast Life Insurance Company | AA- | |||||||
85 | $ | 1,803,455 | Female | 89 | 59 | Metropolitan Life Insurance Company | AA- | |||||||
86 | $ | 1,529,270 | Female | 89 | 59 | Metropolitan Life Insurance Company | AA- | |||||||
87 | $ | 5,000,000 | Male | 89 | 39 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
88 | $ | 800,000 | Male | 89 | 42 | National Western Life Insurance Company | A | |||||||
89 | $ | 500,000 | Female | 89 | 38 | Transamerica Life Insurance Company | AA- | |||||||
90 | $ | 400,000 | Female | 89 | 38 | Lincoln Benefit Life Company | BBB+ | |||||||
91 | $ | 200,000 | Male | 89 | 38 | Lincoln Benefit Life Company | BBB+ | |||||||
92 | $ | 4,445,467 | Male | 89 | 45 | Penn Mutual Life Insurance Company | A+ | |||||||
93 | $ | 7,500,000 | Male | 89 | 37 | Lincoln National Life Insurance Company | AA- | |||||||
94 | $ | 3,600,000 | Female | 89 | 55 | AXA Equitable Life Insurance Company | A+ | |||||||
95 | $ | 300,000 | Male | 89 | 37 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
96 | $ | 3,000,000 | Male | 89 | 31 | Lincoln National Life Insurance Company | AA- | |||||||
97 | $ | 2,000,000 | Male | 89 | 34 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
98 | $ | 100,000 | Female | 89 | 44 | American General Life Insurance Company | A+ | |||||||
99 | $ | 100,000 | Female | 89 | 44 | American General Life Insurance Company | A+ | |||||||
100 | $ | 2,000,000 | Female | 89 | 62 | U.S. Financial Life Insurance Company | N/A | |||||||
101 | $ | 396,791 | Male | 89 | 24 | Lincoln National Life Insurance Company | AA- | |||||||
102 | $ | 1,000,000 | Male | 88 | 38 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
103 | $ | 2,000,000 | Male | 88 | 38 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
104 | $ | 5,000,000 | Male | 88 | 38 | Lincoln National Life Insurance Company | AA- | |||||||
105 | $ | 5,000,000 | Female | 88 | 26 | Transamerica Life Insurance Company | AA- | |||||||
106 | $ | 1,200,000 | Male | 88 | 60 | Transamerica Life Insurance Company | AA- | |||||||
107 | $ | 6,000,000 | Female | 88 | 45 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
108 | $ | 250,000 | Male | 88 | 37 | Wilton Reassurance Life Insurance Company | N/A | |||||||
109 | $ | 1,000,000 | Female | 88 | 74 | Security Life of Denver Insurance Company | A | |||||||
110 | $ | 330,000 | Male | 88 | 57 | AXA Equitable Life Insurance Company | A+ | |||||||
111 | $ | 175,000 | Male | 88 | 57 | Metropolitan Life Insurance Company | AA- | |||||||
112 | $ | 335,000 | Male | 88 | 57 | Metropolitan Life Insurance Company | AA- | |||||||
113 | $ | 3,000,000 | Male | 88 | 63 | AXA Equitable Life Insurance Company | A+ | |||||||
114 | $ | 1,000,000 | Female | 88 | 18 | State Farm Life Insurance Company | AA | |||||||
115 | $ | 1,000,000 | Female | 88 | 28 | New York Life Insurance Company | AA+ | |||||||
116 | $ | 209,176 | Male | 88 | 79 | Lincoln National Life Insurance Company | AA- | |||||||
117 | $ | 10,000,000 | Female | 88 | 59 | West Coast Life Insurance Company | AA- | |||||||
118 | $ | 8,500,000 | Male | 88 | 66 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
119 | $ | 500,000 | Male | 88 | 67 | Metropolitan Life Insurance Company | AA- | |||||||
120 | $ | 347,211 | Male | 88 | 28 | Pruco Life Insurance Company | AA- |
10 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
121 | $ | 500,000 | Female | 88 | 43 | Beneficial Life Insurance Company | N/A | |||||||
122 | $ | 1,269,017 | Male | 88 | 23 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
123 | $ | 1,000,000 | Male | 88 | 32 | Security Life of Denver Insurance Company | A | |||||||
124 | $ | 5,000,000 | Male | 88 | 66 | Lincoln National Life Insurance Company | AA- | |||||||
125 | $ | 120,500 | Male | 88 | 27 | New England Life Insurance Company | A+ | |||||||
126 | $ | 4,513,823 | Female | 88 | 17 | Accordia Life and Annuity Company | A- | |||||||
127 | $ | 2,000,000 | Male | 88 | 75 | Security Life of Denver Insurance Company | A | |||||||
128 | $ | 2,000,000 | Male | 88 | 75 | Security Life of Denver Insurance Company | A | |||||||
129 | $ | 2,000,000 | Male | 88 | 75 | Security Life of Denver Insurance Company | A | |||||||
130 | $ | 309,000 | Male | 88 | 25 | Transamerica Life Insurance Company | AA- | |||||||
131 | $ | 1,500,000 | Male | 88 | 46 | AXA Equitable Life Insurance Company | A+ | |||||||
132 | $ | 1,365,000 | Female | 87 | 80 | Transamerica Life Insurance Company | AA- | |||||||
133 | $ | 200,000 | Female | 87 | 72 | Lincoln National Life Insurance Company | AA- | |||||||
134 | $ | 1,000,000 | Male | 87 | 35 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
135 | $ | 1,000,000 | Male | 87 | 28 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
136 | $ | 1,000,000 | Female | 87 | 60 | AXA Equitable Life Insurance Company | A+ | |||||||
137 | $ | 2,000,000 | Male | 87 | 82 | Transamerica Life Insurance Company | AA- | |||||||
138 | $ | 1,000,000 | Male | 87 | 27 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
139 | $ | 1,000,000 | Male | 87 | 42 | AXA Equitable Life Insurance Company | A+ | |||||||
140 | $ | 2,328,547 | Male | 87 | 32 | Metropolitan Life Insurance Company | AA- | |||||||
141 | $ | 2,000,000 | Male | 87 | 32 | Metropolitan Life Insurance Company | AA- | |||||||
142 | $ | 1,000,000 | Male | 87 | 22 | Transamerica Life Insurance Company | AA- | |||||||
143 | $ | 750,000 | Female | 87 | 68 | Lincoln National Life Insurance Company | AA- | |||||||
144 | $ | 1,500,000 | Female | 87 | 68 | Lincoln National Life Insurance Company | AA- | |||||||
145 | $ | 400,000 | Female | 87 | 68 | Lincoln National Life Insurance Company | AA- | |||||||
146 | $ | 1,250,000 | Female | 87 | 68 | Lincoln National Life Insurance Company | AA- | |||||||
147 | $ | 2,000,000 | Male | 87 | 48 | Lincoln National Life Insurance Company | AA- | |||||||
148 | $ | 3,000,000 | Female | 87 | 51 | Transamerica Life Insurance Company | AA- | |||||||
149 | $ | 5,000,000 | Male | 87 | 58 | Security Life of Denver Insurance Company | A | |||||||
150 | $ | 1,800,000 | Male | 87 | 40 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
151 | $ | 284,924 | Male | 87 | 48 | Transamerica Life Insurance Company | AA- | |||||||
152 | $ | 2,000,000 | Male | 87 | 49 | AXA Equitable Life Insurance Company | A+ | |||||||
153 | $ | 1,750,000 | Male | 87 | 49 | AXA Equitable Life Insurance Company | A+ | |||||||
154 | $ | 4,000,000 | Male | 87 | 38 | Metropolitan Life Insurance Company | AA- | |||||||
155 | $ | 2,000,000 | Male | 87 | 24 | Transamerica Life Insurance Company | AA- | |||||||
156 | $ | 1,425,000 | Male | 87 | 60 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
157 | $ | 800,000 | Male | 87 | 38 | Metropolitan Life Insurance Company | AA- | |||||||
158 | $ | 1,000,000 | Female | 86 | 69 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
159 | $ | 1,500,000 | Male | 86 | 24 | Transamerica Life Insurance Company | AA- | |||||||
160 | $ | 1,500,000 | Female | 86 | 114 | Lincoln Benefit Life Company | BBB+ | |||||||
161 | $ | 1,000,000 | Female | 86 | 32 | Metropolitan Life Insurance Company | AA- | |||||||
162 | $ | 3,750,000 | Male | 86 | 61 | AXA Equitable Life Insurance Company | A+ | |||||||
163 | $ | 2,000,000 | Male | 86 | 41 | Metropolitan Life Insurance Company | AA- | |||||||
164 | $ | 3,000,000 | Male | 86 | 41 | Metropolitan Life Insurance Company | AA- | |||||||
165 | $ | 4,000,000 | Male | 86 | 24 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
166 | $ | 1,000,000 | Male | 86 | 63 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
167 | $ | 2,000,000 | Female | 86 | 71 | AXA Equitable Life Insurance Company | A+ | |||||||
168 | $ | 2,000,000 | Female | 86 | 84 | Lincoln Benefit Life Company | BBB+ |
11 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
169 | $ | 1,000,000 | Male | 86 | 41 | Security Life of Denver Insurance Company | A | |||||||
170 | $ | 5,000,000 | Female | 86 | 46 | Security Life of Denver Insurance Company | A | |||||||
171 | $ | 3,000,000 | Female | 86 | 69 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
172 | $ | 2,400,000 | Male | 86 | 25 | Genworth Life Insurance Company | BB | |||||||
173 | $ | 3,000,000 | Male | 86 | 77 | Transamerica Life Insurance Company | AA- | |||||||
174 | $ | 125,000 | Male | 86 | 51 | Jackson National Life Insurance Company | AA | |||||||
175 | $ | 1,500,000 | Male | 86 | 64 | AXA Equitable Life Insurance Company | A+ | |||||||
176 | $ | 5,000,000 | Male | 86 | 73 | Security Life of Denver Insurance Company | A | |||||||
177 | $ | 1,500,000 | Male | 86 | 36 | Reliastar Life Insurance Company | A | |||||||
178 | $ | 1,500,000 | Male | 86 | 36 | Reliastar Life Insurance Company | A | |||||||
179 | $ | 1,000,000 | Male | 86 | 52 | Lincoln National Life Insurance Company | AA- | |||||||
180 | $ | 450,000 | Male | 86 | 52 | American General Life Insurance Company | A+ | |||||||
181 | $ | 2,500,000 | Female | 86 | 63 | American General Life Insurance Company | A+ | |||||||
182 | $ | 500,000 | Male | 86 | 30 | Genworth Life Insurance Company | BB | |||||||
183 | $ | 1,980,000 | Male | 86 | 38 | New York Life Insurance Company | AA+ | |||||||
184 | $ | 1,000,000 | Male | 86 | 34 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
185 | $ | 500,000 | Male | 86 | 37 | New England Life Insurance Company | A+ | |||||||
186 | $ | 4,000,000 | Female | 86 | 39 | Reliastar Life Insurance Company | A | |||||||
187 | $ | 5,000,000 | Female | 86 | 78 | American General Life Insurance Company | A+ | |||||||
188 | $ | 1,703,959 | Male | 86 | 57 | Lincoln National Life Insurance Company | AA- | |||||||
189 | $ | 1,000,000 | Male | 86 | 44 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
190 | $ | 2,000,000 | Female | 86 | 74 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
191 | $ | 500,000 | Female | 86 | 23 | Transamerica Life Insurance Company | AA- | |||||||
192 | $ | 3,500,000 | Female | 86 | 92 | Lincoln Benefit Life Company | BBB+ | |||||||
193 | $ | 5,000,000 | Female | 85 | 86 | AXA Equitable Life Insurance Company | A+ | |||||||
194 | $ | 6,000,000 | Female | 85 | 95 | American General Life Insurance Company | A+ | |||||||
195 | $ | 1,433,572 | Male | 85 | 41 | Security Mutual Life Insurance Company of NY | N/A | |||||||
196 | $ | 10,000,000 | Male | 85 | 113 | Pacific Life Insurance Company | AA- | |||||||
197 | $ | 1,000,000 | Male | 85 | 49 | Texas Life Insurance Company | N/A | |||||||
198 | $ | 500,000 | Male | 85 | 90 | Metropolitan Life Insurance Company | AA- | |||||||
199 | $ | 2,000,000 | Male | 85 | 51 | National Life Insurance Company | A | |||||||
200 | $ | 2,147,816 | Female | 85 | 104 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
201 | $ | 4,200,000 | Female | 85 | 103 | Transamerica Life Insurance Company | AA- | |||||||
202 | $ | 850,000 | Male | 85 | 46 | American General Life Insurance Company | A+ | |||||||
203 | $ | 750,000 | Male | 85 | 72 | West Coast Life Insurance Company | AA- | |||||||
204 | $ | 5,000,000 | Male | 85 | 44 | AXA Equitable Life Insurance Company | A+ | |||||||
205 | $ | 2,000,000 | Female | 85 | 59 | New York Life Insurance Company | AA+ | |||||||
206 | $ | 5,000,000 | Male | 85 | 60 | Lincoln National Life Insurance Company | AA- | |||||||
207 | $ | 1,500,000 | Male | 85 | 66 | Lincoln National Life Insurance Company | AA- | |||||||
208 | $ | 250,000 | Male | 85 | 39 | Ohio State Insurance Company | N/A | |||||||
209 | $ | 3,500,000 | Female | 85 | 74 | AXA Equitable Life Insurance Company | A+ | |||||||
210 | $ | 1,000,000 | Female | 85 | 87 | West Coast Life Insurance Company | AA- | |||||||
211 | $ | 8,500,000 | Male | 85 | 90 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
212 | $ | 600,000 | Male | 85 | 86 | AXA Equitable Life Insurance Company | A+ | |||||||
213 | $ | 3,000,000 | Female | 85 | 54 | Metropolitan Life Insurance Company | AA- | |||||||
214 | $ | 7,600,000 | Female | 85 | 83 | Transamerica Life Insurance Company | AA- | |||||||
215 | $ | 250,000 | Male | 85 | 16 | Midland National Life Insurance Company | A+ | |||||||
216 | $ | 250,000 | Male | 85 | 39 | Transamerica Life Insurance Company | AA- |
12 |
Face Amount | Gender | Age
(ALB) (1) | LE (mo.) (2) | Insurance Company | S&P Rating | |||||||||
217 | $ | 2,275,000 | Male | 85 | 78 | Reliastar Life Insurance Company | A | |||||||
218 | $ | 2,500,000 | Male | 85 | 46 | AXA Equitable Life Insurance Company | A+ | |||||||
219 | $ | 3,000,000 | Male | 85 | 46 | Lincoln National Life Insurance Company | AA- | |||||||
220 | $ | 300,000 | Female | 85 | 92 | AXA Equitable Life Insurance Company | A+ | |||||||
221 | $ | 500,000 | Female | 85 | 92 | AXA Equitable Life Insurance Company | A+ | |||||||
222 | $ | 340,000 | Female | 85 | 72 | Jackson National Life Insurance Company | AA | |||||||
223 | $ | 2,000,000 | Male | 85 | 71 | Pacific Life Insurance Company | AA- | |||||||
224 | $ | 7,600,000 | Male | 85 | 86 | Transamerica Life Insurance Company | AA- | |||||||
225 | $ | 3,000,000 | Female | 85 | 34 | AXA Equitable Life Insurance Company | A+ | |||||||
226 | $ | 250,000 | Male | 85 | 65 | Voya Retirement Insurance and Annuity Company | A | |||||||
227 | $ | 1,800,000 | Female | 85 | 47 | Lincoln National Life Insurance Company | AA- | |||||||
228 | $ | 3,000,000 | Male | 85 | 47 | Metropolitan Life Insurance Company | AA- | |||||||
229 | $ | 1,275,000 | Male | 85 | 42 | General American Life Insurance Company | AA- | |||||||
230 | $ | 500,000 | Male | 85 | 10 | Great Southern Life Insurance Company | N/A | |||||||
231 | $ | 2,247,450 | Female | 85 | 47 | Transamerica Life Insurance Company | AA- | |||||||
232 | $ | 500,000 | Female | 85 | 83 | Metropolitan Life Insurance Company | AA- | |||||||
233 | $ | 400,000 | Male | 85 | 37 | Transamerica Life Insurance Company | AA- | |||||||
234 | $ | 1,000,000 | Male | 85 | 78 | Lincoln National Life Insurance Company | AA- | |||||||
235 | $ | 1,000,000 | Male | 85 | 48 | Metropolitan Life Insurance Company | AA- | |||||||
236 | $ | 300,000 | Male | 85 | 48 | New England Life Insurance Company | A+ | |||||||
237 | $ | 3,500,000 | Male | 85 | 51 | Pacific Life Insurance Company | AA- | |||||||
238 | $ | 2,500,000 | Male | 85 | 51 | AXA Equitable Life Insurance Company | A+ | |||||||
239 | $ | 80,000 | Female | 84 | 45 | Protective Life Insurance Company | AA- | |||||||
240 | $ | 1,000,000 | Male | 84 | 56 | Lincoln National Life Insurance Company | AA- | |||||||
241 | $ | 3,000,000 | Male | 84 | 29 | U.S. Financial Life Insurance Company | N/A | |||||||
242 | $ | 325,000 | Male | 84 | 51 | Genworth Life and Annuity Insurance Company | BB | |||||||
243 | $ | 175,000 | Male | 84 | 51 | Genworth Life and Annuity Insurance Company | BB | |||||||
244 | $ | 600,000 | Male | 84 | 59 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
245 | $ | 5,000,000 | Male | 84 | 95 | American General Life Insurance Company | A+ | |||||||
246 | $ | 1,900,000 | Male | 84 | 52 | American National Insurance Company | A | |||||||
247 | $ | 500,000 | Male | 84 | 34 | New York Life Insurance Company | AA+ | |||||||
248 | $ | 500,000 | Male | 84 | 34 | New York Life Insurance Company | AA+ | |||||||
249 | $ | 385,000 | Male | 84 | 59 | Metropolitan Life Insurance Company | AA- | |||||||
250 | $ | 500,000 | Male | 84 | 59 | Metropolitan Life Insurance Company | AA- | |||||||
251 | $ | 75,000 | Male | 84 | 37 | Fidelity and Guaranty Insurance Company | BBB- | |||||||
252 | $ | 10,000,000 | Male | 84 | 60 | Lincoln National Life Insurance Company | AA- | |||||||
253 | $ | 1,000,000 | Female | 84 | 64 | American General Life Insurance Company | A+ | |||||||
254 | $ | 5,000,000 | Female | 84 | 63 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
255 | $ | 750,000 | Male | 84 | 64 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
256 | $ | 4,500,000 | Male | 84 | 59 | AXA Equitable Life Insurance Company | A+ | |||||||
257 | $ | 1,995,000 | Female | 84 | 67 | Transamerica Life Insurance Company | AA- | |||||||
258 | $ | 4,000,000 | Male | 84 | 44 | Lincoln National Life Insurance Company | AA- | |||||||
259 | $ | 10,000,000 | Male | 84 | 69 | AXA Equitable Life Insurance Company | A+ | |||||||
260 | $ | 1,000,000 | Male | 84 | 56 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
261 | $ | 1,000,000 | Male | 84 | 56 | Jackson National Life Insurance Company | AA | |||||||
262 | $ | 2,300,000 | Male | 84 | 12 | American General Life Insurance Company | A+ | |||||||
263 | $ | 3,500,000 | Male | 84 | 58 | AXA Equitable Life Insurance Company | A+ | |||||||
264 | $ | 6,217,200 | Female | 84 | 91 | Phoenix Life Insurance Company | BB- |
13 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
265 | $ | 2,500,000 | Female | 84 | 60 | Reliastar Life Insurance Company | A | |||||||
266 | $ | 5,000,000 | Female | 84 | 46 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
267 | $ | 5,000,000 | Male | 84 | 66 | Transamerica Life Insurance Company | AA- | |||||||
268 | $ | 2,000,000 | Female | 84 | 83 | Lincoln National Life Insurance Company | AA- | |||||||
269 | $ | 500,000 | Female | 84 | 90 | AXA Equitable Life Insurance Company | A+ | |||||||
270 | $ | 1,000,000 | Male | 84 | 39 | American General Life Insurance Company | A+ | |||||||
271 | $ | 750,000 | Male | 84 | 75 | AXA Equitable Life Insurance Company | A+ | |||||||
272 | $ | 350,000 | Male | 84 | 25 | Jackson National Life Insurance Company | AA | |||||||
273 | $ | 5,000,000 | Male | 84 | 69 | Lincoln National Life Insurance Company | AA- | |||||||
274 | $ | 3,000,000 | Male | 83 | 54 | Protective Life Insurance Company | AA- | |||||||
275 | $ | 1,500,000 | Male | 83 | 54 | American General Life Insurance Company | A+ | |||||||
276 | $ | 2,000,000 | Female | 83 | 91 | Transamerica Life Insurance Company | AA- | |||||||
277 | $ | 5,000,000 | Female | 83 | 65 | Security Mutual Life Insurance Company of NY | N/A | |||||||
278 | $ | 550,000 | Male | 83 | 103 | Genworth Life Insurance Company | BB | |||||||
279 | $ | 500,000 | Male | 83 | 52 | West Coast Life Insurance Company | AA- | |||||||
280 | $ | 1,500,000 | Male | 83 | 59 | Pacific Life Insurance Company | AA- | |||||||
281 | $ | 1,000,000 | Female | 83 | 78 | Lincoln National Life Insurance Company | AA- | |||||||
282 | $ | 2,000,000 | Male | 83 | 72 | New York Life Insurance Company | AA+ | |||||||
283 | $ | 250,000 | Male | 83 | 129 | Reliastar Life Insurance Company | A | |||||||
284 | $ | 1,000,000 | Male | 83 | 140 | Reliastar Life Insurance Company | A | |||||||
285 | $ | 1,500,000 | Male | 83 | 57 | Lincoln Benefit Life Company | BBB+ | |||||||
286 | $ | 2,000,000 | Female | 83 | 74 | Lincoln National Life Insurance Company | AA- | |||||||
287 | $ | 10,000,000 | Male | 83 | 66 | New York Life Insurance Company | AA+ | |||||||
288 | $ | 417,300 | Male | 83 | 88 | Jackson National Life Insurance Company | AA | |||||||
289 | $ | 5,000,000 | Male | 83 | 60 | AXA Equitable Life Insurance Company | A+ | |||||||
290 | $ | 300,000 | Female | 83 | 62 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
291 | $ | 10,000,000 | Male | 83 | 100 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
292 | $ | 2,000,000 | Male | 83 | 57 | Ohio National Life Assurance Corporation | AA- | |||||||
293 | $ | 1,000,000 | Male | 83 | 57 | Ohio National Life Assurance Corporation | AA- | |||||||
294 | $ | 7,000,000 | Male | 83 | 74 | Genworth Life Insurance Company | BB | |||||||
295 | $ | 5,000,000 | Male | 82 | 78 | AXA Equitable Life Insurance Company | A+ | |||||||
296 | $ | 6,000,000 | Male | 82 | 93 | Transamerica Life Insurance Company | AA- | |||||||
297 | $ | 8,000,000 | Male | 82 | 71 | AXA Equitable Life Insurance Company | A+ | |||||||
298 | $ | 850,000 | Female | 82 | 86 | Zurich Life Insurance Company | AA- | |||||||
299 | $ | 1,680,000 | Female | 82 | 57 | AXA Equitable Life Insurance Company | A+ | |||||||
300 | $ | 600,000 | Male | 82 | 42 | Lincoln National Life Insurance Company | AA- | |||||||
301 | $ | 2,000,000 | Male | 82 | 19 | Metropolitan Life Insurance Company | AA- | |||||||
302 | $ | 1,250,000 | Male | 82 | 87 | Metropolitan Life Insurance Company | AA- | |||||||
303 | $ | 3,000,000 | Female | 82 | 59 | AXA Equitable Life Insurance Company | A+ | |||||||
304 | $ | 1,000,000 | Male | 82 | 54 | AXA Equitable Life Insurance Company | A+ | |||||||
305 | $ | 1,250,000 | Female | 82 | 73 | Principal Life Insurance Company | A+ | |||||||
306 | $ | 320,987 | Female | 82 | 94 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
307 | $ | 1,000,000 | Male | 82 | 45 | AXA Equitable Life Insurance Company | A+ | |||||||
308 | $ | 700,000 | Male | 82 | 89 | Banner Life Insurance Company | AA- | |||||||
309 | $ | 2,000,000 | Female | 82 | 78 | Pacific Life Insurance Company | AA- | |||||||
310 | $ | 3,000,000 | Male | 82 | 85 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
311 | $ | 10,000,000 | Male | 82 | 58 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
312 | $ | 1,750,000 | Male | 82 | 70 | AXA Equitable Life Insurance Company | A+ |
14 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
313 | $ | 250,000 | Male | 82 | 67 | American General Life Insurance Company | A+ | |||||||
314 | $ | 3,500,000 | Male | 82 | 73 | Metropolitan Life Insurance Company | AA- | |||||||
315 | $ | 2,502,000 | Male | 82 | 133 | Transamerica Life Insurance Company | AA- | |||||||
316 | $ | 170,000 | Female | 82 | 52 | Reliastar Life Insurance Company | A | |||||||
317 | $ | 240,000 | Male | 82 | 33 | Lincoln National Life Insurance Company | AA- | |||||||
318 | $ | 250,000 | Female | 82 | 91 | Accordia Life and Annuity Company | A- | |||||||
319 | $ | 3,000,000 | Male | 82 | 112 | Principal Life Insurance Company | A+ | |||||||
320 | $ | 1,700,000 | Male | 82 | 52 | Lincoln National Life Insurance Company | AA- | |||||||
321 | $ | 1,210,000 | Male | 82 | 54 | Lincoln National Life Insurance Company | AA- | |||||||
322 | $ | 3,000,000 | Female | 82 | 94 | West Coast Life Insurance Company | AA- | |||||||
323 | $ | 8,000,000 | Male | 81 | 115 | Metropolitan Life Insurance Company | AA- | |||||||
324 | $ | 3,000,000 | Male | 81 | 33 | Pacific Life Insurance Company | AA- | |||||||
325 | $ | 3,000,000 | Male | 81 | 33 | Minnesota Life Insurance Company | A+ | |||||||
326 | $ | 3,000,000 | Male | 81 | 33 | Pruco Life Insurance Company | AA- | |||||||
327 | $ | 3,000,000 | Male | 81 | 79 | Reliastar Life Insurance Company | A | |||||||
328 | $ | 5,000,000 | Male | 81 | 87 | Pacific Life Insurance Company | AA- | |||||||
329 | $ | 5,000,000 | Male | 81 | 87 | Pacific Life Insurance Company | AA- | |||||||
330 | $ | 4,000,000 | Male | 81 | 70 | Lincoln National Life Insurance Company | AA- | |||||||
331 | $ | 500,000 | Male | 81 | 44 | Genworth Life and Annuity Insurance Company | BB | |||||||
332 | $ | 3,000,000 | Male | 81 | 133 | Metropolitan Life Insurance Company | AA- | |||||||
333 | $ | 300,000 | Female | 81 | 88 | Metropolitan Life Insurance Company | AA- | |||||||
334 | $ | 200,000 | Male | 81 | 62 | Protective Life Insurance Company | AA- | |||||||
335 | $ | 150,000 | Male | 81 | 62 | Protective Life Insurance Company | AA- | |||||||
336 | $ | 150,000 | Male | 81 | 62 | Protective Life Insurance Company | AA- | |||||||
337 | $ | 350,000 | Male | 81 | 62 | Lincoln National Life Insurance Company | AA- | |||||||
338 | $ | 1,187,327 | Male | 81 | 86 | Transamerica Life Insurance Company | AA- | |||||||
339 | $ | 5,000,000 | Male | 81 | 117 | Principal Life Insurance Company | A+ | |||||||
340 | $ | 5,000,000 | Male | 81 | 96 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
341 | $ | 800,000 | Male | 81 | 68 | North American Company for Life And Health Insurance | A+ | |||||||
342 | $ | 7,000,000 | Male | 81 | 75 | Lincoln Benefit Life Company | BBB+ | |||||||
343 | $ | 8,000,000 | Female | 81 | 96 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
344 | $ | 1,000,000 | Female | 81 | 77 | Lincoln Benefit Life Company | BBB+ | |||||||
345 | $ | 1,000,000 | Male | 81 | 82 | Penn Mutual Life Insurance Company | A+ | |||||||
346 | $ | 250,000 | Male | 81 | 86 | AXA Equitable Life Insurance Company | A+ | |||||||
347 | $ | 6,000,000 | Male | 81 | 111 | AXA Equitable Life Insurance Company | A+ | |||||||
348 | $ | 130,000 | Male | 81 | 42 | Genworth Life Insurance Company | BB | |||||||
349 | $ | 5,500,000 | Male | 81 | 110 | Metropolitan Life Insurance Company | AA- | |||||||
350 | $ | 1,000,000 | Male | 81 | 89 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
351 | $ | 1,000,000 | Male | 81 | 112 | Protective Life Insurance Company | AA- | |||||||
352 | $ | 4,000,000 | Male | 81 | 84 | Lincoln National Life Insurance Company | AA- | |||||||
353 | $ | 2,000,000 | Male | 81 | 71 | Metropolitan Life Insurance Company | AA- | |||||||
354 | $ | 2,000,000 | Male | 81 | 71 | Metropolitan Life Insurance Company | AA- | |||||||
355 | $ | 4,300,000 | Female | 81 | 99 | American National Insurance Company | A | |||||||
356 | $ | 100,000 | Male | 81 | 75 | Prudential Insurance Company of America | AA- | |||||||
357 | $ | 200,000 | Male | 81 | 56 | Kansas City Life Insurance Company | N/A | |||||||
358 | $ | 200,000 | Male | 81 | 47 | Lincoln National Life Insurance Company | AA- | |||||||
359 | $ | 6,000,000 | Male | 81 | 96 | AXA Equitable Life Insurance Company | A+ | |||||||
360 | $ | 2,000,000 | Female | 81 | 65 | Transamerica Life Insurance Company | AA- |
15 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
361 | $ | 1,500,000 | Female | 81 | 66 | Protective Life Insurance Company | AA- | |||||||
362 | $ | 1,000,000 | Male | 81 | 47 | Pacific Life Insurance Company | AA- | |||||||
363 | $ | 200,000 | Male | 81 | 38 | Pruco Life Insurance Company | AA- | |||||||
364 | $ | 500,000 | Male | 81 | 38 | Transamerica Life Insurance Company | AA- | |||||||
365 | $ | 5,000,000 | Male | 80 | 69 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
366 | $ | 3,601,500 | Male | 80 | 83 | Transamerica Life Insurance Company | AA- | |||||||
367 | $ | 1,000,000 | Male | 80 | 85 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
368 | $ | 5,000,000 | Male | 80 | 78 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
369 | $ | 150,000 | Male | 80 | 82 | MetLife Insurance Company USA | AA- | |||||||
370 | $ | 1,009,467 | Male | 80 | 49 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
371 | $ | 4,000,000 | Male | 80 | 41 | Metropolitan Life Insurance Company | AA- | |||||||
372 | $ | 100,000 | Male | 80 | 56 | North American Company for Life And Health Insurance | A+ | |||||||
373 | $ | 1,000,000 | Male | 80 | 105 | Lincoln National Life Insurance Company | AA- | |||||||
374 | $ | 5,000,000 | Male | 80 | 47 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
375 | $ | 6,799,139 | Male | 80 | 111 | AXA Equitable Life Insurance Company | A+ | |||||||
376 | $ | 476,574 | Male | 80 | 61 | Transamerica Life Insurance Company | AA- | |||||||
377 | $ | 2,250,000 | Male | 80 | 83 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
378 | $ | 775,000 | Male | 80 | 113 | Lincoln National Life Insurance Company | AA- | |||||||
379 | $ | 1,000,000 | Female | 80 | 112 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
380 | $ | 6,000,000 | Male | 80 | 108 | AXA Equitable Life Insurance Company | A+ | |||||||
381 | $ | 1,445,000 | Female | 80 | 94 | AXA Equitable Life Insurance Company | A+ | |||||||
382 | $ | 1,500,000 | Female | 80 | 94 | AXA Equitable Life Insurance Company | A+ | |||||||
383 | $ | 1,000,000 | Male | 80 | 76 | Lincoln National Life Insurance Company | AA- | |||||||
384 | $ | 325,000 | Male | 80 | 34 | American General Life Insurance Company | A+ | |||||||
385 | $ | 3,750,000 | Male | 80 | 50 | AXA Equitable Life Insurance Company | A+ | |||||||
386 | $ | 1,000,000 | Male | 80 | 99 | Metropolitan Life Insurance Company | AA- | |||||||
387 | $ | 5,000,000 | Female | 80 | 106 | Reliastar Life Insurance Company | A | |||||||
388 | $ | 750,000 | Male | 80 | 59 | Lincoln National Life Insurance Company | AA- | |||||||
389 | $ | 5,000,000 | Male | 80 | 167 | West Coast Life Insurance Company | AA- | |||||||
390 | $ | 3,000,000 | Male | 80 | 85 | Principal Life Insurance Company | A+ | |||||||
391 | $ | 5,000,000 | Male | 79 | 126 | Lincoln National Life Insurance Company | AA- | |||||||
392 | $ | 3,000,000 | Male | 79 | 76 | American General Life Insurance Company | A+ | |||||||
393 | $ | 70,000 | Male | 79 | 41 | Pioneer Mutual Life Insurance Company | N/A | |||||||
394 | $ | 500,000 | Male | 79 | 58 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
395 | $ | 500,000 | Male | 79 | 126 | Prudential Insurance Company of America | AA- | |||||||
396 | $ | 1,000,000 | Male | 79 | 104 | Metropolitan Life Insurance Company | AA- | |||||||
397 | $ | 1,250,000 | Male | 79 | 88 | AXA Equitable Life Insurance Company | A+ | |||||||
398 | $ | 3,000,000 | Female | 79 | 79 | New York Life Insurance Company | AA+ | |||||||
399 | $ | 2,500,000 | Male | 79 | 77 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
400 | $ | 2,500,000 | Male | 79 | 77 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
401 | $ | 500,000 | Female | 79 | 105 | Columbus Life Insurance Company | AA | |||||||
402 | $ | 4,000,000 | Female | 79 | 84 | Transamerica Life Insurance Company | AA- | |||||||
403 | $ | 2,000,000 | Male | 79 | 92 | Lincoln National Life Insurance Company | AA- | |||||||
404 | $ | 2,000,000 | Male | 79 | 92 | Lincoln National Life Insurance Company | AA- | |||||||
405 | $ | 4,000,000 | Male | 79 | 137 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
406 | $ | 1,750,000 | Male | 79 | 54 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
407 | $ | 5,000,000 | Male | 79 | 93 | Transamerica Life Insurance Company | AA- | |||||||
408 | $ | 1,000,000 | Male | 79 | 112 | Principal Life Insurance Company | A+ |
16 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
409 | $ | 500,000 | Female | 79 | 131 | Ohio National Life Assurance Corporation | AA- | |||||||
410 | $ | 550,000 | Male | 79 | 70 | Pruco Life Insurance Company | AA- | |||||||
411 | $ | 300,000 | Male | 79 | 70 | Pruco Life Insurance Company | AA- | |||||||
412 | $ | 1,200,000 | Female | 79 | 102 | AXA Equitable Life Insurance Company | A+ | |||||||
413 | $ | 6,250,000 | Male | 79 | 182 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
414 | $ | 750,000 | Male | 79 | 107 | General American Life Insurance Company | AA- | |||||||
415 | $ | 2,000,000 | Female | 79 | 48 | Transamerica Life Insurance Company | AA- | |||||||
416 | $ | 300,000 | Male | 78 | 70 | Penn Mutual Life Insurance Company | A+ | |||||||
417 | $ | 1,200,000 | Female | 78 | 124 | Athene Annuity & Life Assurance Company | A- | |||||||
418 | $ | 1,000,000 | Male | 78 | 95 | Accordia Life and Annuity Company | A- | |||||||
419 | $ | 2,840,000 | Male | 78 | 89 | Transamerica Life Insurance Company | AA- | |||||||
420 | $ | 750,000 | Male | 78 | 80 | North American Company for Life and Health Insurance | A+ | |||||||
421 | $ | 1,000,000 | Male | 78 | 80 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
422 | $ | 500,000 | Male | 78 | 80 | North American Company for Life and Health Insurance | A+ | |||||||
423 | $ | 200,000 | Female | 78 | 136 | West Coast Life Insurance Company | AA- | |||||||
424 | $ | 50,000 | Male | 78 | 38 | Lincoln National Life Insurance Company | AA- | |||||||
425 | $ | 4,000,000 | Male | 78 | 60 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
426 | $ | 1,000,000 | Female | 78 | 66 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
427 | $ | 1,000,000 | Female | 78 | 120 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
428 | $ | 5,000,000 | Male | 78 | 110 | Lincoln National Life Insurance Company | AA- | |||||||
429 | $ | 7,000,000 | Female | 78 | 113 | Pacific Life Insurance Company | AA- | |||||||
430 | $ | 100,946 | Female | 78 | 152 | Genworth Life and Annuity Insurance Company | BB | |||||||
431 | $ | 2,000,000 | Male | 78 | 97 | Genworth Life Insurance Company | BB | |||||||
432 | $ | 350,000 | Male | 78 | 103 | AXA Equitable Life Insurance Company | A+ | |||||||
433 | $ | 600,000 | Male | 78 | 103 | AXA Equitable Life Insurance Company | A+ | |||||||
434 | $ | 2,000,000 | Male | 78 | 110 | Transamerica Life Insurance Company | AA- | |||||||
435 | $ | 200,000 | Male | 78 | 109 | Prudential Insurance Company of America | AA- | |||||||
436 | $ | 490,620 | Male | 78 | 78 | Ameritas Life Insurance Corporation | A+ | |||||||
437 | $ | 600,000 | Male | 78 | 75 | Protective Life Insurance Company | AA- | |||||||
438 | $ | 400,000 | Male | 78 | 110 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
439 | $ | 1,000,000 | Male | 77 | 76 | Metropolitan Life Insurance Company | AA- | |||||||
440 | $ | 730,000 | Male | 77 | 94 | Transamerica Life Insurance Company | AA- | |||||||
441 | $ | 5,000,000 | Male | 77 | 140 | Pruco Life Insurance Company | AA- | |||||||
442 | $ | 250,000 | Male | 77 | 96 | Midland National Life Insurance Company | A+ | |||||||
443 | $ | 5,000,000 | Male | 77 | 128 | AXA Equitable Life Insurance Company | A+ | |||||||
444 | $ | 3,000,000 | Male | 77 | 49 | Accordia Life and Annuity Company | A- | |||||||
445 | $ | 1,000,000 | Male | 77 | 140 | AXA Equitable Life Insurance Company | A+ | |||||||
446 | $ | 3,000,000 | Male | 77 | 88 | Pruco Life Insurance Company | AA- | |||||||
447 | $ | 500,000 | Male | 77 | 94 | AXA Equitable Life Insurance Company | A+ | |||||||
448 | $ | 3,000,000 | Female | 77 | 98 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
449 | $ | 5,000,000 | Male | 77 | 133 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
450 | $ | 5,000,000 | Male | 77 | 133 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
451 | $ | 1,100,000 | Male | 77 | 130 | Accordia Life and Annuity Company | A- | |||||||
452 | $ | 3,000,000 | Male | 77 | 95 | Protective Life Insurance Company | AA- | |||||||
453 | $ | 2,000,000 | Female | 77 | 110 | Accordia Life and Annuity Company | A- | |||||||
454 | $ | 1,000,000 | Male | 77 | 87 | Transamerica Life Insurance Company | AA- | |||||||
455 | $ | 2,200,000 | Female | 77 | 132 | Reliastar Life Insurance Company | A | |||||||
456 | $ | 10,000,000 | Male | 77 | 125 | AXA Equitable Life Insurance Company | A+ |
17 |
Face Amount | Gender | Age (ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
457 | $ | 2,500,000 | Male | 77 | 131 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
458 | $ | 2,500,000 | Male | 77 | 131 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
459 | $ | 1,000,000 | Male | 77 | 96 | Athene Annuity & Life Assurance Company of New York | A- | |||||||
460 | $ | 5,000,000 | Male | 77 | 80 | Lincoln Benefit Life Company | BBB+ | |||||||
461 | $ | 250,000 | Male | 77 | 133 | West Coast Life Insurance Company | AA- | |||||||
462 | $ | 1,000,000 | Male | 77 | 109 | Transamerica Life Insurance Company | AA- | |||||||
463 | $ | 1,000,000 | Male | 77 | 75 | Pacific Life Insurance Company | AA- | |||||||
464 | $ | 2,000,000 | Female | 77 | 159 | Lincoln National Life Insurance Company | AA- | |||||||
465 | $ | 150,000 | Male | 77 | 97 | Genworth Life Insurance Company | BB | |||||||
466 | $ | 2,000,000 | Male | 77 | 56 | Athene Annuity & Life Assurance Company | A- | |||||||
467 | $ | 7,097,434 | Male | 77 | 150 | Lincoln National Life Insurance Company | AA- | |||||||
468 | $ | 5,000,000 | Male | 77 | 52 | West Coast Life Insurance Company | AA- | |||||||
469 | $ | 1,000,000 | Male | 76 | 119 | Transamerica Life Insurance Company | AA- | |||||||
470 | $ | 750,000 | Male | 76 | 105 | Protective Life Insurance Company | AA- | |||||||
471 | $ | 100,000 | Male | 76 | 113 | Transamerica Life Insurance Company | AA- | |||||||
472 | $ | 200,000 | Male | 76 | 64 | Reliastar Life Insurance Company | A | |||||||
473 | $ | 200,000 | Male | 76 | 64 | Metropolitan Life Insurance Company | AA- | |||||||
474 | $ | 100,000 | Male | 76 | 64 | Metropolitan Life Insurance Company | AA- | |||||||
475 | $ | 3,000,000 | Male | 76 | 105 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
476 | $ | 5,000,000 | Male | 76 | 105 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
477 | $ | 8,000,000 | Male | 76 | 91 | Metropolitan Life Insurance Company | AA- | |||||||
478 | $ | 100,000 | Male | 76 | 50 | AXA Equitable Life Insurance Company | A+ | |||||||
479 | $ | 500,000 | Male | 76 | 87 | AXA Equitable Life Insurance Company | A+ | |||||||
480 | $ | 750,000 | Male | 76 | 25 | North American Company for Life And Health Insurance | A+ | |||||||
481 | $ | 4,000,000 | Female | 76 | 135 | American General Life Insurance Company | A+ | |||||||
482 | $ | 500,000 | Male | 76 | 86 | AIG Life Insurance Company | A+ | |||||||
483 | $ | 1,000,000 | Male | 76 | 152 | Security Mutual Life Insurance Company of NY | N/A | |||||||
484 | $ | 355,700 | Male | 76 | 101 | Security Life of Denver Insurance Company | A | |||||||
485 | $ | 300,000 | Male | 76 | 34 | Lincoln National Life Insurance Company | AA- | |||||||
486 | $ | 750,000 | Female | 76 | 77 | Delaware Life Insurance Company | BBB+ | |||||||
487 | $ | 5,004,704 | Male | 76 | 130 | American General Life Insurance Company | A+ | |||||||
488 | $ | 1,000,000 | Male | 76 | 97 | General American Life Insurance Company | AA- | |||||||
489 | $ | 2,000,000 | Male | 76 | 143 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
490 | $ | 10,000,000 | Female | 76 | 131 | Reliastar Life Insurance Company | A | |||||||
491 | $ | 1,000,000 | Female | 76 | 147 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
492 | $ | 7,500,000 | Female | 76 | 170 | Security Life of Denver Insurance Company | A | |||||||
493 | $ | 500,000 | Male | 76 | 70 | American General Life Insurance Company | A+ | |||||||
494 | $ | 3,000,000 | Female | 76 | 107 | General American Life Insurance Company | AA- | |||||||
495 | $ | 100,000 | Male | 76 | 65 | Transamerica Life Insurance Company | AA- | |||||||
496 | $ | 300,000 | Female | 76 | 130 | Minnesota Life Insurance Company | A+ | |||||||
497 | $ | 250,000 | Male | 76 | 86 | United of Omaha Life Insurance Company | AA- | |||||||
498 | $ | 600,000 | Male | 75 | 67 | United of Omaha Life Insurance Company | AA- | |||||||
499 | $ | 500,000 | Male | 75 | 84 | Protective Life Insurance Company | AA- | |||||||
500 | $ | 1,000,000 | Male | 75 | 90 | Security Life of Denver Insurance Company | A | |||||||
501 | $ | 500,000 | Male | 75 | 32 | Midland National Life Insurance Company | A+ | |||||||
502 | $ | 1,000,000 | Male | 75 | 94 | Transamerica Life Insurance Company | AA- | |||||||
503 | $ | 3,000,000 | Male | 75 | 69 | AXA Equitable Life Insurance Company | A+ | |||||||
504 | $ | 1,000,000 | Male | 75 | 136 | John Hancock Life Insurance Company (U.S.A.) | AA- |
18 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
505 | $ | 500,000 | Male | 75 | 101 | United of Omaha Life Insurance Company | AA- | |||||||
506 | $ | 8,000,000 | Female | 75 | 128 | West Coast Life Insurance Company | AA- | |||||||
507 | $ | 250,000 | Female | 75 | 152 | AXA Equitable Life Insurance Company | A+ | |||||||
508 | $ | 172,245 | Female | 75 | 52 | Symetra Life Insurance Company | A | |||||||
509 | $ | 2,000,000 | Male | 75 | 116 | Pruco Life Insurance Company | AA- | |||||||
510 | $ | 190,000 | Male | 75 | 100 | Protective Life Insurance Company | AA- | |||||||
511 | $ | 100,000 | Male | 75 | 148 | Protective Life Insurance Company | AA- | |||||||
512 | $ | 5,000,000 | Male | 75 | 126 | AIG Life Insurance Company | A+ | |||||||
513 | $ | 4,000,000 | Male | 75 | 106 | Security Mutual Life Insurance Company of NY | N/A | |||||||
514 | $ | 89,626 | Female | 75 | 115 | Union Central Life Insurance Company | N/A | |||||||
515 | $ | 2,000,000 | Male | 75 | 92 | American General Life Insurance Company | A+ | |||||||
516 | $ | 400,000 | Male | 75 | 78 | Protective Life Insurance Company | AA- | |||||||
517 | $ | 250,000 | Male | 75 | 70 | Genworth Life and Annuity Insurance Company | BB | |||||||
518 | $ | 500,000 | Male | 75 | 92 | Delaware Life Insurance Company | BBB+ | |||||||
519 | $ | 100,000 | Male | 75 | 140 | Genworth Life Insurance Company | BB | |||||||
520 | $ | 370,000 | Female | 75 | 122 | Minnesota Life Insurance Company | A+ | |||||||
521 | $ | 1,000,000 | Female | 74 | 117 | United of Omaha Life Insurance Company | AA- | |||||||
522 | $ | 1,000,000 | Male | 74 | 148 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
523 | $ | 150,000 | Male | 74 | 101 | Genworth Life Insurance Company | BB | |||||||
524 | $ | 500,000 | Male | 74 | 58 | William Penn Life Insurance Company of New York | AA- | |||||||
525 | $ | 2,500,000 | Male | 74 | 101 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
526 | $ | 500,000 | Male | 74 | 132 | Pruco Life Insurance Company | AA- | |||||||
527 | $ | 8,600,000 | Male | 74 | 149 | AXA Equitable Life Insurance Company | A+ | |||||||
528 | $ | 485,000 | Male | 74 | 150 | Metropolitan Life Insurance Company | AA- | |||||||
529 | $ | 2,500,000 | Male | 74 | 102 | American General Life Insurance Company | A+ | |||||||
530 | $ | 100,000 | Male | 74 | 39 | Voya Retirement Insurance and Annuity Company | A | |||||||
531 | $ | 3,000,000 | Male | 74 | 91 | Transamerica Life Insurance Company | AA- | |||||||
532 | $ | 800,000 | Male | 74 | 119 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
533 | $ | 1,500,000 | Male | 74 | 123 | Lincoln National Life Insurance Company | AA- | |||||||
534 | $ | 1,500,000 | Male | 74 | 123 | Lincoln National Life Insurance Company | AA- | |||||||
535 | $ | 1,500,000 | Male | 74 | 123 | Lincoln National Life Insurance Company | AA- | |||||||
536 | $ | 2,500,000 | Male | 74 | 134 | Banner Life Insurance Company | AA- | |||||||
537 | $ | 800,000 | Male | 74 | 82 | Commonwealth Annuity and Life Insurance Company | A- | |||||||
538 | $ | 450,000 | Male | 74 | 115 | Jackson National Life Insurance Company | AA | |||||||
539 | $ | 10,000,000 | Male | 74 | 141 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
540 | $ | 1,784,686 | Male | 74 | 151 | Transamerica Life Insurance Company | AA- | |||||||
541 | $ | 250,000 | Female | 74 | 169 | Protective Life Insurance Company | AA- | |||||||
542 | $ | 500,000 | Male | 73 | 120 | Ameritas Life Insurance Corporation | A+ | |||||||
543 | $ | 370,000 | Male | 73 | 120 | Ameritas Life Insurance Corporation | A+ | |||||||
544 | $ | 750,000 | Male | 73 | 128 | Security Life of Denver Insurance Company | A | |||||||
545 | $ | 500,000 | Male | 73 | 95 | Lincoln National Life Insurance Company | AA- | |||||||
546 | $ | 5,000,000 | Male | 73 | 126 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
547 | $ | 500,000 | Male | 73 | 103 | William Penn Life Insurance Company of New York | AA- | |||||||
548 | $ | 100,000 | Male | 73 | 107 | Protective Life Insurance Company | AA- | |||||||
549 | $ | 2,500,000 | Male | 73 | 112 | Lincoln National Life Insurance Company | AA- | |||||||
550 | $ | 2,500,000 | Male | 73 | 112 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
551 | $ | 500,000 | Male | 73 | 125 | Metropolitan Life Insurance Company | AA- | |||||||
552 | $ | 2,000,000 | Male | 73 | 118 | Voya Retirement Insurance and Annuity Company | A |
19 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
553 | $ | 1,500,000 | Male | 73 | 118 | Voya Retirement Insurance and Annuity Company | A | |||||||
554 | $ | 230,000 | Male | 73 | 114 | Transamerica Life Insurance Company | AA- | |||||||
555 | $ | 500,000 | Male | 73 | 77 | Phoenix Life Insurance Company | BB- | |||||||
556 | $ | 300,000 | Male | 73 | 111 | Protective Life Insurance Company | AA- | |||||||
557 | $ | 190,000 | Female | 73 | 188 | Protective Life Insurance Company | AA- | |||||||
558 | $ | 250,000 | Male | 73 | 66 | American General Life Insurance Company | A+ | |||||||
559 | $ | 2,000,000 | Male | 73 | 128 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
560 | $ | 267,988 | Male | 73 | 50 | Minnesota Life Insurance Company | A+ | |||||||
561 | $ | 75,000 | Female | 73 | 99 | American General Life Insurance Company | A+ | |||||||
562 | $ | 300,000 | Male | 73 | 108 | New England Life Insurance Company | A+ | |||||||
563 | $ | 1,167,000 | Male | 73 | 48 | Transamerica Life Insurance Company | AA- | |||||||
564 | $ | 600,000 | Male | 73 | 82 | AXA Equitable Life Insurance Company | A+ | |||||||
565 | $ | 1,500,000 | Male | 73 | 106 | Metropolitan Life Insurance Company | AA- | |||||||
566 | $ | 4,000,000 | Male | 73 | 138 | MONY Life Insurance Company of America | A+ | |||||||
567 | $ | 1,000,000 | Female | 73 | 141 | Reliastar Life Insurance Company | A | |||||||
568 | $ | 420,000 | Male | 73 | 119 | RiverSource Life Insurance Company | A+ | |||||||
569 | $ | 10,000,000 | Male | 73 | 115 | AXA Equitable Life Insurance Company | A+ | |||||||
570 | $ | 650,000 | Female | 72 | 69 | Security Life of Denver Insurance Company | A | |||||||
571 | $ | 1,000,000 | Male | 72 | 127 | AIG Life Insurance Company | A+ | |||||||
572 | $ | 500,000 | Male | 72 | 117 | Ohio National Life Assurance Corporation | AA- | |||||||
573 | $ | 2,500,000 | Male | 72 | 49 | Transamerica Life Insurance Company | AA- | |||||||
574 | $ | 400,000 | Male | 72 | 193 | Protective Life Insurance Company | AA- | |||||||
575 | $ | 232,000 | Male | 72 | 177 | Protective Life Insurance Company | AA- | |||||||
576 | $ | 3,000,000 | Male | 72 | 157 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
577 | $ | 2,000,000 | Male | 72 | 97 | New York Life Insurance Company | AA+ | |||||||
578 | $ | 2,000,000 | Male | 72 | 97 | New York Life Insurance Company | AA+ | |||||||
579 | $ | 250,000 | Female | 72 | 106 | Protective Life Insurance Company | AA- | |||||||
580 | $ | 1,350,000 | Male | 72 | 98 | Lincoln National Life Insurance Company | AA- | |||||||
581 | $ | 139,398 | Female | 72 | 21 | Lincoln National Life Insurance Company | AA- | |||||||
582 | $ | 500,000 | Male | 72 | 90 | Transamerica Life Insurance Company | AA- | |||||||
583 | $ | 500,000 | Male | 72 | 90 | North American Company for Life And Health Insurance | A+ | |||||||
584 | $ | 420,000 | Male | 72 | 128 | Protective Life Insurance Company | AA- | |||||||
585 | $ | 160,000 | Male | 72 | 89 | RiverSource Life Insurance Company | A+ | |||||||
586 | $ | 5,000,000 | Male | 72 | 112 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
587 | $ | 5,000,000 | Male | 72 | 112 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
588 | $ | 100,000 | Male | 72 | 134 | Protective Life Insurance Company | AA- | |||||||
589 | $ | 250,000 | Male | 71 | 48 | Protective Life Insurance Company | AA- | |||||||
590 | $ | 57,500 | Male | 71 | 92 | Lincoln National Life Insurance Company | AA- | |||||||
591 | $ | 185,000 | Male | 71 | 129 | Genworth Life and Annuity Insurance Company | BB | |||||||
592 | $ | 750,000 | Male | 71 | 122 | Transamerica Life Insurance Company | AA- | |||||||
593 | $ | 1,250,000 | Male | 71 | 97 | West Coast Life Insurance Company | AA- | |||||||
594 | $ | 1,500,000 | Female | 71 | 150 | Pruco Life Insurance Company | AA- | |||||||
595 | $ | 5,000,000 | Male | 71 | 88 | Transamerica Life Insurance Company | AA- | |||||||
596 | $ | 10,000,000 | Male | 71 | 165 | Principal Life Insurance Company | A+ | |||||||
597 | $ | 300,000 | Male | 71 | 192 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
598 | $ | 100,000 | Male | 71 | 42 | Genworth Life and Annuity Insurance Company | BB | |||||||
599 | $ | 250,000 | Male | 71 | 97 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
600 | $ | 150,000 | Male | 71 | 32 | Protective Life Insurance Company | AA- |
20 |
Face Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
601 | $ | 150,000 | Male | 71 | 32 | AXA Equitable Life Insurance Company | A+ | |||||||
602 | $ | 1,000,000 | Male | 71 | 52 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
603 | $ | 250,000 | Male | 71 | 181 | Lincoln National Life Insurance Company | AA- | |||||||
604 | $ | 202,700 | Male | 71 | 114 | Farmers New World Life Insurance Company | N/A | |||||||
605 | $ | 700,000 | Male | 71 | 114 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
606 | $ | 5,000,000 | Male | 71 | 148 | Metropolitan Life Insurance Company | AA- | |||||||
607 | $ | 750,000 | Male | 70 | 132 | North American Company for Life And Health Insurance | A+ | |||||||
608 | $ | 250,000 | Female | 70 | 118 | Ohio National Life Assurance Corporation | AA- | |||||||
609 | $ | 1,000,000 | Male | 70 | 188 | AXA Equitable Life Insurance Company | A+ | |||||||
610 | $ | 1,000,000 | Male | 70 | 85 | AXA Equitable Life Insurance Company | A+ | |||||||
611 | $ | 2,000,000 | Male | 70 | 169 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
612 | $ | 400,000 | Male | 70 | 158 | Lincoln National Life Insurance Company | AA- | |||||||
613 | $ | 100,000 | Male | 70 | 98 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
614 | $ | 5,000,000 | Male | 70 | 114 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
615 | $ | 92,000 | Female | 70 | 196 | Protective Life Insurance Company | AA- | |||||||
616 | $ | 175,000 | Female | 70 | 108 | Lincoln National Life Insurance Company | AA- | |||||||
617 | $ | 1,500,000 | Male | 70 | 69 | Lincoln National Life Insurance Company | AA- | |||||||
618 | $ | 1,000,000 | Male | 70 | 160 | Accordia Life and Annuity Company | A- | |||||||
619 | $ | 1,000,000 | Male | 70 | 60 | Protective Life Insurance Company | AA- | |||||||
620 | $ | 1,500,000 | Male | 70 | 103 | Midland National Life Insurance Company | A+ | |||||||
621 | $ | 400,000 | Female | 70 | 139 | AXA Equitable Life Insurance Company | A+ | |||||||
622 | $ | 500,000 | Male | 70 | 108 | Lincoln Benefit Life Company | BBB+ | |||||||
623 | $ | 1,200,000 | Male | 69 | 123 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
624 | $ | 1,000,000 | Male | 69 | 135 | Transamerica Life Insurance Company | AA- | |||||||
625 | $ | 2,500,000 | Male | 69 | 158 | Pruco Life Insurance Company | AA- | |||||||
626 | $ | 2,500,000 | Male | 69 | 158 | Pruco Life Insurance Company | AA- | |||||||
627 | $ | 4,000,000 | Male | 69 | 131 | MetLife Insurance Company USA | AA- | |||||||
628 | $ | 3,000,000 | Male | 69 | 144 | Genworth Life Insurance Company | BB | |||||||
629 | $ | 500,000 | Male | 69 | 40 | Voya Retirement Insurance and Annuity Company | A | |||||||
630 | $ | 1,000,000 | Male | 69 | 84 | Protective Life Insurance Company | AA- | |||||||
631 | $ | 200,000 | Male | 69 | 177 | Protective Life Insurance Company | AA- | |||||||
632 | $ | 2,000,000 | Male | 69 | 110 | Transamerica Life Insurance Company | AA- | |||||||
633 | $ | 1,000,000 | Male | 69 | 110 | Genworth Life Insurance Company | BB | |||||||
634 | $ | 2,000,000 | Male | 69 | 170 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
635 | $ | 250,000 | Female | 69 | 155 | Protective Life Insurance Company | AA- | |||||||
636 | $ | 150,000 | Male | 69 | 115 | Protective Life Insurance Company | AA- | |||||||
637 | $ | 13,250,000 | Male | 69 | 205 | TIAA-CREF Life Insurance Company | AA+ | |||||||
638 | $ | 500,000 | Male | 69 | 118 | Lincoln National Life Insurance Company | AA- | |||||||
639 | $ | 1,000,000 | Male | 69 | 129 | Transamerica Life Insurance Company | AA- | |||||||
640 | $ | 1,000,000 | Male | 69 | 129 | Protective Life Insurance Company | AA- | |||||||
641 | $ | 156,538 | Female | 69 | 104 | New York Life Insurance Company | AA+ | |||||||
642 | $ | 2,000,000 | Male | 69 | 49 | Metropolitan Life Insurance Company | AA- | |||||||
643 | $ | 2,000,000 | Male | 69 | 49 | Metropolitan Life Insurance Company | AA- | |||||||
644 | $ | 1,000,000 | Male | 69 | 150 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
645 | $ | 3,000,000 | Male | 69 | 190 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
646 | $ | 300,000 | Male | 69 | 89 | Protective Life Insurance Company | AA- | |||||||
647 | $ | 1,000,000 | Male | 68 | 157 | Lincoln National Life Insurance Company | AA- | |||||||
648 | $ | 250,000 | Female | 68 | 73 | Transamerica Life Insurance Company | AA- |
21 |
Face
Amount | Gender | Age
(ALB) (1) | LE
(mo.) (2) | Insurance Company | S&P Rating | |||||||||
649 | $ | 3,000,000 | Male | 68 | 98 | Reliastar Life Insurance Company | A | |||||||
650 | $ | 2,000,000 | Male | 68 | 98 | AXA Equitable Life Insurance Company | A+ | |||||||
651 | $ | 2,000,000 | Male | 68 | 98 | AXA Equitable Life Insurance Company | A+ | |||||||
652 | $ | 750,000 | Male | 68 | 158 | Northwestern Mutual Life Insurance Company | AA+ | |||||||
653 | $ | 600,000 | Male | 68 | 85 | William Penn Life Insurance Company of New York | AA- | |||||||
654 | $ | 229,725 | Female | 68 | 105 | Hartford Life and Annuity Insurance Company | BBB+ | |||||||
655 | $ | 5,616,468 | Male | 68 | 178 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
656 | $ | 125,000 | Male | 68 | 48 | Genworth Life and Annuity Insurance Company | BB | |||||||
657 | $ | 1,100,000 | Male | 68 | 153 | John Hancock Life Insurance Company (U.S.A.) | AA- | |||||||
658 | $ | 400,000 | Male | 67 | 188 | Lincoln National Life Insurance Company | AA- | |||||||
659 | $ | 1,000,000 | Male | 67 | 46 | Lincoln National Life Insurance Company | AA- | |||||||
660 | $ | 1,000,000 | Male | 67 | 76 | Transamerica Life Insurance Company | AA- | |||||||
661 | $ | 350,000 | Female | 67 | 83 | Assurity Life Insurance Company | N/A | |||||||
662 | $ | 5,000,000 | Male | 67 | 102 | Athene Annuity & Life Assurance Company | A- | |||||||
663 | $ | 1,000,000 | Male | 67 | 146 | Sun Life Assurance Company of Canada (U.S.) | AA- | |||||||
664 | $ | 846,510 | Male | 67 | 126 | Lincoln National Life Insurance Company | AA- | |||||||
665 | $ | 846,210 | Male | 67 | 126 | Lincoln National Life Insurance Company | AA- | |||||||
666 | $ | 490,000 | Male | 67 | 95 | AXA Equitable Life Insurance Company | A+ | |||||||
667 | $ | 105,798 | Female | 67 | 132 | Lincoln Benefit Life Company | BBB+ | |||||||
668 | $ | 67,602 | Female | 67 | 132 | Allstate Life Insurance Company of New York | A+ | |||||||
669 | $ | 220,581 | Male | 67 | 23 | American General Life Insurance Company | A+ | |||||||
670 | $ | 1,000,000 | Male | 67 | 106 | The Savings Bank Life Insurance Company of Massachusetts | A- | |||||||
671 | $ | 350,000 | Male | 67 | 95 | RiverSource Life Insurance Company | A+ | |||||||
672 | $ | 320,000 | Male | 67 | 159 | Transamerica Life Insurance Company | AA- | |||||||
673 | $ | 250,000 | Male | 67 | 160 | Pruco Life Insurance Company | AA- | |||||||
674 | $ | 250,000 | Male | 67 | 196 | Zurich Life Insurance Company | AA- | |||||||
675 | $ | 650,000 | Male | 67 | 183 | Lincoln National Life Insurance Company | AA- | |||||||
676 | $ | 750,000 | Male | 66 | 83 | Massachusetts Mutual Life Insurance Company | AA+ | |||||||
677 | $ | 500,000 | Male | 66 | 74 | Transamerica Life Insurance Company | AA- | |||||||
678 | $ | 265,000 | Male | 66 | 157 | Protective Life Insurance Company | AA- | |||||||
679 | $ | 400,000 | Male | 66 | 130 | Jackson National Life Insurance Company | AA | |||||||
680 | $ | 500,000 | Female | 66 | 168 | Banner Life Insurance Company | AA- | |||||||
681 | $ | 540,000 | Male | 66 | 170 | West Coast Life Insurance Company | AA- | |||||||
682 | $ | 200,000 | Male | 66 | 161 | Prudential Insurance Company of America | AA- | |||||||
683 | $ | 200,000 | Male | 66 | 161 | Prudential Insurance Company of America | AA- | |||||||
684 | $ | 750,000 | Male | 66 | 126 | Pacific Life Insurance Company | AA- | |||||||
685 | $ | 500,000 | Male | 66 | 133 | Transamerica Life Insurance Company | AA- | |||||||
686 | $ | 500,000 | Female | 66 | 130 | AIG Life Insurance Company | A+ | |||||||
687 | $ | 2,000,000 | Female | 65 | 173 | Metropolitan Life Insurance Company | AA- | |||||||
688 | $ | 3,500,000 | Male | 65 | 197 | Prudential Insurance Company of America | AA- | |||||||
689 | $ | 250,000 | Male | 65 | 118 | Transamerica Life Insurance Company | AA- | |||||||
690 | $ | 10,000,000 | Male | 65 | 62 | Lincoln National Life Insurance Company | AA- | |||||||
$ | 1,361,675,334 |
(1) | Person’s age on last birthday (ALB). |
(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. Numbers in this column represent months. |
22 |
Competition
We encounter significant competition from numerous companies in the life insurance secondary market, including hedge funds, investment banks, secured lenders, specialty life insurance finance companies and life insurance companies. Many of these competitors have greater financial and other resources than we do and may have significantly lower cost of funds because they have greater access to insured deposits or the capital markets. Moreover, some of these competitors have significant cash reserves and can better fund shortfalls in collections that might have a more pronounced impact on companies such as ours. They may also have greater market share. In the event that better-financed life insurance companies make a significant effort to compete against our business or the secondary market in general, we would experience significant challenges with our business model.
Competition can take many forms, including the pricing of the financing, transaction structuring, timeliness and responsiveness in processing a seller’s application, and customer service. Some competitors may outperform us in these areas. Some competitors target the same type of life insurance clients as we do and generally have operated in the markets we service for a longer period of time. Increased competition may result in increased costs of purchasing policies or may affect the availability and quality of policies that are available for our purchase. These factors could adversely affect our profitability by reducing our return on investment or increasing our risk.
As we enter new markets, we expect to experience significant competition from incumbent market participants. Our ability to compete in these markets will be dependent upon our ability to deliver value-added products and services to the customers we serve. Even still, our competitors in these markets may have greater financial, market share and other resources than we do. These factors could adversely affect our profitability by reducing our return on investment or increasing our risk as we enter these markets.
Government Regulation
Our business is highly regulated at the state level with respect to life insurance assets, and at the federal level with respect to the issuance of securities. At the state level, states generally subject us to laws and regulations requiring us to obtain specific licenses or approvals to purchase or issue life insurance policies in those states. State statutes typically provide state regulatory agencies with significant powers to interpret, administer and enforce the laws relating to the life insurance industry. Under this authority, state regulators have broad discretionary power and may impose new licensing and other requirements, and interpret or enforce existing regulatory requirements in new and different ways. Any of these new requirements, interpretations or enforcement directives could be adverse to our industry, even in a material way. Furthermore, because the life insurance secondary market is relatively new and because of the history of certain abuses in the industry, we believe it is likely that state regulation will increase and grow more complex in the foreseeable future. We cannot, however, predict what any new regulation would specifically involve or how it might affect our industry or our business.
State regulation more generally affecting life insurance assets (and not necessarily directed at the life insurance secondary market itself) may also affect our industry and business in negative ways. For example, we are aware of recent legislative efforts in some states to mandate the sale or liquidation of life insurance policies as a precondition to eligibility for health care under the Patient Protection and Affordable Care Act. These kinds of laws, if passed, may adversely affect the number of life insurance policies available for purchase.
Although the federal laws and regulations do not directly affect life insurance, in some cases the purchase of a variable life insurance policy may constitute a transaction involving a “security” that is governed by federal securities laws. While we presently hold few variable life insurance policies, our holding of a significant amount of such policies in the future could cause our company or one of our subsidiaries to be characterized as an “investment company” under the federal Investment Company Act of 1940. The application of that law to all or part of our businesses – whether due to our purchase of life insurance policies or to the expansion of the definition of “securities” under federal securities laws – could require us to comply with detailed and complex regulatory requirements, and cause us to fall out of compliance with certain covenants under our senior credit facilities. Such an outcome could negatively affect our liquidity and increase our cost of capital and operational expenses, all of which would adversely affect our operating results. It is possible that such an outcome could even threaten the viability of our business and our ability to satisfy our obligations as they come due.
We hold licenses to purchase life insurance policies in 37 states and can also purchase in the eight unregulated states. At times, we may work with licensed entities to purchase a policy in a state where we are not licensed.
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA requires that holders of medical records maintain such records and implement procedures designed to assure the privacy of patient records. In order to carry out our business, we receive medical records and obtain a release to share such records with a defined group of persons, take on the responsibility for preserving the privacy of that information, and use the information only for purposes related to the life insurance policies we own.
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The Genetic Information Nondiscrimination Act of 2008 (GINA)
GINA is a federal law that protects people from genetic discrimination in health insurance and employment. GINA prohibits health insurers from: (i) requesting, requiring, or using genetic information to make decisions about eligibility for health insurance; or (ii) making decisions on the health insurance premium, contribution amounts, or coverage terms they offer to consumers. This means it is against the law for health insurance companies to use a genetic test result or family health history to deny health insurance, or to decide how much to charge for health insurance. In addition, GINA makes it against the law for health insurers to consider family history or a genetic test result, a pre-existing condition, require a genetic test, or use any genetic information, to discriminate coverage, even if the health insurance company did not mean to collect such genetic information.
GINA does not apply to the life insurance, long-term care or annuity industries. The life insurance, long-term care or annuity industries are founded on medical-evidenced underwriting principles in which specific medical conditions are taken into account when assessing and pricing risk. The regulation of genomic data is relatively new, and we believe it is likely that regulation will increase and grow more complex in the foreseeable future. We cannot, however, predict what any new law or regulation would specifically involve or how it might affect our industry, our business, or our future plans.
Employees
We employ approximately 70 employees.
Properties
Our principal executive offices are located at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402. At that location, we lease 17,687 square feet of space for a lease term expiring in 2025. We believe that these facilities are adequate for our current needs and that suitable additional space will be available as needed.
Company Website Access and SEC Filings
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. We are subject to the informational requirements of the Exchange Act and file or furnish reports, proxy statements and other information with the SEC.
Our general website address is www.gwgh.com. Our website has a wealth of information about our company, its mission, and our specialty finance business. Our website also has tools that could be used by our potential clients, financial advisors and investors alike.
ITEM 1A. | RISK FACTORS. |
Our business involves a number of challenges and risks. In addition to the other information in this report, you should consider carefully the following risk factors in evaluating us and our business. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, financial condition, operating results, or prospects.
Risks Related to Our Business and Industry
Material changes in the life insurance secondary market, a relatively new and evolving market, may adversely affect our operating results, business prospects and our ability to repay our debt obligations.
Our primary business, the purchase and ownership of life insurance policies acquired in the secondary market, is a relatively new and evolving market. The success of our business and our ability to satisfy our debt obligations depends in large part on the continued development of the secondary market for life insurance, including the accuracy of actuarial forecasting and the solvency of life insurance companies to pay the face value of the life insurance benefits, both of which will critically impact our performance. We expect that the development of the secondary market will be impacted by a variety of factors such as the interpretation of existing laws and regulations (including laws relating to insurable interests), the passage of new legislation and regulations, mortality improvement rates, updated actuarial methodologies, and mortality tables. Importantly, all of the factors that we believe will most significantly affect the development of the life insurance secondary market are beyond our control. Any material and adverse development in the life insurance secondary market could adversely affect our operating results, our access to capital, our ability to repay our various debt and other obligations, and our business prospects and viability. Because of this, an investment in our securities involves greater risk as compared to investments offered by companies with more diversified business operations in more established markets.
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The valuation of our principal assets on our balance sheet requires us to make material assumptions that may ultimately prove to be incorrect. If our assumptions prove incorrect, we could suffer significant losses that materially and adversely affect our results of operations and eventually cause us to be in default of restrictive covenants contained in our borrowing agreements.
Our principal asset is a portfolio of life insurance policies purchased in the secondary market, comprising approximately 79% of our total assets at December 31, 2016, and approximately 90% of our total assets at December 31, 2015. Those assets are considered “Level 3” fair value measurements under ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), as there is currently no active market where we are able to observe quoted prices for identical assets. As a result, our determination of “fair value” for those assets on our balance sheet incorporates significant inputs that are not observable. Fair value is defined as an exit price representing the amount that would be received if assets were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement determined based on the assumptions market participants would use in pricing an asset or liability.
A Level 3 fair value measurement is inherently uncertain and could create additional volatility in our financial statements that is not necessarily related to the performance of our underlying assets. As of December 31, 2016 and 2015, we estimated the fair value discount rate for our portfolio to be 10.96% and 11.09%, respectively. If in the future we determine that a higher discount rate is required to ascribe fair value to a similarly situated portfolio of life insurance policies, we could experience significant losses materially affecting our results of operations. It is also possible that significant losses of this nature could at some point cause us to be out of compliance with borrowing covenants contained in our various borrowing agreements. This could in turn result in acceleration of our loan balances under the senior credit facilities or our Series I Secured Notes and our L Bonds, which we may not be able to repay. As a result, we may be forced to seek additional debt or equity financing to repay such debt amounts, and additional financing may not be available on terms acceptable to us, if at all.
If we are unable to repay our debt when it comes due, then our senior lenders or the holders of our Series I Secured Notes and L Bonds, or both, would have the right to foreclose on our assets. For further disclosure relating to the risks associated with the valuation of our assets, see the risk factor below “If actuarial assumptions we obtain from third-party providers . . . .”
Actual results from our life insurance portfolio may not match our expected results, which could adversely affect our ability to service and grow our portfolio to achieve actuarial stability.
Our business model relies on achieving actual results that are in line with the results we expect to attain from our investments in life insurance policy assets. In this regard, we believe that the larger the portfolio we own, the greater the likelihood that we will achieve our expected results. To our knowledge, rating agencies generally suggest that portfolios of life insurance policies contain enough policies on individual lives to achieve actuarial stability in receiving expected cash flows. For instance, in a life insurance securitization methodology published in 2012, A.M. Best concluded that at least 300 lives are necessary to achieve actuarial stability, while Standard & Poor’s has indicated that stability is unlikely to be achieved with less than 1,000 lives. As of December 31, 2016, we owned $1.362 million in face value of life insurance policies covering 622 lives. Accordingly, while there is a risk with a portfolio of any size that actual cash flows and yield may be less than expected, we believe that the risk we face is presently more significant given the size of our current portfolio as compared to rating agency recommendations.
Although we plan to expand the number of life insurance policies we own using proceeds raised from our securities offerings, we may be unable to do so if sufficient financing is unavailable or is available only on unfavorable or unacceptable terms. Furthermore, even if our portfolio reaches a size that is actuarially stable, we still may experience differences between the actuarial models we use and actual mortalities. Differences between our expectations and actuarial models, and actual mortality results, could have a materially adverse effect on our operating results and cash flow. In such a case, we may face liquidity problems, including difficulties servicing our remaining portfolio of policies and servicing our outstanding debt obligations. Continued or material failures to meet our expected results could decrease the attractiveness of our securities in the eyes of potential investors, thereby making it even more difficult to obtain capital needed to service our portfolio, grow the portfolio to obtain desired diversification, and service our existing debt.
We critically rely on debt financing for our business. Any inability to borrow could adversely affect our business operations, our ability to satisfy our debt-payment obligations and, ultimately, our prospects and viability.
To date, we have chosen to finance our business principally through the issuance of debt, including debt incurred by our subsidiaries GWG DLP Funding III, LLC (“DLP III”) under a revolving senior credit facility provided by Autobahn/DZ Bank (see Note 5) and GWG DLP Funding IV, LLC (“DLP IV”) under a senior secured term loan with LNV Corporation (see Note 6) (individually, referred to as a “senior credit facility” and together, referred to as our “senior credit facilities”), our Series I Secured Notes and our L Bonds. Our senior credit facility with Autobahn/DZ Bank is secured by all of the assets of DLP III, has a maximum amount of $105 million, and the outstanding balance at December 31, 2016 and 2015 was $0 and $65 million, respectively. Our senior credit facility with LNV Corporation is secured by all of the assets of DLP IV, has a maximum amount of $172.3 million, and the outstanding balance at December 31, 2016 was $162.7 million. Obligations under the Autobahn/DZ Bank credit facility have a scheduled maturity date of June 30, 2018, and obligations under the LNV Corporation credit facility have a maturity date of September 14, 2026. Our Series I Secured Notes and L Bonds have scheduled maturities as indicated below in the risk factor “If a significant number of holders . . . ..” To date, our debt arrangements are the most important sources of financing on which our business has critically relied to grow and maintain our portfolio of life insurance policies.
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Our business model relies on continued access to financing to enable us to purchase a large and diversified portfolio of life insurance policies and pay the attendant premiums and costs of maintaining the portfolio, all while satisfying our current interest and principal repayment obligations under our senior credit facilities and other indebtedness. We expect that proceeds from our life insurance policies may first be used to satisfy our obligations, as determined by the agreement governing the senior credit facilities. Accordingly, until we achieve sufficient cash flows derived from our portfolio of life insurance policies, we expect to rely on the proceeds from our ongoing securities offerings to satisfy our ongoing financing and liquidity needs. Nevertheless, continued access to financing and liquidity under the senior credit facilities or otherwise is not guaranteed. For example, general economic conditions could limit our access to financing, as could regulatory or legal pressures exerted on us, our financiers, or those involved in the procurement of financing such as brokers, dealers, and registered investment advisors. If we are unable to borrow under the senior credit facilities or otherwise for any reason, or to renew or replace the senior credit facilities when they come due, our business would be adversely impacted and our ability to service and repay our debt obligations would be compromised, thereby negatively affecting our business prospects and perhaps our viability.
Our investments in life insurance policies have inherent risks, including fraud and legal challenges to the validity of the policies, which we will be unable to eliminate and which may adversely affect our results of operations.
When we purchase a life insurance policy, we face certain risks associated with insurance fraud and other legal challenges to the validity of the policy. For example, to the extent the insured is not aware of the existence of the policy, the insured does not exist, or the insurance company does not recognize the policy, the insurance company may cancel or rescind the policy thereby causing the loss of an investment in that policy. In addition, if an insured’s medical records have been altered in such a way as to shorten a life expectancy as reported, this may cause us to overpay for the related policy. Finally, we may experience legal challenges from insurance companies claiming that the insured failed to have an insurable interest at the time the policy was originally purchased or that the policy owner made fraudulent disclosures to the insurer at the time the policy was purchased (e.g., disclosures pertaining to the health status of the insured or the existence or sources of premium financing), or challenges from the beneficiaries of an insurance policy claiming that the sale of the policy to us was invalid.
To mitigate these risks, our origination practices and underwriting procedures include a current verification of coverage from the insurance company, a complete due-diligence investigation of the insured and accompanying medical records, a review of the life insurance policy application, and a requirement that the policy has been in force for at least two years. We also conduct a legal review of any premium financing associated with the policy to determine if an insurable interest existed at the time of its issuance. Nevertheless, these steps will not eliminate the risk of fraud or legal challenges to the life insurance policies we purchase. Furthermore, changes in laws or regulations or the interpretation of existing laws or regulations, may prove our due-diligence and risk-mitigation efforts inadequate. If a significant face amount of policies were invalidated for reasons of fraud or any other reason, our results of operations would be materially adversely affected.
Our ownership of life insurance policies issued by insurers that are unable to pay claims presented to them could have a materially adverse effect on our results of operation, our financial condition, or even our overall prospects.
We rely on the payment of policy claims by insurers as our most significant source of revenue collection. In essence, the life insurance assets we own represent the obligations of insurers to pay the benefit amount under the relevant policy upon the mortality of the insured. As a result, in our business, we face the “credit risk” that a particular insurer will be financially unable to pay claims when and as they become due. Depending on how many policies we own that are issued by insurers having financial difficulties at the time a claim is presented for payment, this risk could be significant enough to have a materially adverse effect on our results of operation, our financial condition, or even our overall prospects.
To mitigate this credit risk, we generally purchase policies issued only by insurers with an investment-grade credit rating from one or more of Standard & Poor’s, Moody’s, or A.M. Best Company. As of December 31, 2016, 96.3% of the face value benefits of our life insurance policies were issued by insurers having an investment-grade rating (BBB or better) by Standard & Poor’s. We also review our exposure to credit risk associated with our portfolio of life insurance policies when estimating its fair value. In evaluating the policies’ credit risk we consider items such as insurance company solvency, credit risk indicators, and general economic conditions. Notwithstanding our efforts to mitigate credit risk exposure and to reflect this risk in our portfolio valuation, we cannot predict with any certainty whether a particular insurer will be in a financial position to satisfy amounts that it owes under life insurance policies it has issued when a claim for payment is presented.
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Every acquisition of a life insurance policy necessarily requires us to materially rely on information provided or obtained by third parties. Any misinformation or negligence in the course of obtaining information could materially and adversely affect the value of the policies we own, our results of operation and the value of our securities.
Our acquisition of each life insurance policy is negotiated based on variables and particular facts that are unique to the policy itself and the health of the insured. The facts we obtain about the policies and the insured at the time when the policy was applied for and obtained are based on the insured’s factual representations to the insurance company, and the facts the insurance company independently obtains in the course of its own due-diligence examination, such as facts concerning the health of the insured and whether or not there is an insurable interest present when the policy was issued. Any misinformation or negligence in the course of obtaining information relating to a policy or insured could materially and adversely impact the value of the policies we own and could, in turn, adversely affect our results of operations and the value of our securities.
Our business is subject to state regulation and changes in those laws and regulations, or changes in their interpretation, could negatively affect our results of operation, financial condition and our business prospects.
When we purchase a life insurance policy, we are subject to state insurance regulations. Over the past years, we have seen a dramatic increase in the number of states that have adopted legislation and regulations from model laws promulgated by either the National Association of Insurance Commissioners (NAIC) or by the National Conference of Insurance Legislators (NCOIL). These laws are essentially consumer protection statutes responding to abuses that arose early in the development of our industry, some of which may persist. Today, almost every state has adopted some version of either the NAIC or NCOIL model laws, which generally require the licensing of purchasers of and brokers for life insurance policies, the filing and approval of purchase agreements, and the disclosure of transaction fees. These laws also require various periodic reporting requirements and prohibit certain business practices deemed to be abusive. State statutes typically provide state regulatory agencies with significant powers to interpret, administer, and enforce the laws relating to the purchase of life insurance policies. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways, or issue new administrative rules, any of which could be generally adverse to our industry. Because the life insurance secondary market is relatively new and because of the history of certain abuses in the industry, we believe it is likely that state regulation will increase and grow more complex in the foreseeable future. We cannot, however, predict what any new regulation would specifically involve.
Any adverse change in laws or regulations, or their interpretation, in one or more states in which we operate could result in our curtailment or termination of operations in such jurisdictions, or cause us to modify our operations in a way that adversely affects our results of operation. Any such action could have a corresponding material and negative impact on our financial condition and could also negatively affect our general business prospects.
If federal regulators or courts conclude that the purchase of life insurance in the secondary market constitutes, in all cases, a transaction in securities, we could be in violation of existing covenants under our senior credit facilities, which could result in significantly diminished access to capital. We could also face increased operational expenses. The materialization of this risk could adversely affect our operating results and financial condition, our ability to repay our debt, and possibly threaten the viability of our business.
On occasion, the SEC has attempted to regulate the purchase of non-variable universal life insurance policies as transactions in securities under federal securities laws. In July 2010, the SEC issued a Staff Report of its Life Settlement Task Force. In that report, the Staff recommended that certain types of purchased insurance policies be classified as securities. The SEC has not taken any position on the Staff Report, and there is no indication if the SEC will take any action to implement the recommendations of the Staff Report. In addition, there have been several federal court cases in which transactions involving the purchase and fractionalization of life insurance policies have been held to be transactions in securities under the federal Securities Act of 1933.
We believe that the matters discussed in the Staff Report and existing case law do not impact our current business model since our purchases of life insurance policies are distinguishable from those cases that have been held by courts, and advocated by the Staff Report, to be transactions in securities. For example, neither we nor any of our affiliates are involved in the fractionalization of life insurance policies, and we presently do not purchase significant amounts of variable life insurance policies. As a practical matter, if all or a majority of our life insurance policies were deemed to be “securities” under federal securities laws, either through an expansion of the definition of what constitutes a “security,” the expansion of the types of transactions in life insurance policies that would constitute transactions in “securities,” or the elimination or limitation of available exemptions and exceptions (whether by statutory change, regulatory change, or administrative or court interpretation), then we or one or more of our affiliated entities could become subject to the federal Investment Company Act of 1940. This outcome would likely have a material and negative effect on our company by imposing additional regulations and rules to our governance structure, operations, and our capital structure. In particular, this outcome would likely cause us to be in violation of existing covenants under our senior credit facilities requiring us not to operate or be characterized as an “investment company” under the Investment Company Act of 1940. This breach would likely adversely affect our liquidity and increase our cost of capital and operational expenses, all of which would adversely affect our operating results. Such an outcome could also threaten our ability to satisfy our obligations as they come due and the viability of our business.
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If actuarial assumptions we obtain from third-party providers and rely on to calculate our expected returns on our investments in life insurance policies change, our operating results and cash flow could be adversely affected, as well as the value of our collateral and our ability to service our debt obligations.
The expected internal rate of return we calculate is based upon the probability of an insured’s mortality over an actuarial life expectancy estimate. We presently obtain these estimates from third-party medical-actuarial underwriting companies. In the case of small face policies, which we currently define as policies with $1.0 million or less in face value of policy benefits, we may choose not to obtain any estimates, and instead use proprietary mortality tables or other techniques to develop our own life expectancy for an insured. In addition to actuarial life expectancies, we rely on a pricing and premium forecasting software model developed by a third-party actuarial firm for the valuation of policies we purchase, future mortality revenues, and the calculation of anticipated internal rates of return. These pricing models forecast the estimated future premiums due as well the future mortalities of insureds.
All actuarial life expectancies (and related forecasting software) are subject to interpretation and change based on evolving medical technology, actuarial data, and analytical techniques. Additionally, we are required under the borrowing agreements for our $172 million credit facility to update life expectancy estimates for the applicable policies once every two years (as opposed to our current practice of updating those estimates once every three years). We cannot be certain what impact those updates will have. Nevertheless, our prior experience in updating life expectancies has generally resulted in longer life expectancies for most, but not all, of the insureds within our portfolio. Any increase in the actuarial life expectancy estimates of insureds within our portfolio could have a materially adverse effect on our operating results and cash flow, and our balance sheet. Adverse impacts on the value of our life insurance policy portfolio or our cash flow could in turn impair the value of the collateral we have pledged to our creditors and our ability to service our debt and obligations as they come due.
We rely on estimated rates of mortality when valuing life insurance policies and forecasting the performance of our portfolio, and we also rely on other estimates derived from statistical methodologies for projecting our future cash flows. If any of our estimates prove to be incorrect, it could materially and adversely affect our financial condition and ability to satisfy our debt service and repayment obligations.
If we assume we will receive cash inflows from policies sooner than we actually do, we may not be able to make payment on our debt obligations in a timely manner, or at all. Moreover, a significant medical discovery or advance that results in mortality improvements among seniors, above historically predicted actuarial rates, could have a material adverse effect on the value of our life insurance investments.
For example, we use a modeling method for projecting cash flows known as the “probabilistic method.” This is an actuarial method that uses the probability of an insured’s mortality over time (a mortality curve) to project the flow of policy benefits to us and to project premiums that must be paid. Thus far, we have in fact experienced fewer cash flows from policy benefits than projected in the early stages of ownership of our current life insurance policy portfolio using this method. We had expected to receive approximately $242.4 million cumulative policy benefits as of December 31, 2016, and in fact received $126.3 million. This has resulted in greater than expected premium payments, increasing such expected payments from an expected $142.5 million to $151.4 million. Barring significant mortality improvements (i.e., medical discoveries or advancements relating to the medical conditions of insureds), however, the fact that actual results have differed from the expectations derived from the probabilistic method of projecting cash flows should ordinarily result in greater cash flows in later stages of ownership.
We update our projected future cash flows each month using the probabilistic method to reflect the actual experience within our life insurance policy portfolio to date. We use the current future cash flow projection to generate our expected internal rate of return on the life insurance policy portfolio we own. We would expect to change our method of calculating our future cash flows only if leading actuarial firms determined that such a methodology was no longer the most appropriate means of projecting cash flows from a life insurance policy portfolio. Any change to the pricing model, methodology, premium forecasting assumptions, cash flow projections, or the mortality assumptions accompanied therewith that increase the projected cost-of-insurance premiums or decrease the probability of mortality could have a material and adverse impact on our cash flows and financial condition. Ultimately, this could adversely affect our ability to meet our debt service and repayment obligations and our viability.
Cost-of-insurance (premium) increases could materially and adversely affect our financial condition and our profitability.
We are subject to the risk of increased cost-of-insurance (“COI”) charges (i.e., premium charges) for the universal life insurance policies we own in our portfolio. Approximately 16% of the policies in our portfolio have premium levels that are guaranteed, under the terms of the policy, to keep the policy’s death benefit in force even in a situation where the policy’s cash account has been wholly depleted. On the remaining 84% of our policies we pay the “non-guaranteed COI charges,” and therefore we are subject to the risk that the insurer could increase the COI charges for the policy. In all cases, the amount of increase is subject to limits set forth in the insurance policy. Because very few of the policies we own have significant cash account value balances, any COI increase will require us to use more cash to satisfy the minimum premium amount required to keep the policy in force.
A COI increase can be expected to impair the value of the affected policy since extra expense (i.e., additional premium amounts) will be required to keep the policy in force, and such extra expense will diminish the economic value, or return, of the policy upon the mortality of the insured. As a result, any widespread COI increases in policies owned in our portfolio would likely have a material and adverse effect on the value of our portfolio, which in turn would materially and adversely affect our financial condition and our profitability.
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Our business and prospects may be adversely affected by changes, lack of growth, or increased competition in the life insurance secondary market.
The growth of the life insurance policy secondary market and our expansion within the market may be negatively affected by a variety of factors beyond our control, including: our inability to locate sufficient numbers of life insurance policy sellers or agents to source those sellers; our inability to convince life insurance policy owners of the benefits of selling their policy; competition from other companies in the life insurance secondary market; negative publicity about the life insurance secondary market based on actual or perceived abuses; and the adoption of additional governmental regulation.
The relatively new and evolving nature of the market in which we operate makes the related risks difficult to identify and quantify. Nevertheless, contractions in the secondary market for life insurance policies, whether resulting from general economic conditions, regulatory or legal pressures, or otherwise (including regulatory pressures exerted on us or others involved in the secondary market for life insurance, or involved with participants in that market), could make participation in the market generally less desirable. This could, in turn, depress the prices at which life insurance policies on the secondary market are bought and sold and have a negative impact on the estimated value of the policies we own. If the value of the policies we own decreases, our results of operations and financial condition could suffer.
Changes in general economic conditions could adversely impact our business.
Changes in general economic conditions, including, for example, interest rates, investor sentiment, changes specifically affecting the insurance industry, competition, technological developments, political and diplomatic events, tax laws, and other factors not known to us today, can substantially and adversely affect our business and prospects. For example, changes in interest rates may increase our cost of capital and ability to raise capital, and have a corresponding adverse impact on our operating results. While we may engage in certain hedging activities to mitigate the impact of rising interest rates, none of these risks are or will be within our control.
We are dependent on our information systems for our financial reporting, policy-related databases, communications and other functions. If our information systems fail or experience major interruptions, including those relating to cybersecurity or arising from cyber-attacks, our business and our financial results could be adversely affected.
We rely on our information systems to effectively manage our operational and financial functions. Our computer systems, Internet web sites, telecommunications, and data networks are also vulnerable to damage or interruption from power loss, natural disasters and attacks from viruses or hackers, including cybersecurity threats and incidents. Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology systems to targeted measures directed at us, our databases, policies, and/or the subjects of acquired policies. Although we utilize various procedures and controls to attempt to mitigate our exposure to these risks, attacks are evolving and unpredictable and we cannot guarantee that any risk prevention measures implemented will be successful. System failures or interruptions, including those relating to cybersecurity or arising from cyber-attacks, could breach the security of the personal information of the subjects of the acquired policies and could adversely affect our reputation, business, financial condition, and operating results.
Risks Unique to Our Company
We have a relatively limited history of operations and our earnings and cash flows may be volatile, resulting in uncertainty about our ability to service and repay our debt when it comes due and uncertainty about our prospects generally.
We are a company with a limited history, which makes it difficult to accurately forecast our earnings and cash flows. During the year ended December 31, 2016, we incurred a net loss of $3.1 million, and in the year ended December 31, 2015, we incurred a net loss of $7.4 million. Our lack of a significant history and the evolving nature of the market in which we operate make it likely that there are risks inherent to our business that are yet to be recognized by us or others, or not fully appreciated, and that could result in us earning less than we anticipate or even suffering further losses. As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our earnings, cash flows and, ultimately, our ability to service and repay our debt and our prospects generally. In addition, any earnings volatility we experience may adversely affect the market price of our common stock.
We may in the future rely, in part, on new and unproven technology as part of our underwriting processes. If the mortality predictions we obtain through use of this technology proves inaccurate, our results of operation and financial condition could be materially and adversely affected.
We recently exercised our option to license, on an exclusive basis for use in the life insurance industry, new technology (which we call “M-Panel” technology) that we believe may be applied to assist us with the mortality predictions in the course of underwriting and valuing life insurance policies. This M-Panel technology, however, has not yet been commercially applied in the manner we envision, and it is possible that we will be unable to elicit more accurate mortality predictions through its use. It is also possible that the mortality predictions we obtain through the use of this M-Panel technology will prove inaccurate, and perhaps materially so. In such a case, our failure to accurately forecast mortalities could have a material and adverse effect on our results of operation and financial condition, which could in turn materially and negatively affect the price of our common stock and our ability to satisfy our debts.
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We may be unable to enter into a license prohibiting competitors from using the M-Panel technology, and we may be required to obtain additional licenses from other parties prior to our use of that technology. If we encounter difficulties in these regards, we may be forced to develop our own proprietary processes, the success of which may not be certain. Difficulties we encounter in our efforts to use or develop, and protect, intellectual property may prove costly and affect our results of operations.
Although we recently exercised our option to exclusively license M-Panel technology for use in the life insurance industry, we have not yet entered into a written license agreement for this purpose. We continue, however, negotiating the terms and conditions of that written license agreement and assessing the scope of protection we would obtain through such an agreement. The intellectual property rights (relating to the M-Panel technology) that we have a right to license are the subject of a provisional patent, and no patent protection will be afforded those rights unless and until a non-provisional patent application is filed with the U.S. Patent and Trademark Office, which filing is beyond our control. If the patent for the M-Panel technology were to issue and we were to enter into the license agreement, we would be legally entitled to prevent third parties from using any part of the technology that is both covered by the claims of the patent and licensed to us. If, on the other hand, no patent is ultimately granted with respect to the M-Panel technology (or the scope of claims is too narrow to afford us with meaningful protection), or if we are unable to enter into a license agreement, we may be unable to prevent third parties from using the M-Panel technology. This outcome may severely diminish any competitive advantage we hope to obtain through our use of the M-Panel technology.
We are aware that other patent applications pending in the U.S. Patent and Trademark Office may have scopes of claims that overlap with the claims contained in the provisional patent application filed with respect to the M-Panel technology. If those other patents were to issue with scopes of claims that in fact overlap with the claims in any patent application for the M-Panel technology, we would likely be required to enter into a license agreement with other third parties before we could use processes that are covered by those overlapping claims. We may be unable, however, to procure such a license, and even if we are able to procure such a license it may prove too costly for us. Alternatively, we would ourselves be required to develop other processes that would not overlap with other patent claims. Our own development of these processes could be costly and time consuming and may ultimately prove unsuccessful.
In sum, any difficulties we encounter in our efforts to use (through a license), or develop, and ultimately protect, intellectual property from which we hope to gain a competitive advantage and enter into new insurance-related markets could prove costly and time-consuming enough to materially and adversely affect our results of operations.
The technology we license may subject us to claims of infringement or invalidity from third parties, and the magnitude of this risk to our business generally rises if and as we become more successful in employing and relying on the technology. Any such claims would be complex and costly, and adverse outcomes could undermine the competitive advantages we seek.
Our reliance on M-Panel technology (or any other technology we own or license) will subject us to the risk that other parties may assert, rightly or wrongly, that our intellectual property rights are invalid or violate the rights of those parties, as well as the risk that our intellectual property rights will be infringed upon by third parties. Any outcome that invalidates our intellectual property rights or that otherwise diminishes the competitive advantages obtained, at least in part, through the use of those rights could have a material and adverse effect on our competitive position and our prospects.
Commercializing the M-Panel or other technology may require significant expenses, may cause us to incur losses, and may ultimately prove ineffective in disrupting the life insurance and related industries in which we operate.
We intend to pursue new business models and business strategies in the insurance industry with M-Panel or similar technology. This M-Panel technology, however, has not yet been commercially applied in the manner we envision, and it is possible that we will incur losses as a result of these operations. The mortality predictions we obtain through M-Panel technology may prove inaccurate. In such a case, our failure to accurately forecast mortalities could have a material and adverse effect on our results of operation and financial condition, which could in turn materially and negatively affect the price of our common stock and our ability to satisfy our debts.
We may not be able to raise the capital that we are seeking from our securities offerings, and may be unable to meet our overall business objective of growing a larger, actuarially diverse portfolio of life insurance.
Our offer and sale of preferred stock (e.g., our Series A Convertible Preferred Stock, our Redeemable Preferred Stock and our Series 2 Redeemable Preferred Stock) and our L Bond offerings are the principal means by which we intend to raise funds needed to meet our goal of growing a larger and more statistically diverse portfolio likely to meet our cash flow projections. While we plan to continue financing our business, if we are unable to continue to do so for any reason we may be unable to meet our goal. In addition, if actual cash flows from our portfolio of life insurance policies do not occur as our actuarial projections have forecasted, we could be forced to sell our investments in life insurance policies in order to service or satisfy our debt-related obligations. If we are forced to sell investments in life insurance policies or our entire portfolio, we may be unable to sell them at prices we believe are optimal, and may not be able to sell them at prices that approximate the discount rate we have applied to value our portfolio, particularly if our sale of policies occurs at a time when we are (or are perceived to be) in distress. In any such event, our business and the value of our securities, including preferred shares, may be materially and adversely impacted.
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Accuracy of the life expectancy estimates and mortality curves we use for small face policies could have a material and adverse effect on our results of operation and financial condition.
As of December 31, 2016, we owned 359 “small face” life insurance policies (i.e., a policy with $1 million in face value benefits or less) having $193 million in face value of insurance benefits. The underwriting processes and mortality curves we use to evaluate, price and purchase small face policies are different from, and may not be as reliable as, the processes we use for life insurance policies with larger face values of benefits. In particular, the processes used to develop these life expectancy reports are less extensive than traditional methods. Although we have professional actuarial guidance in the use and application of mortality curves to price and value small face policies, the application of these mortality curves may not be as reliable as or more subject to adjustment than the processes we use for larger face value of benefits. As the face value of our small face policies increases relative to the size of our total portfolio, the accuracy with which we have estimated life expectancies and mortality curves for these policies will become increasingly material to our business. Any shortcomings in the processes we have used to evaluate, price, purchase and value the small face policies we own could have a material and adverse effect on our results of operation and financial condition. Any such outcomes would likely have a negative and possibly material effect on the price of our common stock and our ability to satisfy our debts.
We depend upon cash distributions from our subsidiaries, and contractual restrictions on distributions to us or adverse events at one of our operating subsidiaries could materially and adversely affect our ability to pay our debts and to continue to operate our business.
GWG Holdings is a holding company. As a holding company, we conduct our operations through operating subsidiaries, and as such our most significant assets are cash and our ownership interests in our subsidiaries. Accordingly, our ability to meet our obligations, including our debt-related and dividend-payment obligations, materially depends upon the ability of our subsidiaries to make cash distributions to us. In this regard, the ability of our subsidiaries to make distributions to us is, and will continue to be, restricted by certain negative covenants in the agreement governing our revolving senior credit facilities.
If any of these contractual limitations were to materially impede the flow of cash to us, such circumstance would materially and adversely affect our ability to service and repay our debt, including obligations under the L Bonds and Series I Secured Notes, and make cash dividend payments to holders of our preferred stock offerings.
If a significant number of holders of our Series I Secured Notes and L Bonds demand repayment of those instruments upon maturity instead of renewing them, and at such time we do not have sufficient capital on hand to fund those repayments (and do not otherwise have access to sufficient capital), we may be forced to liquidate some of our life insurance policy assets, which could have a material and adverse impact on our results of operations and financial condition.
As of December 31, 2016, we had approximately $387.1 million in principal amount of L Bonds outstanding, and approximately $16.6 million in principal amount of Series I Secured Notes outstanding. By virtue of GWG Life’s full and unconditional guarantee of obligations under the L Bonds, and other agreements contained in or made in connection with the indenture, the L Bonds are pari passu in right of payment and collateral with the Series I Secured Notes. The indenture governing the L Bonds, and the note issuance and security agreement governing the Series I Secured Notes, each provide for cross defaults upon an event of default under the provisions of the other agreement (i.e., an event of default under the note issuance and security agreement will constitute an event of default under the indenture for the L Bonds, and vice versa).
Since we first issued our Series I Secured Notes, we have experienced $166.3 million in maturities, of which $125.0 million has renewed for an additional term, as of December 31, 2016. This has provided us with an historical renewal rate of approximately 75% for investments in our Series I Secured Notes. Since we first issued our L Bonds, we have experienced $282.1 million in maturities, of which $181.5 million has renewed for an additional term, as of December 31, 2016. This has provided us with an historical renewal rate of approximately 64% for investments in our L Bonds. Future contractual maturities of Series I Secured Notes and L Bonds as of December 31, 2016 are as follows:
Years Ending December 31, | Series I Secured Notes | L Bonds | Total | |||||||||
2017 | $ | 10,523,000 | $ | 106,955,000 | $ | 117,478,000 | ||||||
2018 | 2,401,000 | 109,407,000 | 111,808,000 | |||||||||
2019 | 1,024,000 | 90,463,000 | 91,487,000 | |||||||||
2020 | 1,725,000 | 20,679,000 | 22,404,000 | |||||||||
2021 | 941,000 | 28,923,000 | 29,864,000 | |||||||||
Thereafter | - | 30,640,000 | 30,640,000 | |||||||||
$ | 16,614,000 | $ | 387,067,000 | $ | 403,681,000 |
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If investors holding existing indebtedness which matures do not elect to renew their investments and we do not at such time have or have access to sufficient capital, then we may need to liquidate some of our investments in life insurance policies earlier than anticipated. In such an event, we may be unable to sell those policies at prices we believe are fair or otherwise appropriate and such sales could have a material and adverse impact on our results of operations and financial condition. See also “We may not be able to raise the capital that we are seeking . . . .”
Because we intend to hold our life insurance policies to their maturity, we therefore measure our debt coverage ratio against the interest cost of our debt obligations, which may not reflect the sale price of our life insurance policies if we were to liquidate them.
We intend to hold our life insurance policy investments until they are paid out at the mortality of the insured. As a result, we measure our debt coverage ratio based on the portfolio’s gross expected yield against the interest cost of our total debt obligations to finance the portfolio. The debt coverage ratio, expressed as a percentage, is defined as the ratio of (i) total amounts outstanding on interest-bearing debt, over (ii) the net present asset value of all life insurance assets we own, plus any cash held in our accounts. For this purpose, the net present asset value of our life insurance assets is calculated as the present value of the life insurance portfolio’s expected future cash flows discounted at the weighted-average interest rate of the interest bearing indebtedness for the previous month. Under the indenture governing the L Bonds, the maximum amount of such securities we may issue at any time is limited to an amount such that our debt coverage ratio does not exceed 90%. This limitation is designed to provide some comfort to our L Bond holders that the value of our assets exceeds our obligations to those holders. Nevertheless, the debt coverage ratio (as calculated) is not based on the fair value of our life insurance policies, which may be different — greater or less — than the amount we would receive if we were forced to sell those assets in the marketplace. Furthermore, mere compliance with the debt coverage ratio does not account for the significant transactional costs that could be associated with a sale of all or any significant portion of our portfolio.
Our controlling stockholders and principal executives are involved in litigation “clawback” claims, and it is possible that adverse outcomes from these claims could negatively affect us.
Our Chief Executive Officer, Jon R. Sabes, and our corporate secretary and Executive Vice President of Originations and Servicing, Steven F. Sabes, who together beneficially own or control approximately 70% of our common stock, are subject to litigation relating to claims by a bankruptcy trustee for loan payments made to an affiliate, Opportunity Finance, LLC. The litigation stems from the 2010 conviction of an individual operating a fraudulent business, which business filed for bankruptcy in 2008. The bankruptcy trustee alleges that loan repayments to Opportunity Finance were avoidable transfers under preference or other legal theories and seeks to recover amounts for other creditors of the bankruptcy estate. Case No. 08-45257 (U.S. Bankruptcy Court District of Minnesota). Such payments may ultimately be deemed to be avoidable transfers under preference or other legal theories. In addition, GWG Holdings invested $1.0 million in Opportunity Finance, LLC in 2006 and was repaid and received $176,948 of interest income from that investment in 2007. To date no claim has been made against GWG.
While we believe there are numerous meritorious defenses to the claims made by the bankruptcy trustee and others, and we are advised that the defendants in that action will vigorously defend against the trustee’s claims, such defendants may not prevail. If the bankruptcy trustee were to succeed in any effort to sell or transfer the equity interests of Jon R. Sabes or Steven F. Sabes in our company as a result of the litigation, there could be a change in control of our company, and our company and business could be materially and adversely impacted. Such adverse results would likely arise a breach of negative change-in-control covenants contained in our senior credit facility agreements. In addition, such an event would adversely affect holders of our L Bonds by reducing the number of shares of common stock of GWG Holdings that have been pledged as collateral security for our obligations under those securities. Finally, regardless of the outcome of this litigation, these matters may distract management and reduce the time and attention that they are able to devote to our business.
The loss of the services of our current executives or other key employees, or the failure to attract additional key individuals, would materially adversely affect our business operations and prospects.
Our financial success is significantly dependent upon the efforts of our current executive officers and other key employees. In addition, our senior credit facility with Autobahn/DZ Bank requires Messrs. Jon R. Sabes and Steven F. Sabes to generally remain active within the business. We have entered into employment agreements with Messrs. Jon R. Sabes, Steven F. Sabes, William B. Acheson, Michael D. Freedman and Jon L. Gangelhoff. Nevertheless, there can be no assurance that these individuals will continue to provide services to us. A voluntary or involuntary termination of employment could have a materially adverse effect on our business operations if we were not able to attract qualified replacements in a timely manner. At present, we do not maintain key-man life insurance policies for any of these individuals. In addition, our success and viability is also dependent to a significant extent upon our ability to attract and retain qualified personnel in all areas of our business, especially our sales, policy acquisition, and financial management team. If we were to lose the members of these service teams, we would need to replace them with qualified individuals in a timely manner or our business operations and prospects could be adversely impacted.
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Being a public company is expensive and could adversely affect our ability to attract and retain qualified officers and directors.
We have been a public reporting company since January 31, 2012. As such, we are subject to the reporting requirements of the Securities Exchange Act of 1934. These requirements generate significant accounting, legal, and financial compliance costs, and make some activities more difficult, time consuming or costly than they would otherwise be, and may place significant strain on our personnel and resources. These rules and regulations applicable to public companies, and the risks involved in serving as an officer or director of a public company, may also make it more difficult and expensive for us to obtain director and officer liability insurance, and to recruit and retain qualified officers and directors.
We are an “emerging growth company” under federal securities laws, and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements normally applicable to public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a non-binding advisory vote on executive compensation, and delayed adoption of new or revised financial accounting standards. We could be an emerging growth company through 2019, although certain circumstances could cause us to lose that status earlier. It is possible that investors will find our common stock less attractive due to our use of these reduced reporting requirements. If some investors do in fact find our common stock less attractive, there may be a less active trading market for our common stock and our stock price may be more volatile.
We have a merchant cash advance business that presents a number of unique risks.
In February 2016, we acquired certain loan and advance assets from a lender to merchant cash advance funders. A merchant cash advance funder provides small businesses with one or more cash advances structured as the purchase of a portion of a small business’s future receipts. This type of transaction is not characterized or structured as a loan. Small businesses typically seek these advances for working capital purposes to finance their purchase of inventory, equipment, or to otherwise address immediate business needs.
Our activities in this space are currently not significant to our Company as a whole. Nevertheless, this business presents a number of unique risks, including the illiquidity of the cash advance loans and advances; our critical reliance on certain individuals to operate the business; collection issues and challenges given that the merchant cash advances are typically unsecured; and sensitivity to general economic conditions.
ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
Not applicable.
ITEM 2. | PROPERTIES. |
Our principal executive offices are located at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402. At that location, we lease 17,687 square feet of space for a lease term expiring in 2026. We believe that these facilities are adequate for our current needs and that suitable additional space will be available as needed.
ITEM 3. | LEGAL PROCEEDINGS. |
None.
ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
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ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our common stock is listed on The NASDAQ Capital Market under the ticker symbol “GWGH.” As of March 15, 2017, there were 93 record holders of our common stock.
The following table shows the high and low sales for our common stock for the periods indicated, as reported by NASDAQ:
Three Months Ended | High | Low | ||||||
March 31, 2015 | $ | 8.72 | $ | 6.05 | ||||
June 30, 2015 | $ | 10.50 | $ | 6.77 | ||||
September 30, 2015 | $ | 9.41 | $ | 7.10 | ||||
December 31, 2015 | $ | 8.48 | $ | 4.65 | ||||
March 31, 2016 | $ | 7.19 | $ | 4.21 | ||||
June 30, 2016 | $ | 8.75 | $ | 5.96 | ||||
September 30, 2016 | $ | 11.56 | $ | 6.22 | ||||
December 31, 2016 | $ | 9.65 | $ | 7.32 |
Securities Authorized for Issuance under Equity Compensation Plans
We maintain our 2013 Stock Incentive Plan. The purpose of the 2013 Stock Incentive Plan is to provide a means by which our employees, directors, officers and consultants may be granted an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for our success. Under the 2013 Stock Incentive Plan, 616,000 shares of our common stock remain unreserved and available for issuance at December 31, 2016.
The 2013 Stock Incentive Plan was approved by our stockholders. The following table sets forth certain information as of December 31, 2016 with respect to securities authorized for issuance under compensation arrangements.
Plan Category | Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (A) | Weighted-
Average Exercise Price of Outstanding Options, Warrants and Rights (B) | Number of
Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected
in Column (A)) (C) | |||||||||
Equity compensation plan approved by stockholders: | ||||||||||||
2013 Stock Incentive Plan(1) | $ | 1,384,000 | $ | 8.01 | $ | 616,000 | ||||||
Equity compensation plans not approved by stockholders(1) | 199,000 | $ | 12.50 | - | ||||||||
TOTAL | 1,583,000 | $ | 8.57 | 616,000 |
(1) | The number of securities reserved for issuance upon exercise of outstanding awards granted under the 2013 Stock Incentive Plan includes 1,384,000 stock options. We also had 199,000 outstanding stock options issued outside of the 2013 Stock Incentive Plan. |
Unregistered Sales of Securities
In 2016, we issued 99,000 shares of Series A Preferred Stock as in-kind dividends payable on account of the Series A Preferred Stock. These shares were in reliance on the private placement exemption under Section 4(a)(2) of the Securities Act of 1933.
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ITEM 6. | SELECTED FINANCIAL DATA. |
Not applicable.
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report. 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.
● | changes in the secondary market for life insurance; |
● | changes resulting from the evolution of our business model and strategy with respect to the life insurance industry; |
● | our limited operating history; |
● | the valuation of assets reflected on our financial statements; |
● | the reliability of assumptions underlying our actuarial models, including our life expectancy estimates; |
● | our reliance on debt financing; |
● | risks relating to the validity and enforceability of the life insurance policies we purchase; |
● | risks relating to our ability to license and effectively apply technologies to improve and expand the scope of our business; |
● | our reliance on information provided and obtained by third parties; |
● | federal, state and FINRA regulatory matters; |
● | competition in the secondary market of life insurance; |
● | the relative illiquidity of life insurance policies; |
● | our ability to satisfy our debt obligations if we were to sell our entire portfolio of life insurance policies; |
● | life insurance company credit exposure; |
● | cost-of-insurance (premium) increases on our life insurance policies; |
● | general economic outlook, including prevailing interest rates; |
● | performance of our investments in life insurance policies; |
● | financing requirements; |
● | risks associated with the merchant cash advance business; |
● | litigation risks; |
● | restrictive covenants contained in borrowing agreements; and |
● | our ability to make cash distributions in satisfaction of dividend obligations and redemption requests. |
We caution you that the foregoing list of factors is not exhaustive. 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 elected to delay such adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “emerging growth companies.” This exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “emerging growth company” as defined under the JOBS Act, whichever is earlier.
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Overview
We are a financial services company committed to finding new ways of disrupting and transforming the life insurance and related industries through innovative products and services, business processes, financing strategies, and advanced genomic technology. Historically, we have focused on creating opportunities for consumers to obtain significantly more value for their life insurance policies as compared to the traditional options offered by the insurance industry. As part of our business, we create opportunities for investors to receive income and capital appreciation from our various activities in the life insurance and related industries.
Critical Accounting Policies
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with the Generally Accepted Accounting Principles (GAAP) requires us to make 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 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 ASC 325-30, Investments in Insurance Contracts (“ASC 325-30”), 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. The fair value of our investment in our portfolio of insurance policies is evaluated at the end of each subsequent reporting period. Changes in the fair value of our portfolio are based on periodic evaluations and are recorded in our consolidated and combined statement of operations as changes in fair value of life insurance policies.
Fair Value Components – Medical Underwriting
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 portfolio.
The Society of Actuaries recently finalized the 2015 Valuation Basic Table (“2015 VBT”). The 2015 VBT 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 new 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 2.55 million claims on policies from 51 insurance carriers. Life expectancies implied by the 2015 VBT are generally longer for male and female nonsmokers between the ages of 65 and 80, while smokers and insureds of both genders over the age of 85 have significantly lower life expectancies. We adopted the 2015 VBT in our valuation process in June 2016.
In the past, we attempted to update the independent life expectancy estimates on the insured lives in our portfolio, other than insured lives covered under small face amount policies (i.e., $1 million in face value benefits or less), on a continuous rotating three-year cycle. Under the terms of our senior credit facility with LNV Corporation, however, we are required to attempt to update life expectancies on a rotating two-year cycle. Our prior experience in updating life expectancies has generally resulted in longer life expectancies for most, but not all, of the insureds within our portfolio. For more information about life expectancy estimates and their impact upon our business and financial statements, please see Risk Factors (“If actuarial assumptions we obtain from third-party providers . . . .”), and Note 4 to our financial statements.
During 2016 we identified 46 policies with combined face value of $109.9 million in our portfolio that were subject to COI rate changes. These increased charges resulted in a $6.5 million reduction in the fair value of our portfolio.
We are aware of one additional pending COI increase affecting our portfolio.
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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.
The table below provides the discount rate used to estimate the fair value of our portfolio of life insurance policies for the period ending:
December
31, 2016 |
December
31, 2015 |
|||||||
10.96% | 11.09% |
The change in the discount rate incorporates current information about discount rates applied by other reporting companies owning portfolios of life insurance policies, discount rates observed by us in the life insurance secondary market, market interest rates, credit exposure to the issuing insurance companies, and our estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio of life insurance policies. 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 MAPS to prepare a calculation of our life insurance portfolio. MAPS owns and maintains the portfolio pricing software we use. MAPS 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 10.96%. MAPS independently calculated the net present value of our portfolio of 690 policies to be $511.2 million and furnished us with a letter documenting its calculation. A copy of such letter is filed as Exhibit 99.1 to this report.
Deferred Income Taxes
Under ASC 740, Income Taxes (“ASC 740”), 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 that it is “more likely than not” that we will be able to realize all of our deferred tax assets other than those which are expected to result in a capital loss.
Deferred Financing and Issuance Costs
Financing costs, which include issuance costs, sales commissions and other direct expenses, incurred under the senior credit facilities were capitalized and are amortized using the straight-line method over the term of the senior credit facilities. The Series I Secured Note obligations are reported net of financing costs, which are amortized using the interest method over the term of each respective borrowing. The L Bonds are reported net of financing costs, which are amortized using the interest method over the term of each respective borrowing.
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Principal Revenue and Expense Items
We earn revenues from the following three 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 settlement and 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 the insured’s mortality. |
● | Change in Fair Value of Life Insurance Policies. We value our portfolio investments for each reporting period in accordance with the fair value principles discussed herein, which reflects the expected payment of premiums for future periods as shown in our consolidated financial statements net premium costs. |
● | 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 and Dividends. We recognize and record interest expenses associated with the costs of financing our life insurance portfolio for the current period. These expenses include interest paid to our senior lender under our senior credit facilities, interest paid on our L Bonds and other outstanding indebtedness such as our Series I Secured Notes. When we issue debt, we amortize the financing costs associated with such indebtedness over the outstanding term of the financing, and classify it as interest expense. |
Results of Operations — 2016 Compared to 2015
The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with our consolidated financial statements and related notes.
Revenue. | Years
Ended December 31, | |||||||
2016 | 2015 | |||||||
Revenue recognized from the receipt of policy benefits | $ | 37,459,000 | $ | 26,721,000 | ||||
Revenue recognized from the change in fair value of life insurance policies, net of premiums and carrying costs (1) | 30,343,000 | 12,660,000 | ||||||
Gain on life insurance policies, net | $ | 67,802,000 | $ | 39,381,000 | ||||
Number of policies matured | 23 | 9 | ||||||
The change in fair value related to new policies acquired during the year | $ | 38,205,000 | $ | 24,550,000 |
(1) | The discount rate applied to estimate the fair value of the portfolio of life insurance policies we own was 10.96% and 11.09% as of December 31, 2016 and 2015, respectively. The carrying value of policies acquired during each quarterly reporting period is adjusted to current fair value using the fair value discount rate applied to the entire portfolio as of that reporting date. |
Expenses. | ||||||||||||
2016 | 2015 | Increase | ||||||||||
Employee compensation and benefits (1) | $ | 11,784,000 | $ | 8,010,000 | $ | 3,774,000 | ||||||
Interest expense (including amortization of deferred financing costs) (2) | 42,343,000 | 29,519,000 | 12,824,000 | |||||||||
Legal and professional expenses (3) | 3,947,000 | 3,153,000 | 794,000 | |||||||||
Other expenses (4) | 10,677,000 | 7,784,000 | 2,893,000 | |||||||||
Total expenses | $ | 68,751,000 | $ | 48,466,000 | $ | 20,285,000 |
(1) | We hired additional members to our sales, marketing and information technology teams. At the end of 2015 we employed approximately 50 employees, at the end of 2016 our headcount rose to approximately 70 employees. |
(2) | The increase was due to the increase in the average debt and preferred stock outstanding from approximately $332.8 million in 2015 to approximately $471.4 million in 2016. |
(3) | Increase is due to SEC filings and other costs related to securities offerings and on-going compliance. |
(4) | Increase is due to increased insurance, investor relations, marketing and business development expenses. |
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Deferred Income Taxes. Under ASC 740, 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 may be established for any portion of deferred tax assets that is 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 net deferred tax assets, we believe that it is “more likely than not” that we will be able to realize all of our deferred tax assets other than those which are expected to result in a capital loss.
We also provided a valuation allowance against the deferred tax asset related to tax basis capital loss generated with respect to our settlement and subsequent disposal of an earlier investment. As we have no expectation of generating offsetting capital gains with the applicable carryforward period, we do not believe that it is “more likely than not” that the deferred asset will be realized.
Income Tax Expense. We incurred income tax expense of $0.3 million in 2016 and realized income tax benefits of $3.5 million in 2015. The effective tax rate for the 12 months ended December 31, 2016 and 2015, was 46% and 39.7%, respectively, compared to a statutory rate of 34%.
The following table provides a reconciliation of our income tax benefit at the statutory federal tax rate to our actual income tax benefit:
2016 | 2015 | |||||||||||||||
Statutory federal income tax | $ | 247,000 | 34.0 | % | $ | (3,004,000 | ) | 34.0 | % | |||||||
State income taxes, net of federal benefit | 56,000 | 7.8 | % | (561,000 | ) | 6.3 | % | |||||||||
Other permanent differences | 30,000 | 4.2 | % | 55,000 | (0.6 | )% | ||||||||||
Total income tax expense | $ | 333,000 | 46.0 | % | $ | (3,510,000 | ) | 39.7 | % |
The most significant temporary differences between GAAP net income and taxable net income are the treatment of interest costs with respect to the acquisition of the life insurance policies and revenue recognition with respect to the mark-to-market of life insurance portfolio.
Liquidity and Capital Resources
We finance our business through a combination of life insurance policy benefit receipts, origination fees, equity offerings, debt offerings, and our senior credit facilities. We have used our debt offerings and our senior credit facilities primarily for policy acquisition, policy servicing, and portfolio-related financing expenditures including paying principal and interest.
As of December 31, 2016 and December 31, 2015, we had approximately $121.7 million and $74.4 million, respectively, in combined available cash, cash equivalents, policy benefits receivable, if any, and available borrowing base surplus capacity, if any, under our senior credit facilities for the purpose of purchasing additional life insurance policies, paying premiums on existing policies, paying portfolio servicing expenses, and paying principal and interest on our outstanding financing obligations.
Financings Summary
We had the following outstanding debt balances as of December 31, 2016 and December 31, 2015:
As of December 31, 2016 | As of December 31, 2015 | |||||||||||||||
Issuer/Borrower | Principal Amount Outstanding | Weighted Average Interest Rate | Principal Amount Outstanding | Weighted Average Interest Rate | ||||||||||||
GWG Holdings, Inc. – L Bonds | $ | 387,067,000 | 7.23 | % | $ | 282,171,000 | 7.18 | % | ||||||||
GWG Life, LLC – Series I Secured Notes | 16,614,000 | 8.68 | % | 23,578,000 | 8.47 | % | ||||||||||
GWG DLP Funding III, LLC; IV, LLC – Senior credit facilities | 162,725,000 | 7.34 | % | 65,011,000 | 5.58 | % | ||||||||||
Total | $ | 566,406,000 | 7.30 | % | $ | 370,760,000 | 6.98 | % |
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In November 2009, our wholly owned subsidiary GWG Life began a private placement of Series I Secured Notes to accredited investors only. This offering was closed in November 2011. As of December 31, 2016 and 2015, we had approximately $16.6 million and $23.6 million, respectively, in principal amount of Series I Secured Notes outstanding.
In September 2011, we concluded a private placement offering of Series A, having received an aggregate $24.6 million in subscriptions for our Series A. These subscriptions consisted of $14.0 million in conversions of outstanding Series I Secured Notes and $10.6 million of new investments. As of December 31, 2016 and 2015, we had approximately $19.7 million and $20.8 million of Series A outstanding.
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. Through December 31, 2016, the total amount of these L Bonds sold, including renewals, was $669.2 million. As of December 31, 2016 and December 31, 2015, respectively, we had approximately $387.1 million and $282.2 million in principal amount of L Bonds outstanding.
In October 2015, we began publicly offering up to 100,000 shares of our RPS at a per-share price of $1,000. As of December 31, 2016 we had issued approximately $59.0 million stated value of RPS.
On February 14, 2017, we began publicly offering up to 150,000 shares of RPS 2 at a per-share price of $1,000. As of the date of this report we had not sold shares of RPS 2.
The weighted-average interest rate of our outstanding Series I Secured Notes as of December 31, 2016 and December 31, 2015 was 8.68% and 8.47%, respectively, and the weighted-average maturity at those dates was 1.14 and 1.06 years, respectively. The Series I Secured Notes have renewal features. Since we first issued our Series I Secured Notes, we have experienced $166.3 million in maturities, of which as of December 31, 2016, $125.0 million has renewed for an additional term. This has provided us with an aggregate renewal rate of approximately 75% for investments in these securities. Effective September 1, 2016, we no longer renew the Series I Secured Notes.
The weighted-average interest rate of our outstanding L Bonds as of December 31, 2016 and December 31, 2015 was 7.23% and 7.18%, respectively, and the weighted-average maturity at those dates was 2.13 and 2.02 years, respectively. Our L Bonds have renewal features. Since we first issued our L Bonds, we have experienced $282.1 million in maturities, of which $181.5 million has renewed through December 31, 2016 for an additional term. This has provided us with an aggregate renewal rate of approximately 64% for investments in these securities. Effective September 1, 2016, we discontinued the sales and renewals of 6-month and 1-year L Bonds.
Future contractual maturities of Series I Secured Notes and L Bonds at December 31, 2016 are:
Years Ending December 31, | Series I Secured Notes | L Bonds | Total | |||||||||
2017 | $ | 10,523,000 | $ | 106,955,000 | $ | 117,478,000 | ||||||
2018 | 2,401,000 | 109,407,000 | 111,808,000 | |||||||||
2019 | 1,024,000 | 90,463,000 | 91,487,000 | |||||||||
2020 | 1,725,000 | 20,679,000 | 22,404,000 | |||||||||
2021 | 941,000 | 28,923,000 | 29,864,000 | |||||||||
Thereafter | - | 30,640,000 | 30,640,000 | |||||||||
$ | 16,614,000 | $ | 387,067,000 | $ | 403,681,000 |
The L Bonds and Series I Secured Notes are secured by all of our assets, and are subordinate to our senior credit facilities. The L Bonds and Series I Secured Notes are pari passu with respect to a security interest in our assets pursuant to an intercreditor agreement (see Notes 7 and 8).
We maintain a $105 million senior credit facility with Autobahn/DZ Bank through DLP III. The senior credit facility is used to pay the premium expenses related to our portfolio of life insurance policies. As of December 31, 2016 and 2015, we had approximately $0 million and $65.0 million, respectively, outstanding under the senior credit facility, and maintained an available borrowing base surplus of $0 million and $40 million, respectively. On September 14, 2016, we paid off the senior credit facility in full with funds received from a new senior credit facility with LNV Corporation as described in Note 6.
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On September 14, 2016, we entered into a $172 million senior credit facility with LNV Corporation through DLP IV. We intend to use the proceeds from this facility to grow and maintain our portfolio of life insurance policies, for liquidity and for general corporate purposes. As of December 31, 2016 we had approximately $162.7 million outstanding under the senior credit facility.
We expect to meet our ongoing operational capital needs through a combination of policy benefit receipts, origination fees, and proceeds from financing transactions. We expect to meet our policy acquisition, servicing, and financing capital needs principally from the receipt of policy benefit revenues from our portfolio of life insurance policies, net proceeds from our offering of L Bonds, RPS and RPS 2, and from our senior credit facilities. Because we only receive origination fees when we purchase a policy, our receipt of those fees is contingent upon our consummation of policy purchases, which is, in turn, contingent upon our receipt of external funding. Despite capital market conditions that are still recovering from the prolonged credit crisis, we have demonstrated continued access to credit and financing markets. Furthermore, we expect that policy benefit receipts will increase as the average age of the insureds increase and mortality events occur over time with greater frequency. As a result of the foregoing, we estimate that our liquidity and capital resources are sufficient for our current and projected financial needs. Nevertheless, if we are unable to continue our offerings for any reason (or if we become unsuccessful in selling our securities), 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 or Series I Secured Notes 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.
Capital expenditures have historically not been material and we do not anticipate making material capital expenditures in 2016 or beyond.
Debt Financings Summary
The table below reconciles the face amount of our outstanding debt to the carrying value shown on our balance sheet:
As of December 31, 2016 | As of December 31, 2015 | |||||||
Total senior facilities and other indebtedness | ||||||||
Face amount outstanding | $ | 162,725,000 | $ | 65,011,000 | ||||
Unamortized selling costs | $ | (6,660,000 | ) | $ | (1,731,000 | ) | ||
Carrying amount | $ | 156,065,000 | $ | 63,280,000 | ||||
Series I Secured Notes: | ||||||||
Face amount outstanding | $ | 16,614,000 | $ | 23,578,000 | ||||
Unamortized selling costs | $ | (209,000 | ) | $ | (290,000 | ) | ||
Carrying amount | $ | 16,405,000 | $ | 23,288,000 | ||||
L Bonds: | ||||||||
Face amount outstanding | $ | 387,067,000 | $ | 282,171,000 | ||||
Subscriptions in process | $ | 5,882,000 | $ | 2,470,000 | ||||
Unamortized selling costs | $ | (11,636,000 | ) | $ | (8,158,000 | ) | ||
Carrying amount | $ | 381,313,000 | $ | 276,483,000 |
Portfolio Assets and Secured Indebtedness
At December 31, 2016, the fair value of our investments in life insurance policies of $511.2 million plus our cash balance of $78.5 million and our restricted cash balance of $37.8 million, plus matured policy benefits receivable of $5.3 million, totaled $632.9 million representing an excess of portfolio assets over secured indebtedness of $66.4 million. At December 31, 2015, the fair value of our investments in life insurance policies of $356.6 million plus our cash balance of $34.4 million and our restricted cash balance of $2.3 million, totaled $393.3 million, representing an excess of portfolio assets over secured indebtedness of $22.5 million.
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The following forward-looking table seeks to illustrate the impact of the sale of our portfolio of life insurance assets at various discount rates on our ability to satisfy our debt obligations as of December 31, 2016. In all cases, the sale of the life insurance assets owned by DLP III and DLP IV will be used first to satisfy all amounts owing under the respective senior credit facilities. The net sale proceeds remaining after satisfying all obligations under the senior credit facilities would be applied to L Bonds and Series I Secured Notes on a pari passu basis.
Portfolio Discount Rate | 10% | 11% | 12% | 13% | 14% | |||||||||||||||
Value of portfolio | $ | 533,372,000 | $ | 507,733,000 | $ | 484,146,000 | $ | 462,397,000 | $ | 442,299,000 | ||||||||||
Cash, cash equivalents and policy benefits receivable | 121,659,000 | 121,659,000 | 121,659,000 | 121,659,000 | 121,659,000 | |||||||||||||||
Total assets | 655,031,000 | 629,392,000 | 605,805,000 | 584,056,000 | 563,958,000 | |||||||||||||||
Senior credit facilities | 162,725,000 | 162,725,000 | 162,725,000 | 162,725,000 | 162,725,000 | |||||||||||||||
Net after senior credit facilities | 492,306,000 | 466,667,000 | 443,080,000 | 421,331,000 | 401,233,000 | |||||||||||||||
Series I Secured Notes and L Bonds | 403,681,000 | 403,681,000 | 403,681,000 | 403,681,000 | 403,681,000 | |||||||||||||||
Net after Series I Secured Notes and L Bonds | 88,625,000 | 62,986,000 | 39,399,000 | 17,650,000 | (2,448,000 | ) | ||||||||||||||
Impairment to Series I Secured Notes and L Bonds | No impairment | No impairment | No impairment | No impairment | Impairment |
The table illustrates that our ability to fully satisfy amounts owing under the L Bonds and Series I Secured Notes would likely be impaired upon the sale of all our life insurance assets at a price equivalent to a discount rate of approximately 13.94% or higher. At December 31, 2015, the impairment occurred at a discount rate of approximately 14.09% or higher. The discount rates used to calculate the fair value of our portfolio were 10.96% and 11.09% as of December 31, 2016 and December 31, 2015, respectively.
The table does not include any allowance for transactional fees and expenses associated with a portfolio sale (which expenses and fees could be substantial), and is provided to demonstrate how various discount rates used to value our portfolio could affect our ability to satisfy amounts owing under our debt obligations in light of our senior secured lender’s right to priority payments. You should read the above table in conjunction with the information contained in other sections of this report, including our discussion of discount rates included under the “— Critical Accounting Policies — Fair Value Components – Discount Rate” caption above. 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.
Entry into Credit Facility
Effective September 14, 2016, DLP IV entered into a 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 Loan and Security Agreement makes available a total of up to $172,300,000 in credit to DLP IV with a maturity date of September 14, 2026. Interest will accrue on amounts borrowed under the agreement at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (A) the greater of LIBOR or the federal funds rate (as defined in the agreement) plus one-half of one percent per annum, plus (B) 5.75% per annum.
Under the Loan and Security Agreement, DLP IV has granted the administrative agent, for the benefit of the lenders under the agreement, 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 Holdings’ equity ownership in DLP IV continues to serve as collateral for the obligations of GWG Holdings under the L Bonds (although the life insurance assets owned by DLP IV will not themselves serve directly as collateral for those obligations).
The Loan and Security Agreement, among other things, requires the borrower to maintain a reserve account to pay anticipated servicing fees for maintaining the borrower’s pledged policies, debt service and reasonable administrative and third-party expenses identified under the agreement for 12 months. The approximate amount set aside in the reserve account as of December 31, 2016 is $27 million.
Cash Flows
The payment of premiums and servicing costs to maintain life insurance policies represents our most significant requirement 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 of actually needing to pay the premiums decreases since 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, tracking costs, and debt servicing costs, including principal and interest payments all of which are excluded from our internal rate of return calculations. Until we receive a sufficient amount of proceeds from the policy benefits, we intend to pay these costs from our senior credit facilities, when permitted, and through the issuance of debt securities, including the L Bonds, and equity securities including our preferred stock.
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The amount of payments for anticipated premiums 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 | Premiums and Servicing Fees | |||||||||
2017 | $ | 44,787,000 | $ | 534,000 | $ | 45,321,000 | ||||||
2018 | 50,165,000 | 534,000 | 50,699,000 | |||||||||
2019 | 55,685,000 | 534,000 | 56,219,000 | |||||||||
2020 | 60,561,000 | 534,000 | 61,095,000 | |||||||||
2021 | 67,824,000 | 534,000 | 68,358,000 | |||||||||
$ | 279,022,000 | $ | 2,670,000 | $ | 281,692,000 |
Our anticipated premium expenses are subject to the risk of increased COI charges (i.e., premium charges) for the universal life insurance policies we own. In this regard, we are aware of one insurer that has notified us of its intent to increase COI charges on certain life insurance policies. As a result, we expect that our premium expense will increase and the fair value of our portfolio will be negatively impacted once the insurer has specified and implemented the proposed increases. Except as noted above, we are not aware of COI increases by other insurers, but we are aware that COI increases have become more prevalent in the industry. Thus, we expect that we may see additional insurers implementing COI increases in the future. See also the Risk Factor section of this report (“Cost-of-insurance (premium) increases could materially and adversely affect our financial condition and our profitability.”).
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 collected and premiums paid on our portfolio. The trailing 12-month benefits/premium coverage ratio indicates the ratio of policy benefits received 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 Collected | 12-Month Trailing Premiums Paid | 12-Month Trailing Benefits/Premium Coverage | ||||||||||||
March 31, 2012 | 482,455,000 | 4,203,000 | 14,977,000 | 28.1 | % | |||||||||||
June 30, 2012 | 489,255,000 | 8,703,000 | 15,412,000 | 56.5 | % | |||||||||||
September 30, 2012 | 515,661,000 | 7,833,000 | 15,837,000 | 49.5 | % | |||||||||||
December 31, 2012 | 572,245,000 | 7,350,000 | 16,597,000 | 44.3 | % | |||||||||||
March 31, 2013 | 639,755,000 | 11,350,000 | 18,044,000 | 62.9 | % | |||||||||||
June 30, 2013 | 650,655,000 | 13,450,000 | 19,182,000 | 70.1 | % | |||||||||||
September 30, 2013 | 705,069,000 | 18,450,000 | 20,279,000 | 91.0 | % | |||||||||||
December 31, 2013 | 740,648,000 | 16,600,000 | 21,733,000 | 76.4 | % | |||||||||||
March 31, 2014 | 771,940,000 | 12,600,000 | 21,930,000 | 57.5 | % | |||||||||||
June 30, 2014 | 784,652,000 | 6,300,000 | 22,598,000 | 27.9 | % | |||||||||||
September 30, 2014 | 787,964,000 | 4,300,000 | 23,121,000 | 18.6 | % | |||||||||||
December 31, 2014 | 779,099,000 | 18,050,000 | 23,265,000 | 77.6 | % | |||||||||||
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 | 40,240,000 | 120.4 | % |
We believe that 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 until such time as we achieve our goal of acquiring a larger, more diversified portfolio of life insurance policies. As our receipt of life insurance policy benefits increases, we expect to use these cash flows to begin paying down our outstanding indebtedness and purchase additional life insurance policies.
The life insurance policies owned by DLP III is subject to a collateral arrangement with the agent to the revolving credit lender, as described in Note 5. Under this arrangement, collection and escrow accounts are used to fund purchases and premiums of the insurance policies and to pay interest and other charges under our senior credit facilities. The lender and its agent must authorize all disbursements from these accounts, including any distributions to GWG Life or GWG Holdings. If the facility advance rate exceeds 50%, the distributions are limited to an amount that would result in the borrowers (DLP III, GWG Life, and GWG Holdings) realizing an annualized rate of return on the equity funded amount for such assets of not more than 18%, as determined by the agent. After such amount is reached, the credit agreement requires that excess funds be used to fund repayments or a reserve account in a certain amount before any additional distributions may be made. In the future, these arrangements may restrict the cash flows available for payment of principal and interest on our debt obligations.
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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 consolidated financial statements.
Off-Balance Sheet Arrangements
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 that expanded the leased space to 17,687 square feet and extended the term through August 31, 2025 (see Note 17).
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 December 31, 2016, 96.3% 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.
Interest Rate Risk
Our senior credit facilities are floating-rate financing. In addition, our ability to offer interest and dividend rates that attract capital (including in our continuous offering of L Bonds, RPS and RPS 2) is generally impacted by prevailing interest rates. Furthermore, while our L Bond, RPS and RPS 2 offerings provide us with fixed-rate debt and equity financing, our debt coverage ratio is calculated in relation to our total cost of debt financing. Therefore, fluctuations in interest rates impact our business by increasing our borrowing costs, and reducing availability under our debt financing arrangements. Furthermore, we calculate our portfolio earnings based upon the spread generated between the return on our life insurance portfolio and the cost of our financing. As a result, increases in interest rates will also reduce the earnings we expect to achieve from our investments in life insurance policies.
Non-GAAP Financial Measures
Non-GAAP financial measures disclosed by our management are provided 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. This presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for comparable amounts prepared in accordance with GAAP. See our consolidated financial statements and our audited financial statements contained herein.
We use non-GAAP financial measures for maintaining compliance with covenants contained in our borrowing agreement with Autobahn/DZ Bank and for planning and forecasting purposes. The application of current GAAP standards during a period of significant growth in our business, in which period we are building a large and actuarially diverse portfolio of life insurance, results in current period operating performance that may not be reflective of our long-term earnings potential. Management believes that our non-GAAP financial measures permit investors to better focus on this long-term earnings performance without regard to the volatility in GAAP financial results that can and has occurred during this phase of growth.
Therefore, in contrast to a GAAP fair valuation (mark-to-market), we seek to measure the accrual of the actuarial gain occurring within the portfolio of life insurance policies at our expected internal rate of return based on statistical mortality probabilities for the insureds (using primarily the insured’s age, sex, health and smoking status). The expected internal rate of return tracks actuarial gain occurring within the policies according to a mortality table as the insureds’ age increases. By comparing the actuarial gain accruing within our portfolio of life insurance policies against our adjusted costs during the same period, we can estimate, manage and evaluate the overall financial profitability of our business without regard to mark-to-market volatility. We use this information to balance our life insurance policy purchasing and manage our capital structure, including the issuance of debt and utilization of our other sources of capital, and to monitor our compliance with borrowing covenants. We believe that these non-GAAP financial measures provide information that is useful for investors to understand period-over-period operating results separate and apart from fair value items that could have a disproportionately positive or negative impact on GAAP results in any particular period.
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Our senior credit facility with Autobahn/DZ Bank requires us to maintain a “positive net income” and “tangible net worth,” each of which are calculated on an adjusted non-GAAP basis using the method described above, without regard to GAAP-based fair value measures. In addition, our senior credit facility with Autobahn/DZ Bank requires us to maintain an “excess spread,” which is the difference between (i) the weighted average of our expected internal rate of return of our portfolio of life insurance policies and (ii) the weighted average of the Autobahn/DZ Bank senior credit facility’s interest rate.
In addition, the Indenture governing our L Bonds and the note issuance and security agreement governing our Series I Secured Notes require us to maintain a “debt coverage ratio” designed to ensure that the expected cash flows from our portfolio of life insurance policies is able to adequately service our total outstanding indebtedness. This ratio is calculated using non-GAAP measures in the method described below, again without regard to GAAP-based fair value measures.
Adjusted Non-GAAP Net Income. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our costs during the same period to calculate our net income on a non-GAAP basis. Our senior credit facility with Autobahn/DZ Bank requires us to maintain a positive net income calculated on an adjusted non-GAAP basis.
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
GAAP net loss attributable to common shareholders | $ | (3,145,000 | ) | $ | (7,393,000 | ) | ||
Unrealized fair value gain (1) | (70,582,000 | ) | (39,371,000 | ) | ||||
Adjusted cost basis increase (2) | 72,818,000 | 52,069,000 | ||||||
Accrual of unrealized actuarial gain (3) | 39,551,000 | 31,566,000 | ||||||
Total adjusted non-GAAP net income (4) | $ | 38,642,000 | $ | 36,871,000 |
(1) | Reversal of unrealized GAAP fair value gain of life insurance policies for current period. |
(2) | Adjusted cost basis is increased to include interest, premiums and servicing fees which are not capitalized under GAAP (non-GAAP investment cost basis). |
(3) | Accrual of actuarial gain at expected internal rate of return based on the non-GAAP investment cost basis for the period. |
(4) | We must maintain an annual positive consolidated net income, calculated on a non-GAAP basis, to maintain compliance with our senior credit facility with Autobahn/DZ Bank. |
Adjusted Non-GAAP Tangible Net Worth. We calculate the adjusted tangible net worth by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our costs during the same period to calculate our tangible net worth on a non-GAAP basis. Our senior credit facility with Autobahn/DZ Bank requires us to maintain a tangible net worth in excess of $45 million calculated on an adjusted non-GAAP basis.
As of December 31, 2016 | As of December 31, 2015 | |||||||
GAAP net worth | $ | 67,298,000 | $ | 16,160,000 | ||||
Less intangible assets (1) | (19,442,000 | ) | (11,562,000 | ) | ||||
GAAP tangible net worth | 47,856,000 | 4,598,000 | ||||||
Unrealized fair value gain (2) | (264,625,000 | ) | (194,043,000 | ) | ||||
Adjusted cost basis increase (3) | 248,377,000 | 190,645,000 | ||||||
Accrual of unrealized actuarial gain (4) | 150,906,000 | 111,355,000 | ||||||
Total adjusted non-GAAP tangible net worth | $ | 182,514,000 | $ | 112,555,000 |
(1) | Unamortized portion of deferred financing costs and pre-paid insurance. |
(2) | Reversal of cumulative unrealized GAAP fair value gain or loss of life insurance policies. |
(3) | Adjusted cost basis is increased to interest, premiums and servicing fees which are not capitalized under GAAP. |
(4) | Accrual of cumulative actuarial gain at expected internal rate of return based on the non-GAAP investment cost basis. |
Excess Spread. The expected internal rate of return on the portfolio is the rate of return the portfolio would earn if all future cash flows occurred over time in proportion to the likelihood of their occurrence. Expected future cash flows represent the size of each potential payment (premiums and death benefits), multiplied by the probability of that particular payment occurring. This calculation is known as the “probabilistic expectation” and it is based on actuarial estimations of life expectancy. For instance, a required premium payment of $10,000 might be projected for a given policy at a date five years from now. If there is a 50% chance of survival for the next five years, then that particular expected cash-outflow is calculated at $5,000. Similarly, if the death benefit amount on the same policy is $1 million, then during the next five years, the probable expected cash-inflow of policy benefits will total $500,000 with the other $500,000 projected to occur over the remaining life of the insured. The rate of return generated by the net of all such future expected cash flows for the portfolio is thus the expected IRR for the portfolio. Our senior credit facility with Autobahn/DZ Bank requires us to maintain a 2.00% “excess spread” between our weighted-average expected internal rate of return of our portfolio of life insurance policies and the senior credit facility’s interest rate.
45 |
A presentation of our excess spread and our total excess spread is set forth below. Management uses the “total excess spread” to gauge expected profitability of our investments, and uses the “excess spread” to monitor compliance with our borrowing covenants.
As of December 31, 2016 | As of December 31, 2015 | |||||||
Weighted average expected IRR (1) | 11.34 | % | 11.11 | % | ||||
Weighted-average senior credit facility interest rate (2) | 7.34 | % | 5.58 | % | ||||
Excess spread | 4.00 | % | 5.53 | % | ||||
Total weighted-average interest rate on indebtedness for borrowed money (3) | 7.30 | % | 6.98 | % | ||||
Total excess spread (4) | 4.04 | % | 4.13 | % |
(1) | This represents the weighted-average expected internal rate of return of the life insurance policies as of the measurement date based upon our non-GAAP investment cost basis of the insurance policies and the expected cash flows from the life insurance portfolio. |
Non-GAAP Investment Cost Basis | As of December 31, 2016 | As of December 31, 2015 | |||||||
GAAP fair value | $ | 511,192,000 | $ | 356,650,000 | |||||
Unrealized fair value gain (A) | (264,625,000 | ) | (194,043,000 | ) | |||||
Adjusted cost basis increase (B) | 248,377,000 | 190,645,000 | |||||||
Investment cost basis (C) | $ | 494,944,000 | $ | 353,252,000 |
(A) | This represents the reversal of cumulative unrealized GAAP fair value gain of life insurance policies. | |
(B) | Adjusted cost basis is increased to interest, premiums and servicing fees which are expensed under GAAP. | |
(C) | This is the non-GAAP investment cost basis in life insurance policies from which our expected internal rate of return is calculated. |
(2) | This is the weighted-average revolving credit for both senior credit facilities as of the measurement date. |
(3) | Represents the weighted-average interest rate paid on all interest-bearing indebtedness as of the measurement date, determined as follows: |
Indebtedness | As of December 31, 2016 | As of December 31, 2015 | ||||||
Senior credit facilities | $ | 162,725,000 | $ | 65,011,000 | ||||
Series I Secured Notes | 16,614,000 | 23,578,000 | ||||||
L Bonds | 387,067,000 | 282,171,000 | ||||||
Total | $ | 566,406,000 | $ | 370,760,000 |
Interest Rates on Indebtedness | ||||||||
Senior credit facilities | 7.34 | % | 5.58 | % | ||||
Series I Secured Notes | 8.68 | % | 8.47 | % | ||||
L Bonds | 7.23 | % | 7.18 | % | ||||
Weighted-average interest rates on indebtedness | 7.30 | % | 6.98 | % |
(4) | Calculated as the weighted average expected IRR (1) minus the weighted-average interest rate on interest-bearing indebtedness (3). |
46 |
Debt Coverage Ratio and Subordination Ratio. Our L Bond and Series I Secured Notes 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, policy benefits receivable, if any, and the net present value of the life insurance portfolio. The “subordination ratio” for our L Bonds is calculated by dividing the total interest-bearing indebtedness that is senior to L Bonds and Series I Secured Notes by the sum of our cash, cash equivalents, policy benefits receivable, if any, and the net present value of the life insurance portfolio. The “subordination ratio” was required to be less than 50%. For purposes of both ratio calculations, the net present value of the life insurance portfolio is calculated using a discount rate equal to the weighted average interest rate of all indebtedness. As of the date of this report, the subordination ratio provisions under the Indenture have expired.
As of December 31, 2016 | As of December 31, 2015 | |||||||
Life insurance portfolio policy benefits | $ | 1,361,675,000 | $ | 944,844,000 | ||||
Discount rate of future cash flows | 7.30 | % | 6.98 | % | ||||
Net present value of life insurance portfolio policy benefits | $ | 614,908,000 | $ | 435,738,000 | ||||
Cash, cash equivalents and policy benefits receivable | 121,659,000 | 36,767,000 | ||||||
Total Coverage | 736,567,000 | 472,505,000 | ||||||
Senior credit facilities | 162,725,000 | 65,011,000 | ||||||
Series I Secured Notes | 16,614,000 | 23,578,000 | ||||||
L Bonds | 387,067,000 | 282,171,000 | ||||||
Total Indebtedness | $ | 566,406,000 | $ | 370,760,000 | ||||
Debt Coverage Ratio | 76.90 | % | 78.47 | % | ||||
Subordination Ratio | n/a | 13.76 | % |
As of December 31, 2016, we were in compliance with the debt coverage ratio.
Non-GAAP Expected Portfolio Internal Rate of Return at Purchase. The non-GAAP expected portfolio internal rate of return (“IRR”) at purchase is calculated as the weighted average (by face amount of policy benefits) of the IRR expected at the time of purchase for all life insurance policies held in the portfolio. This non-GAAP measure isolates our IRR expectation at purchase utilizing our underwriting life expectancy assumptions at that time. This measure does not change with the passage of time as compared to our non-GAAP investment cost basis that increases with the payment of premiums, financing costs, and the effective life expectancy which changes over time, both of which are used to calculate our expected portfolio IRR.
As of December 31, | ||||||||
2016 | 2015 | |||||||
Life insurance portfolio policy benefits | $ | 1,361,675,000 | $ | 944,844,000 | ||||
Total number of polices | 690 | 396 | ||||||
Non-GAAP Expected Portfolio Internal Rate of Return at Purchase | 15.64 | % | 15.71 | % |
We have in the past reported non-GAAP net asset value among our other non-GAAP financial measures. We have determined, however, to cease reporting this measure primarily because we do not believe that it is sufficiently additive to our existing non-GAAP measures in aiding users of our financial statements and disclosures to measure and evaluate our financial condition or operating results. Moreover, we are not aware of other reporting companies in our industry that use this measure to evaluate their financial condition or operating results.
47 |
Reclassification
During the fourth quarter of 2016, we corrected an immaterial error related to the presentation of preferred stock dividends on the statement of operations and the statement of changes in shareholders’ equity. We had previously incorrectly included preferred stock dividends as a component of interest expense. As corrected, preferred stock dividends are presented as a reduction of paid in capital. We also corrected an immaterial error in the “as converted” method of calculating fully diluted earnings per share.
The effects of these corrections on each of the quarters and periods during 2016 as previously reported by us are presented below:
Three months ended | Six
months ended | Nine
months ended | ||||||||||||||||||
March 31 | June 30 | September 30 | June 30 | September 30 | ||||||||||||||||
As reported: | ||||||||||||||||||||
Net Income (Loss) | $ | 1,074,305 | $ | 1,881,326 | $ | (2,997,365 | ) | $ | 2,955,631 | $ | (41,734 | ) | ||||||||
Net income (loss) attributable to common shareholders | $ | 1,417,267 | $ | 2,311,086 | $ | (2,576,339 | ) | $ | 3,728,353 | $ | 1,062,162 | |||||||||
Paid-in Capital | $ | 17,204,940 | $ | 16,488,390 | $ | 15,226,449 | $ | 16,488,390 | $ | 15,226,449 | ||||||||||
Accumulated Deficit | $ | (20,720,455 | ) | $ | (18,839,129 | ) | $ | (21,836,494 | ) | $ | (18,839,129 | ) | $ | (21,836,494 | ) | |||||
Basic | $ | 0.24 | $ | 0.32 | $ | (0.50 | ) | $ | 0.50 | $ | (0.01 | ) | ||||||||
Diluted | $ | 0.18 | $ | 0.29 | $ | (0.50 | ) | $ | 0.46 | $ | 0.13 | |||||||||
As reclassified: | ||||||||||||||||||||
Net Income (Loss) | $ | 1,585,536 | $ | 2,482,250 | $ | (1,956,187 | ) | $ | 4,067,786 | $ | 2,111,599 | |||||||||
Net income (loss) attributable to common shareholders | $ | 1,074,305 | $ | 1,881,326 | $ | (2,997,365 | ) | $ | 2,955,631 | $ | (41,734 | ) | ||||||||
Paid-in Capital | $ | 14,108,152 | $ | 12,790,678 | $ | 10,487,559 | $ | 12,790,678 | $ | 10,487,559 | ||||||||||
Accumulated Deficit | $ | (17,623,667 | ) | $ | (15,141,417 | ) | $ | (17,097,604 | ) | $ | (15,141,417 | ) | $ | (17,097,604 | ) | |||||
Basic | $ | 0.18 | $ | 0.32 | $ | (0.50 | ) | $ | 0.50 | $ | (0.01 | ) | ||||||||
Diluted | $ | 0.18 | $ | 0.30 | $ | (0.50 | ) | $ | 0.49 | $ | (0.01 | ) |
The effects of this correction on each of the quarters and periods during 2015 as we previously reported are presented below:
Three months ended | Six
months ended | Nine
months ended | ||||||||||||||||||
March 31 | June 30 | September 30 | June 30 | September 30 | ||||||||||||||||
As reported: | ||||||||||||||||||||
Net Income (Loss) | $ | 3,261,891 | $ | (2,250,415 | ) | $ | (3,631,078 | ) | $ | 1,011,476 | $ | (2,619,602 | ) | |||||||
Net income (loss) attributable to common shareholders | $ | 3,615,046 | $ | (1,905,568 | ) | $ | (3,287,434 | ) | $ | 1,709,479 | $ | (1,577,954 | ) | |||||||
Paid-in Capital | $ | 16,290,266 | $ | 16,900,193 | $ | 17,163,249 | $ | 16,900,193 | $ | 17,163,249 | ||||||||||
Accumulated Deficit | $ | (11,139,595 | ) | $ | (13,390,010 | ) | $ | (17,021,088 | ) | $ | (13,390,010 | ) | $ | (17,021,088 | ) | |||||
Basic | $ | 0.62 | $ | (0.32 | ) | $ | (0.55 | ) | $ | 0.17 | $ | (0.44 | ) | |||||||
Diluted | $ | 0.46 | $ | (0.32 | ) | $ | (0.55 | ) | $ | 0.21 | $ | (0.44 | ) | |||||||
As reclassified: | ||||||||||||||||||||
Net Income (Loss) | $ | 3,799,253 | $ | (1,755,342 | ) | $ | (3,115,033 | ) | $ | 2,043,911 | $ | (1,071,122 | ) | |||||||
Net income (loss) attributable to common shareholders | $ | 3,261,891 | $ | (2,250,415 | ) | $ | (3,631,078 | ) | $ | 1,011,476 | $ | (2,619,602 | ) | |||||||
Paid-in Capital | $ | 15,236,589 | $ | 15,351,443 | $ | 15,098,454 | $ | 15,351,443 | $ | 15,098,454 | ||||||||||
Accumulated Deficit | $ | (10,085,918 | ) | $ | (11,841,260 | ) | $ | (14,956,293 | ) | $ | (11,841,260 | ) | $ | (14,956,293 | ) | |||||
Basic | $ | 0.56 | $ | (0.38 | ) | $ | (0.61 | ) | $ | 0.17 | $ | (0.44 | ) | |||||||
Diluted | $ | 0.48 | $ | (0.38 | ) | $ | (0.61 | ) | $ | 0.17 | $ | (0.44 | ) |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
48 |
ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Audit Committee and Board of Directors
GWG Holdings, Inc. and Subsidiaries
Minneapolis, MN
We have audited the accompanying consolidated balance sheets of GWG Holdings, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. We also have audited GWG Holdings, Inc. and Subsidiaries' internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework). The company’s management is responsible for these consolidated financial statements, for maintaining effective control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements include examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of GWG Holdings, Inc. and Subsidiaries as of December 31, 2016 and 2015 and the results of their operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, GWG Holdings, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).
/s/
Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
March 15, 2017
F-1 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2016 | December 31, 2015 | |||||||
A S S E T S | ||||||||
Cash and cash equivalents | $ | 78,486,982 | $ | 34,425,105 | ||||
Restricted cash | 37,826,596 | 2,341,900 | ||||||
Investment in life insurance policies, at fair value | 511,192,354 | 356,649,715 | ||||||
Secured MCA advances | 5,703,147 | - | ||||||
Life insurance policy benefits receivable | 5,345,000 | - | ||||||
Other assets | 4,688,103 | 2,461,045 | ||||||
TOTAL ASSETS | $ | 643,242,182 | $ | 395,877,765 | ||||
L I A B I L I T I E S & S T O C K H O L D E R S’ E Q U I T Y | ||||||||
LIABILITIES | ||||||||
Senior credit facilities | $ | 156,064,818 | $ | 63,279,596 | ||||
Series I Secured Notes | 16,404,836 | 23,287,704 | ||||||
L Bonds | 381,312,587 | 276,482,796 | ||||||
Accounts payable | 2,226,712 | 1,517,440 | ||||||
Interest payable | 16,160,599 | 12,340,061 | ||||||
Other accrued expenses | 1,676,761 | 1,060,786 | ||||||
Deferred taxes, net | 2,097,371 | 1,763,968 | ||||||
TOTAL LIABILITIES | $ | 575,943,684 | $ | 379,732,351 | ||||
STOCKHOLDERS’ EQUITY | ||||||||
CONVERTIBLE PREFERRED STOCK – Series A | ||||||||
(par value $0.001; shares authorized 40,000,000; shares outstanding 2,640,521 and 2,781,735; liquidation preference of $19,804,000 and $20,863,000 as of December 31, 2016 and 2015, respectively) | 19,701,133 | 20,784,841 | ||||||
REDEEMABLE PREFERRED STOCK - RPS | ||||||||
(par value $0.001; shares authorized 100,000; shares outstanding 59,183 as of December 31, 2016) | 59,025,164 | - | ||||||
COMMON STOCK | ||||||||
(par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,980,190 and 5,941,790 as of December 31, 2016 and 2015, respectively) | 5,980 | 5,942 | ||||||
Additional paid-in capital | 7,383,515 | 14,563,834 | ||||||
Accumulated deficit | (18,817,294 | ) | (19,209,203 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 67,298,498 | 16,145,414 | ||||||
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ | 643,242,182 | $ | 395,877,765 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-2 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
REVENUE | ||||||||
Gain on life insurance policies, net | $ | 67,801,565 | $ | 39,381,003 | ||||
MCA income | 929,303 | - | ||||||
Interest and other income | 746,466 | 251,249 | ||||||
TOTAL REVENUE | 69,477,334 | 39,632,252 | ||||||
EXPENSES | ||||||||
Interest expense | 42,343,374 | 29,518,718 | ||||||
Employee compensation and benefits | 11,784,296 | 8,010,020 | ||||||
Legal and professional fees | 3,947,376 | 3,152,783 | ||||||
Other expenses | 10,676,976 | 7,784,350 | ||||||
TOTAL EXPENSES | 68,752,022 | 48,465,871 | ||||||
INCOME (LOSS) BEFORE INCOME TAXES | 725,312 | (8,833,619 | ) | |||||
Income tax expense (benefit) | 333,403 | (3,509,587 | ) | |||||
NET INCOME (LOSS) | 391,909 | (5,324,032 | ) | |||||
Preferred stock dividends | (3,537,287 | ) | (2,069,242 | ) | ||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (3,145,378 | ) | $ | (7,393,274 | ) | ||
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS | ||||||||
Basic | $ | (0.53 | ) | $ | (1.25 | ) | ||
Diluted | $ | (0.53 | ) | $ | (1.25 | ) | ||
WEIGHTED AVERAGE SHARES OUTSTANDING | ||||||||
Basic | 5,967,274 | 5,906,761 | ||||||
Diluted | 5,967,274 | 5,906,761 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Preferred Stock | Preferred | Common | Common Stock | Additional Paid-in | Accumulated | Total | ||||||||||||||||||||||
Shares | Stock | Shares | (par) | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance, December 31, 2014 | 2,738,966 | $ | 20,527,866 | 5,870,193 | $ | 5,870 | $ | 15,741,371 | $ | (13,885,171 | ) | $ | 22,389,936 | |||||||||||||||
Net loss | - | - | - | - | - | (5,324,032 | ) | (5,324,032 | ) | |||||||||||||||||||
Issuance of common stock | - | - | 60,000 | 60 | 581,940 | - | 582,000 | |||||||||||||||||||||
Series A Preferred Stock conversion to common stock | (15,463 | ) | (115,973 | ) | 11,597 | 12 | 115,961 | - | - | |||||||||||||||||||
Issuance of preferred stock | 58,232 | 372,948 | - | - | - | - | 372,948 | |||||||||||||||||||||
Preferred stock dividends | - | - | - | - | (2,069,242 | ) | - | (2,069,242 | ) | |||||||||||||||||||
Stock-based compensation | - | - | - | - | 193,804 | - | 193,804 | |||||||||||||||||||||
Balance, December 31, 2015 | 2,781,735 | $ | 20,784,841 | 5,941,790 | $ | 5,942 | $ | 14,563,834 | $ | (19,209,203 | ) | $ | 16,145,414 | |||||||||||||||
Net loss | - | - | - | - | - | 391,909 | 391,909 | |||||||||||||||||||||
Issuance of common stock | - | - | 36,450 | 36 | 244,149 | - | 244,185 | |||||||||||||||||||||
Redemption of Series A Preferred Stock | (239,749 | ) | (1,788,451 | ) | 1,950 | 2 | 19,498 | - | (1,768,951 | ) | ||||||||||||||||||
Issuance of Series A Preferred Stock | 98,535 | 704,743 | - | - | - | - | 704,743 | |||||||||||||||||||||
Issuance Redeemable Preferred Stock | 59,183 | 59,025,164 | - | - | (4,133,525 | ) | - | 54,891,639 | ||||||||||||||||||||
Preferred stock dividends | - | - | - | - | (3,537,288 | ) | - | (3,537,288 | ) | |||||||||||||||||||
Issuance of stock options | - | - | - | - | 226,847 | - | 226,847 | |||||||||||||||||||||
Balance, December 31, 2016 | 2,699,704 | $ | 78,726,297 | 5,980,190 | $ | 5,980 | $ | 7,383,515 | $ | (18,817,294 | ) | $ | 67,298,498 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | 391,909 | $ | (5,324,032 | ) | |||
Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
Gain on life insurance policies | (48,988,406 | ) | (39,371,059 | ) | ||||
Amortization of deferred financing and issuance costs | 8,445,252 | 3,712,056 | ||||||
Deferred income taxes | 333,402 | (3,509,587 | ) | |||||
Preferred stock issued in lieu of cash dividends | 689,742 | 683,133 | ||||||
Preferred stock dividends payable | 302,972 | 6,800 | ||||||
(Increase) decrease in operating assets: | ||||||||
Due from related parties | 1,169 | (1,256 | ) | |||||
Life insurance policy benefits receivable | (5,345,000 | ) | 1,750,000 | |||||
Other assets | (23,022,962 | ) | (304,526 | ) | ||||
Increase in operating liabilities: | ||||||||
Accounts payable | 709,272 | 313,864 | ||||||
Interest payable | 4,868,196 | 2,213,529 | ||||||
Other accrued expenses | (4,399,443 | ) | 2,183,393 | |||||
NET CASH FLOWS USED IN OPERATING ACTIVITIES | (66,013,897 | ) | (37,647,685 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Investment in life insurance policies | (94,952,879 | ) | (38,906,934 | ) | ||||
Carrying value of matured life insurance policies | 10,992,624 | 4,511,289 | ||||||
Investment in Secured MCA advances | (8,727,924 | ) | - | |||||
Proceeds from Secured MCA advances | 2,553,466 | - | ||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES | (90,134,713 | ) | (34,395,645 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net borrowings on (repayments of) Senior Credit Facilities | 97,713,952 | (7,150,000 | ) | |||||
Payments for redemption of Series I Secured Notes | (7,469,462 | ) | (4,891,681 | ) | ||||
Proceeds from issuance of L Bonds | 153,874,402 | 131,159,348 | ||||||
Payments for issuance and redemption of L Bonds | (10,149,316 | ) | (7,499,601 | ) | ||||
Payments for redemption of L Bonds | (45,754,691 | ) | (35,984,061 | ) | ||||
Proceeds from (increase in) restricted cash | (35,484,697 | ) | 1,954,153 | |||||
Issuance of common stock | 244,185 | 582,000 | ||||||
Proceeds from issuance of preferred stock | 57,112,501 | - | ||||||
Payments for issuance costs of preferred stock | (4,140,866 | ) | - | |||||
Payments for redemption of preferred stock | (2,198,233 | ) | (295,185 | ) | ||||
Payments of preferred stock dividends | (3,537,288 | ) | (2,069,242 | ) | ||||
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 200,210,487 | 75,805,731 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 44,061,877 | 3,762,401 | ||||||
CASH AND CASH EQUIVALENTS | ||||||||
BEGINNING OF YEAR | 34,425,105 | 30,662,704 | ||||||
END OF YEAR | $ | 78,486,982 | $ | 34,425,105 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED
Year Ended December 31, | ||||||||
2016 | 2015 | |||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Interest paid | $ | 34,607,000 | $ | 22,648,000 | ||||
Premiums paid | $ | 40,240,000 | $ | 26,650,000 | ||||
Stock-based compensation | $ | 227,000 | $ | 194,000 | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Options issued to purchase common stock | 638,000 | 353,000 | ||||||
Series I Secured Notes: | ||||||||
Conversion of accrued interest and commission payable to principal | $ | 234,000 | $ | 203,000 | ||||
L Bonds: | ||||||||
Conversion of accrued interest and commission payable to principal | $ | 1,988,000 | $ | 806,000 | ||||
Series A Preferred Stock: | ||||||||
Conversion to common stock | $ | 39,000 | $ | 116,000 | ||||
Issuance of preferred stock in lieu of cash dividends | $ | 690,000 | $ | 683,000 | ||||
Investment in life insurance policies included in accounts payable | $ | 605,000 | $ | 1,079,000 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 1 ) Nature of Business and Summary of Significant Accounting Policies
Nature of Business – We are a financial services company committed to finding new ways of disrupting and transforming the life insurance and related industries through innovative products and services, business processes, financing strategies, and advanced epigenetic technology. Historically, we have focused on creating opportunities for consumers to obtain significantly more value for their life insurance policies as compared to the traditional options offered by the insurance industry. As part of our business, we create opportunities for investors to receive income and capital appreciation from our various activities in the life insurance and related industries. Through its wholly owned subsidiaries, GWG Holdings, Inc. owns a portfolio of life insurance policies. As of the date of this report, our portfolio had an aggregate fair value of $511.2 million. We earn income from changes in the fair value of our portfolio and through the benefits we receive upon the mortality of insureds.
GWG Holdings, Inc. and all of its subsidiaries are incorporated and organized in Delaware. Unless the context otherwise requires or we specifically so indicate, all references in these footnotes to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to GWG Holdings, Inc. and its subsidiaries collectively and on a consolidated basis. References to the full names of particular entities, such as “GWG Holdings, Inc.” or “GWG Holdings,” are meant to refer only to the particular entity referenced.
On September 30, 2015, GWG Holdings formed a wholly owned subsidiary, Wirth Park Agency, LLC. Wirth Park Agency was formed to convert term life insurance policies into universal, or permanent life insurance. Wirth Park Agency produces commission revenue through this activity.
On December 7, 2015, GWG Holdings formed a wholly owned subsidiary, GWG MCA, LLC. On January 13, 2016, GWG MCA, LLC was converted to a corporation and became GWG MCA Capital, Inc. GWG MCA Capital, Inc. was formed to engage in the merchant cash advance business.
On August 25, 2016, GWG Holdings formed a wholly owned subsidiary, Actüa Life & Annuity Ltd. to engage in various life insurance related businesses and activities.
Use of Estimates – The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the 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, and various other factors that it believes to be reasonable under the circumstances. The actual results that we experience may differ materially and adversely from our estimates. The most significant estimates with regard to these consolidated financial statements relate to (1) the determination of the assumptions used in estimating the fair value of our investments in life insurance policies, and (2) the value of our deferred tax assets and liabilities.
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.
Life Insurance Policies – ASC 325-30 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. Under the fair value method we recognize our initial investment at the purchase price. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as revenue in the current period net of premiums paid.
We also recognize realized gain (revenue) 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, 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 values of the policy once we determine that collection of the policy benefits is realizable and 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 of our receipt of sale proceeds.
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 balance sheet until the acquisition is complete and we have secured title to the policy. On December 31, 2016 and 2015, a total of $42,000 and $31,000, respectively, of our “other assets” comprised direct costs and deposits that we advanced for policy acquisitions.
Other Assets – Actüa Life & Annuity Ltd. (“Actüa”) is a new wholly-owned subsidiary of GWG Holdings engaged in various life insurance businesses and activities. In August 2016, Actüa entered into an exclusive option agreement with the Regents of the University of California to explore the use of predictive mortality forecasting using an epigenetic mortality predictor invented by Dr. Steve Horvath. The cost of entering into this exclusive option agreement is listed as “other assets.”
Stock-Based Compensation: We measure and recognize compensation expense for all stock-based payments at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the weighted average fair value of options. For restricted stock grants, fair value is determined as the average price of our common stock on the date of grant. Equity-based compensation expense is recorded in 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 using an option-pricing model is affected by our stock price as well as by assumptions regarding 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 actual and projected employee stock option exercise behaviors.
F-7 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. 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 historical and expected future volatility of our stock. To date, we have not paid any dividends on our common stock. Forfeitures for both option and restricted stock grants are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates.
Deferred Financing and Issuance Costs – Loans advanced to us under our senior credit facilities, as described in Notes 5 and 6, are reported net of financing costs, which include issuance costs, sales commissions and other direct expenses, which are amortized using the straight-line method over the term of the facility. The Series I Secured Notes and L Bonds, as respectively described in Notes 7 and 8, are reported net of financing costs, which are amortized using the interest method over the term of those borrowings. The Series A, as described in Note 9, is reported net of financing costs (including the fair value of warrants issued), all of which were fully amortized using the interest method as of December 31, 2016. Selling and issuance costs of RPS and Series 2 Redeemable Preferred Stock (“RPS 2”), described in Notes 10 and 11, are netted against additional paid-in-capital.
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 outstanding Series A, RPS, warrants and stock options. Due to our net loss for years ended December 31, 2016 and 2015, there are no dilutive securities.
Recently Adopted Pronouncements – On April 7, 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), as part of its simplification initiative. ASU 2015-03 changes the presentation of debt issuance costs by presenting those costs in the balance sheet as a direct deduction from the related debt liability. Amortization of the costs is reported as interest expense. We adopted ASU 2015-03 effective January 1, 2016, as required for public reporting entities.
On February 25, 2016, the FASB issued ASU 2016-02 Leases ("ASU 2016-02"). The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 provides more transparency and comparability in the financial statements of lessees by recognizing all leases with a term greater than twelve months on the balance sheet. Leasees will also be required to disclose key information about their leases. Early adoption is permitted. We have not adopted ASU 2016-02 as of December 31, 2016.
( 2 ) Restrictions on Cash
Under the terms of our senior credit facilities (discussed in Notes 5 and 6), we are required to maintain collection and escrow accounts that are used to fund the acquisition of policies, pay annual policy premiums, pay interest and other charges under the facility, and collect policy benefits. The agent for the lender authorizes the disbursements from these accounts. At December 31, 2016 and December 31, 2015, there was a balance of $37,827,000, and $2,342,000, respectively, in these restricted cash accounts.
( 3 ) Investment in Life Insurance Policies
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 are recorded as gain or loss on life insurance policies, net of cash premiums paid on those policies, in our 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, assumptions relating to cost-of-insurance (premium) rates and other assumptions. The discount rate we apply incorporates current information about discount rate applied by other reporting companies owning portfolios of life insurance policies, the discount rates observed in the life insurance secondary market, market interest rates, the credit exposure to the insurance companies that issued the life insurance policies and management’s estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. As a result of management’s analysis, discount rates of 10.96% and 11.09% were applied to our portfolio as of December 31, 2016 and December 31, 2015, respectively.
A summary of our policies, organized according to their estimated life expectancy dates as of the dates indicated, is as follows:
As of December 31, 2016 | As of December 31, 2015 | |||||||||||||||||||||||
Years Ending December 31, | Number of Policies | Estimated Fair Value | Face Value | Number of Policies | Estimated Fair Value | Face Value | ||||||||||||||||||
2016 | - | $ | - | $ | - | 5 | $ | 7,503,000 | $ | 8,500,000 | ||||||||||||||
2017 | 11 | 14,837,000 | 16,939,000 | 12 | 12,875,000 | 17,418,000 | ||||||||||||||||||
2018 | 23 | 30,830,000 | 42,564,000 | 27 | 37,109,000 | 58,428,000 | ||||||||||||||||||
2019 | 55 | 57,556,000 | 88,858,000 | 51 | 54,242,000 | 100,967,000 | ||||||||||||||||||
2020 | 93 | 85,414,000 | 159,814,000 | 59 | 64,750,000 | 137,868,000 | ||||||||||||||||||
2021 | 86 | 73,825,000 | 158,744,000 | 48 | 45,724,000 | 116,805,000 | ||||||||||||||||||
2022 | 66 | 56,909,000 | 147,222,000 | 44 | 38,394,000 | 116,998,000 | ||||||||||||||||||
Thereafter | 356 | 191,821,000 | 747,534,000 | 150 | 96,053,000 | 387,860,000 | ||||||||||||||||||
Totals | 690 | $ | 511,192,000 | 1,361,675,000 | 396 | $ | 356,650,000 | $ | 944,844,000 |
We recognized life insurance benefits of $48,452,000 and $31,232,000 during 2016 and 2015, respectively, related to policies with a carrying value of $10,993,000 and $4,511,000, respectively, and as a result recorded realized gains of $37,459,000 and $26,721,000.
F-8 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of gain on life insurance policies:
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Change in fair value | $ | 70,582,000 | $ | 39,371,000 | ||||
Premiums and other annual fees | (40,240,000 | ) | (26,711,000 | ) | ||||
Policy maturities | 37,460,000 | 26,721,000 | ||||||
Gain on life insurance policies, net | $ | 67,802,000 | $ | 39,381,000 |
We currently estimate that 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 | Premiums and Servicing Fees | |||||||||
2017 | $ | 44,787,000 | $ | 534,000 | $ | 45,321,000 | ||||||
2018 | 50,165,000 | 534,000 | 50,699,000 | |||||||||
2019 | 55,685,000 | 534,000 | 56,219,000 | |||||||||
2020 | 60,561,000 | 534,000 | 61,095,000 | |||||||||
2021 | 67,824,000 | 534,000 | 68,358,000 | |||||||||
$ | 279,022,000 | $ | 2,670,000 | $ | 281,692,000 |
Management anticipates funding the premium payments estimated above with proceeds from our senior credit facilities, proceeds from additional debt and equity financing, and proceeds from maturities of life insurance policies. The proceeds of these capital sources may also be used for the purchase, financing, and maintenance of additional life insurance policies.
( 4 ) Fair Value Definition and Hierarchy
ASC 820 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 developed 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.
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 we have the ability to access. Since valuations are based quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
● | 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.
F-9 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 Valuation Process
The estimated fair value of our portfolio of life insurance policies is determined on a quarterly basis by our portfolio management committee, taking into consideration 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 rate applied by other reporting companies owning portfolios of life insurance policies, the discount rates observed in the life insurance secondary market, market interest rates, the credit exposure to the insurance company that issued the life insurance policy and management’s estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole.
These inputs are then used to estimate the discounted cash flows from the portfolio using the Model Actuarial Pricing System probabilistic portfolio price model, which estimates the cash flows using various mortality probabilities and scenarios. The valuation process includes a review by senior management as of each valuation date. We also engage a third-party expert to independently test the accuracy of the valuations using the inputs we provide on a quarterly basis. See Exhibit 99.1 filed herewith.
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 December 31, as follows:
Years Ended December 31, | ||||||||
2016 | 2015 | |||||||
Beginning balance | $ | 356,650,000 | $ | 282,883,000 | ||||
Purchases | 94,953,000 | 38,907,000 | ||||||
Maturities (initial cost basis) | (10,993,000 | ) | (4,511,000 | ) | ||||
Net change in fair value | 70,582,000 | 39,371,000 | ||||||
Ending balance | $ | 511,192,000 | $ | 356,650,000 |
In the past, we periodically updated the independent life expectancy estimates on the insured lives in our portfolio, other than insured lives covered under small face amount policies (i.e., $1 million in face value benefits or less), on a continuous rotating three-year cycle, and through that effort attempted to update life expectancies for approximately one-twelfth of our portfolio each quarter. Nevertheless, the terms of our senior credit facility with LNV Corporation currently requires us to attempt to update life expectancies on a rotating two-year cycle.
The following table summarizes the inputs utilized in estimating the fair value of our portfolio of life insurance policies:
As of December 31, 2016 | As of December 31, 2015 | |||||||
Weighted-average age of insured, years | 81.6 | 82.6 | ||||||
Weighted-average life expectancy, months | 83.2 | 79.3 | ||||||
Average face amount per policy | $ | 1,973,000 | $ | 2,386,000 | ||||
Discount rate | 10.96 | % | 11.09 | % |
These assumptions are, by their nature, 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%, while all other variables were 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 | |||||||||||||
December 31, 2016 | $ | 69,253,000 | $ | 34,601,000 | $ | (33,846,000 | ) | $ | (67,028,000 | ) | ||||||
December 31, 2015 | $ | 48,339,000 | $ | 24,076,000 | $ | (23,501,000 | ) | $ | (46,482,000 | ) | ||||||
Change in discount rate | ||||||||||||||||
minus 2% | minus 1% | plus 1% | plus 2% | |||||||||||||
December 31, 2016 | $ | 53,764,000 | $ | 25,728,000 | $ | (23,668,000 | ) | $ | (45,491,000 | ) | ||||||
December 31, 2015 | $ | 35,024,000 | $ | 16,786,000 | $ | (15,485,000 | ) | $ | (29,803,000 | ) |
F-10 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Fair Value Considerations
The carrying value of 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 Series I Secured Notes and L Bonds, having a combined aggregate face value of $403,681,000 as of December 31, 2016, is approximately $414,419,000 based on a weighted-average market interest rate of 6.45%. The carrying value of the senior credit facilities reflects interest charged at the commercial paper rate or 12-month LIBOR, as applicable, 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 market, and the carrying value of the facility approximates fair value.
GWG MCA participates 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 advances and loans, and determine if an impairment reserve is necessary. At December 31, 2016 one of our secured loans was potentially impaired. The secured loan to Nulook Capital LLC had an outstanding balance of $2,527,000 and a loan loss reserve of $600,000 at December 31, 2016. We deem fair value to be the estimated collectible value on each loan or advance made from GWG MCA. Where we estimate the collectible amount to be less than the outstanding balance, we record a reserve for the difference.
The following table summarizes outstanding warrants as of December 31, 2016:
Month issued | Warrants issued | Fair value per share | Risk
free rate | Volatility | Term | |||||||||||||
March 2012 | 38,130 | $ | 0.52 | 0.38 | % | 36.20 | % | 5 years | ||||||||||
June 2012 | 161,840 | $ | 1.16 | 0.41 | % | 47.36 | % | 5 years | ||||||||||
July 2012 | 144,547 | $ | 1.16 | 0.41 | % | 47.36 | % | 5 years | ||||||||||
September 2012 | 2,500 | $ | 0.72 | 0.31 | % | 40.49 | % | 5 years | ||||||||||
September 2014 | 16,000 | $ | 1.26 | 1.85 | % | 17.03 | % | 5 years | ||||||||||
363,017 |
( 5 ) Credit Facility – Autobahn Funding Company LLC
Through DLP III, we are party to a $105 million senior credit facility with Autobahn Funding Company LLC (“Autobahn”), with a maturity date of June 30, 2018. The facility is governed by a Credit and Security Agreement (the “Agreement”), and DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”) acts as the agent for Autobahn under the Agreement. On September 14, 2016, we paid off the senior credit facility in full with funds received from a new senior credit facility with LNV Corporation as described in Note 6.
Advances under the facility bear interest at a commercial paper rate of the lender at the time of the advance, or at the lender’s cost of borrowing plus 4.25%. We make interest payments on a monthly basis. The effective rate of interest was 5.42% at September 14, 2016 and 5.58% at December 31, 2015.
The amount outstanding under this facility was $0 and $65,011,000 at December 31, 2016 and December 31, 2015, respectively. GWG Holdings is a performance guarantor of the various obligations of GWG Life, as servicer, under the Agreement. Obligations under the facility are secured by our pledge of ownership in our life insurance policies to DZ Bank through an arrangement under which Wells Fargo serves as a securities intermediary.
The Agreement has certain financial (as described below) and nonfinancial covenants, and we were in compliance with these covenants at both December 31, 2016 and 2015.
We have agreed to maintain (i) a positive consolidated net income on a non-GAAP basis (as defined and calculated under the Agreement) for each complete fiscal year, (ii) a tangible net worth on a non-GAAP basis (again, as defined and calculated under the Agreement) of not less than $45 million, and (iii) maintain cash and eligible investments of $15 million or above.
Consolidated non-GAAP net income and non-GAAP tangible net worth as of and for the four quarters ended December 31, 2016, as calculated under the Agreement, was $38,642,000 and $182,514,000, respectively.
Total funds available for additional borrowings under the facility at December 31, 2016 and 2015, were $0 and $39,989,000, respectively.
F-11 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 6 ) Credit Facility – CSG Investments, Inc.
On September 14, 2016, we entered into a senior credit facility with LNV Corporation as lender through our subsidiary GWG DLP Funding IV, LLC (“DLP IV”). The facility is governed by a Loan and Security Agreement (the “Loan Agreement”), with CLMG Corp. acting as administrative agent on behalf of the lenders under the Loan Agreement. The Loan Agreement makes available a total of up to $172,300,000 in credit with a maturity date of September 14, 2026. Additional quarterly advances are available under the Loan Agreement at the LIBOR rate as defined by the lender. Interest will accrue on amounts borrowed under the agreement at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (A) the greater of 12-month LIBOR or the federal funds rate (as defined in the agreement) plus one-half of one percent per annum, plus (B) 5.75% per annum. Interest payments are made on a quarterly basis.
The amount outstanding under this facility was $162,725,000 at December 31, 2016. Obligations under the facility are secured by a security interest in DLP IV’s assets, for the benefit of the lenders under the Loan Agreement, through an arrangement under which Wells Fargo serves as security intermediary. The life insurance policies owned by DLP IV do not serve as direct collateral for the obligations of GWG Holdings under its L Bonds or Series I Secured Notes. The difference between the outstanding balance as of December 31, 2016 and the carrying amount relates to unamortized debt issuance costs.
The Loan Agreement requires DLP IV to maintain a reserve account in an amount sufficient to pay 12 months of servicing, administrative and third party expenses identified under the Loan Agreement, and 12 months of debt service as calculated under the Loan Agreement. As of December 31, 2016, the amount set aside in the reserve account was $27,500,000.
The Agreement has certain financial and nonfinancial covenants, and we were in compliance with these covenants at December 31, 2016.
Total funds available for additional borrowings under the facility at December 31, 2016 was $0.
( 7 ) Series I Secured Notes
Series I Secured Notes (“Series I”) are legal obligations of GWG Life and were privately offered and sold from August 2009 through June 2011. The Series I are secured by the assets of GWG Life and are subordinate to obligations under our senior credit facilities (see Notes 5 and 6). We are party to a Third Amended and Restated Note Issuance and Security Agreement dated November 1, 2011, as amended, under which GWG Life is obligor, GWG Holdings is guarantor, and Lord Securities Corporation serves as trustee of the GWG Life Trust (“Trust”). This agreement contains certain financial and non-financial covenants, and we were in compliance with these covenants at both December 31, 2016 and 2015.
The Series I were sold with original maturity dates ranging from six months to seven years, and with fixed interest rates varying from 5.65% to 9.55% depending on the term of the note. The Series I 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. Effective September 1, 2016, we no longer renew the Series I.
Interest on the Series I is payable monthly, quarterly, annually or at maturity depending on the election of the investor. At December 31, 2016 and 2015, the weighted-average interest rate of our Series I was 8.68% and 8.47%, respectively. The principal amount of Series I outstanding was $16,614,000 and $23,578,000 at December 31, 2016 and 2015, respectively. The difference between the amount outstanding on the Series I and the carrying amount on our balance sheet is due to netting of unamortized deferred issuance costs. Overall, interest expense includes amortization of deferred financing and issuance costs of $332,000 and $362,000 in 2016 and 2015, respectively. Future expected amortization of deferred financing costs is $209,000 in total over the next five years.
Future contractual maturities of Series I payable and future amortization of their deferred financing costs at December 31, 2016 are as follows:
Years Ending December 31, | Contractual Maturities | Amortization of Deferred Financing Costs | ||||||
2017 | $ | 10,523,000 | $ | 41,000 | ||||
2018 | 2,401,000 | 41,000 | ||||||
2019 | 1,024,000 | 20,000 | ||||||
2020 | 1,725,000 | 52,000 | ||||||
2021 | 941,000 | 55,000 | ||||||
$ | 16,614,000 | $ | 209,000 |
F-12 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 8 ) L Bonds
Our L Bonds are legal obligations of GWG Holdings. Obligations under the L Bonds are secured by the assets of GWG Holdings and by GWG Life, as a guarantor, and are subordinate to the obligations under our senior credit facilities (see Notes 5 and 6). 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. 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. The Indenture contains certain financial and non-financial covenants, and we were in compliance with these covenants at December 31, 2016 and 2015.
Effective September 1, 2016, we ceased selling 6-month and 1-year L Bonds until further notice. In addition, effective September 1, 2016, the L Bond interest rates changed to 5.50%, 6.25%, 7.50% and 8.50% for the 2-, 3-, 5- and 7-year L Bonds, respectively. 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 December 31, 2016 and 2015, the weighted-average interest rate of our L Bonds was 7.23% and 7.16%, respectively. The principal amount of L Bonds outstanding was $387,067,000 and $282,171,000 at December 31, 2016 and 2015, respectively. The difference between the amount of outstanding L Bonds and the carrying amount on our balance sheets is due to netting of unamortized deferred issuance costs and cash receipts for new issuances in process. Amortization of deferred issuance costs was $7,099,000 and $5,285,000 in 2016 and 2015, respectively. Future expected amortization of deferred financing costs as of December 31, 2016 is $11,636,000 in total over the next eight years.
Future contractual maturities of L Bonds, and future amortization of their deferred financing costs, at December 31, 2016 are as follows:
Years Ending December 31, | Contractual Maturities | Amortization of Deferred Financing Costs | ||||||
2017 | $ | 106,955,000 | $ | 1,178,000 | ||||
2018 | 109,407,000 | 3,000,000 | ||||||
2019 | 90,463,000 | 3,450,000 | ||||||
2020 | 20,679,000 | 809,000 | ||||||
2021 | 28,923,000 | 1,512,000 | ||||||
Thereafter | 30,640,000 | 1,687,000 | ||||||
$ | 387,067,000 | $ | 11,636,000 |
( 9 ) Series A Convertible Preferred Stock
From July 2011 until September 2012, we privately offered shares of Series A of GWG Holdings at $7.50 per share. In the offering, we sold an aggregate of 3,278,000 shares for gross consideration of $24,582,000. Holders of Series A are entitled to cumulative dividends at the rate of 10% per annum, paid quarterly. Dividends on the Series A are accumulating and are recorded as a reduction to additional paid-in capital. Under certain circumstances described in the Certificate of Designation for the Series A, additional Series A shares may be issued in lieu of cash dividends at the rate of $7.00 per share.
Holders of Series A are entitled to a liquidation preference equal to the stated value of their preferred shares (i.e., $7.50 per share) plus accrued but unpaid dividends. Holders of Series A may presently convert each share of their Series A into 0.75 shares of our common stock at a price of $10.00 per share.
As of December 31, 2016, we issued an aggregate of 473,000 shares of Series A in satisfaction of $3,310,000 in dividends on the Series A, and an aggregate of 696,000 shares of Series A were converted into 522,000 shares of our common stock. As of December 31, 2016, we had 2,640,000 Series A shares outstanding with respect to which we incurred aggregate issuance costs of $2,838,000, all of which is included as a component of additional paid-in capital.
Purchasers of Series A in our offering received warrants to purchase an aggregate of 431,954 shares of our common stock at an exercise price of $12.50 per share. The grant date fair value of these warrants was $428,000. As of December 31, 2016, none of these warrants were exercised, 69,000 warrants have expired. The weighted-average remaining life of these warrants was 0.56 and 1.43 years at December 31, 2016 and 2015, respectively.
F-13 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2014, we completed, at our discretion, a public offering of our common stock and, as a result, the Series A was reclassified from temporary equity to permanent equity. We may redeem Series A shares at a price equal to 110% of their liquidation preference ($7.50 per share) at any time. As of December 31, 2016, we have redeemed an aggregate of 277,000 shares of Series A.
( 10 ) Redeemable Preferred Stock
Beginning November 30, 2015, we began publicly offering up to 100,000 shares of Redeemable Preferred Stock (“RPS”) at $1,000 per share. 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. 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 Series A, 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 by such holder from us and still held by such holder.
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. Nevertheless, the Certificate of Designation for RPS permits us complete discretion to grant 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.
As of December 31, 2016, we had sold 59,183 shares of RPS for aggregate gross consideration of $59,025,000, and incurred approximately $4,134,000 of selling costs related to the sale of those shares.
At the time of its issuance, we determined that the RPS contained two embedded features: (1) optional redemption by the holder at our discretion and (2) optional conversion by the holder. We determined that each of the embedded features met the definition of a derivative and that the RPS should be considered an equity host for the purposes of assessing the embedded derivatives for potential bifurcation. Based on our assessment under ASC 470 “Debt” we do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate.
( 11 ) Series 2 Redeemable Preferred Stock
On February 14, 2017, our public offering up to 150,000 shares of Series 2 Redeemable Preferred Stock (“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, when payable, will be recorded as a reduction to additional paid-in capital. 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 Series A and 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.
Holders of RPS 2 may request that we redeem their RPS 2 at a price equal to their liquidation preference at a price equal to their stated value plus accrued but unpaid dividends, less an applicable redemption fee, if any. Nevertheless, the Certificate of Designation for RPS 2 permits us complete discretion to 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).
We have not sold any shares of RPS 2.
( 12 ) GWG MCA Capital, Inc - 9% Preferred Stock
Beginning March 31, 2016, GWG MCA began privately offering up to 2,000,000 shares of GWG MCA 9% Preferred Stock (“MCA Preferred”) at $10.00 per share. Holders of MCA Preferred are entitled to cumulative dividends at a rate of 9% per annum, paid monthly. Dividends on the MCA Preferred are included as interest expense in the statements of operations. As of December 31, 2016, a total of 7,155 shares of MCA Preferred had been sold for aggregate gross consideration of $72,000 and approximately $7,000 of selling costs related to the sale of these shares were incurred.
Holders of MCA Preferred were redeemed as of December 31, 2016 at the stated value of their shares plus accrued but unpaid dividends.
F-14 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 13 ) Income Taxes
We had a current income tax liability of $0 as of both December 31, 2016 and 2015. The components of deferred income tax expense (benefit) for 2016 and 2015, respectfully, consisted of the following:
Income tax provision: | 2016 | 2015 | ||||||
Deferred: | ||||||||
Federal | $ | 252,000 | $ | (2,660,000 | ) | |||
State | 81,000 | (850,000 | ) | |||||
Total income tax expense (benefit) | $ | 333,000 | $ | (3,510,000 | ) |
We provided a valuation allowance against the deferred tax asset related to a note receivable, which was charged-off for financial reporting purposes, because we believe that, when realized for tax purposes, it will result in a capital loss that will not be utilized because we have no expectation of generating a capital gain within the applicable carryforward period. Therefore, we do not believe that it is “more likely than not” that the deferred tax asset will be realized.
We also provided a valuation allowance against the deferred tax asset related to a tax basis capital loss generated with respect to our settlement and subsequent disposal of an earlier investment. As we have no expectation of generating capital gains with the applicable carryforward period, we do not believe that it is “more likely than not” that the deferred asset will be realized.
The primary differences between the December 31, 2016 effective tax rate and the statutory federal rate are state taxes, and other non-deductible expenses. The most significant temporary differences between GAAP net income and taxable net income are the treatment of interest costs with respect to the acquisition of the life insurance policies and revenue recognition with respect to the mark-to-market of our life insurance portfolio.
The following table provides a reconciliation of our income tax expense (benefit) at the statutory federal tax rate to our actual income tax expense (benefit):
2016 | 2015 | |||||||||||||||
Statutory federal income tax | $ | 247,000 | 34.0 | % | $ | (3,004,000 | ) | 34.0 | % | |||||||
State income taxes, net of federal benefit | 56,000 | 7.8 | % | (561,000 | ) | 6.3 | % | |||||||||
Other permanent differences | 30,000 | 4.2 | % | 55,000 | (0.6 | )% | ||||||||||
Total income tax expense | $ | 333,000 | 46.0 | % | $ | (3,510,000 | ) | 39.7 | % |
The tax effects of temporary differences that give rise to deferred income taxes were as follows:
2016 | 2015 | |||||||
Deferred tax assets : | ||||||||
Note receivable from related party | $ | 2,023,000 | $ | 2,023,000 | ||||
Net operating loss carryforwards | 10,781,000 | 7,049,000 | ||||||
Other assets | 1,130,000 | 375,000 | ||||||
Subtotal | 13,934,000 | 9,447,000 | ||||||
Valuation allowance | (2,164,000 | ) | (2,164,000 | ) | ||||
Deferred tax assets | 11,770,000 | 7,283,000 | ||||||
Deferred tax liabilities: | ||||||||
Investment in life insurance policies | (13,867,000 | ) | (9,046,000 | ) | ||||
Other | - | (1,000 | ) | |||||
Net deferred tax liability | $ | (2,097,000 | ) | $ | (1,764,000 | ) |
At December 31, 2016 and 2015, we had federal net operating loss (“NOL”) carryforwards of $26,642,000 and $17,451,000, respectively, and aggregate state NOL carryforwards of approximately $26,616,000 and $17,423,000, 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. We currently do not believe that any issuance of common stock has resulted in an ownership change under Section 382.
F-15 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We provide for a valuation allowance when it is not considered “more likely than not” that our deferred tax assets will be realized. At both December 31, 2016 and 2015 based upon all available evidence, we provided a valuation allowance of $2,164,000, against deferred tax assets related to the likelihood of recovering the tax benefit of a capital loss on a note receivable from a related entity and other capital losses. Management believes all other deferred tax assets are recoverable.
ASC 740 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 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 for all open years and 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, 2016.
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 December 31, 2016 and 2015, we recorded no accrued interest or penalties related to uncertain tax positions.
Our income tax returns for tax years ended December 31, 2013, 2014, 2015 and 2016, when filed, remain open to examination by the Internal Revenue Service and various state taxing jurisdictions. Our tax return for tax year 2012 has now been examined by the IRS (finalized April of 2015) but is open for examination by various state taxing jurisdictions.
( 14 ) 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.”
On June 24, 2015 we issued 60,000 restricted common shares at $9.70 per share, determined by the closing market price on the date of grant, to a vendor as payment for services to be rendered over three years. The cost of these shares is amortized over a 12-month period. On March 17, 2016, we issued an additional 6,500 restricted common shares at an average price of $7.16 per share, determined by the closing market price on the date of grant, to this same vendor for additional services provided to us. On April 25, 2016, we issued 25,000 restricted shares of common stock at $6.25 per share, determined by the closing market price on the date of grant, to a vendor as a form of payment for services the vendor is providing to us, which is expensed in the current period.
( 15 ) Stock Incentive Plan
We adopted our 2013 Stock Incentive Plan in March 2013. The Compensation Committee of our Board of Directors is responsible for the administration the plan. Incentives 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. 2,000,000 common shares are presently issuable under the plan.
In September 2014, we entered into a stock option agreement with a new management employee granting the employee the right to purchase up to 318,000 of our common stock at an exercise price of $12.50. The grant of such rights to purchase our common stock was treated as an inducement grant and was issued outside the GWG Holdings Inc. 2013 Stock Incentive Plan.
Through December 31, 2016, we had issued stock options for 2,048,000 shares of common stock to employees, officers, and directors under the plan. Options for 738,000 shares have vested, and the remaining options are scheduled to vest over three years. The options were issued with an exercise price between $6.35 and $10.18 for those beneficially owning more than 10% of our common stock, and between $6.00 and $10.25 for all others, which is equal to the estimated market price of the shares on the date of grant. The expected annualized volatility used in the Black-Scholes model valuation of options issued during the period was 25.9%. The annual volatility rate is based on the standard deviation of the average continuously compounded rate of return of five selected comparable companies over the previous 52 weeks. A forfeiture rate of 15% is based on historical information and expected future trend. As of December 31, 2016, stock options for 437,000 shares were forfeited and stock options for 28,000 shares were exercised.
F-16 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Outstanding stock options:
Vested | Un-vested | Total | ||||||||||
Balance as of December 31, 2014 | 314,288 | 685,813 | 1,000,101 | |||||||||
Granted during the year | 79,500 | 273,700 | 353,200 | |||||||||
Vested during the year | 238,999 | (238,999 | ) | - | ||||||||
Exercised during the year | (27,667 | ) | - | (27,667 | ) | |||||||
Forfeited during the year | (121,417 | ) | (150,602 | ) | (272,019 | ) | ||||||
Balance as of December 31, 2015 | 483,703 | 569,912 | 1,053,615 | |||||||||
Granted during the year | 22,500 | 608,350 | 630,850 | |||||||||
Vested during the year | 251,788 | (251,788 | ) | - | ||||||||
Forfeited during the year | (19,926 | ) | (82,140 | ) | (102,066 | ) | ||||||
Balance as of December 31, 2016 | 738,065 | 844,334 | 1,582,399 |
Compensation expense related to un-vested options not yet recognized is $525,000. We expect to recognize this compensation expense over the next three years ($265,000 in 2017, $157,000 in 2018, and $103,000 in 2019).
Stock Appreciation Rights (SARs) - On September 19, 2016 we issued SARs for 145,388 shares of the common stock to employees. The strike price of the SARs was $8.76, which was equal to the market price of the common stock at the close of business on September 19, 2016. 56,358 of the SARs were vested as of December 31, 2016, on which date the market price of the common stock was $8.82. A forfeiture rate of 15% was used in calculating our liability for the SARs.
Outstanding Stock Appreciation Rights:
Vested | Un-vested | Total | ||||||||||
Balance as of December 31, 2015 | - | - | - | |||||||||
Granted during the year | 106,608 | 133,127 | 239,735 | |||||||||
Forfeited during the year | - | - | - | |||||||||
Balance as of December 31, 2016 | 106,608 | 133,127 | 239,735 |
A liability for Stock Appreciation Rights - Compensation Expense was recorded on December 31, 2016 in the amount of $4,266 and Compensation Expense was charged for the same amount.
( 16 ) Net Loss per Common Share
We have outstanding Series A and RPS, as described in Notes 9 and 10. The Series A and RPS are anti-dilutive to our net loss attributable to common shareholders calculation for the years ended December 31, 2016 and December 31, 2015. We also issued warrants to purchase common stock in conjunction with the sale of Series A (see Note 9). Both those warrants and our vested stock options are anti-dilutive at December 31, 2016 and 2015 and have not been included in the fully diluted net loss per common share calculation.
( 17 ) Commitments
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 2026. Under the amended lease we are obligated to pay base rent plus common area maintenance and a share of building operating costs. Rent expenses under this agreement were $415,000 and $283,000 during 2016 and 2015, respectively.
Minimum lease payments under the amended lease are as follows:
2017 | 178,000 | |||
2018 | 185,000 | |||
2019 | 191,000 | |||
2020 | 198,000 | |||
2021 | 204,000 | |||
2022 | 210,000 | |||
2023 | 217,000 | |||
2024 | 223,000 | |||
2025 | 230,000 | |||
$ | 1,836,000 |
F-17 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 18 ) 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.
( 19 ) Guarantee of L Bonds
We are publicly offering and selling L Bonds under a registration statement declared effective by the SEC, as described in Note 8. Our obligations under the L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all our common stock held individually by our largest stockholders, and by a guarantee and corresponding grant of a security interest in substantially all the assets of GWG Life. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds. Substantially all of our life insurance policies are held by DLP III, DLP IV and the Trust. The policies held by DLP III and DLP IV are not collateral for the L Bond obligations as such policies serve as direct collateral for the senior credit facilities.
The consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantor and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of GWG Holdings or GWG Life, the guarantor subsidiary, to obtain funds from its subsidiaries by dividend or loan, except as described in these notes. A majority of insurance policies we own are subject to a collateral arrangement with LNV described in Note 6. Under this arrangement, collection and escrow accounts are used to fund premiums for the insurance policies and to pay interest and other charges under the senior credit facility.
The following represents consolidating financial information as of December 31, 2016 and December 31, 2015, with respect to the financial position, and as of December 31, 2016 and 2015, 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. The guarantor subsidiary column presents the financial information of GWG Life, the guarantor subsidiary of the L Bonds, presenting its investment in DLP III, 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 III, DLP IV and the Trust.
F-18 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Balance Sheets
December 31, 2016 | Parent | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
A S S E T S | ||||||||||||||||||||
Cash and cash equivalents | $ | 28,481,047 | $ | 49,360,952 | $ | 644,983 | $ | - | $ | 78,486,982 | ||||||||||
Restricted cash | - | 2,117,649 | 35,708,947 | - | 37,826,596 | |||||||||||||||
Investment in life insurance policies, at fair value | - | 41,277,896 | 469,914,458 | - | 511,192,354 | |||||||||||||||
Secured MCA advances | - | - | 5,703,147 | - | 5,703,147 | |||||||||||||||
Life insurance policy benefits receivable | - | - | 5,345,000 | - | 5,345,000 | |||||||||||||||
Other assets | 3,854,233 | 2,056,822 | 810,640 | (2,033,592 | ) | 4,688,103 | ||||||||||||||
Investment in subsidiaries | 429,971,148 | 352,337,037 | - | (782,308,185 | ) | - | ||||||||||||||
TOTAL ASSETS | $ | 462,306,428 | $ | 447,150,356 | $ | 518,127,175 | $ | (784,341,777 | ) | $ | 643,242,182 | |||||||||
L I A B I L I T I E S & S T O C K H O L D E R S' E Q U I T Y | ||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Senior credit facilities | $ | - | $ | - | $ | 156,064,818 | $ | - | $ | 156,064,818 | ||||||||||
Series I Secured Notes | - | 16,404,836 | - | - | 16,404,836 | |||||||||||||||
L Bonds | 381,312,587 | - | - | - | 381,312,587 | |||||||||||||||
Accounts payable | 853,470 | 731,697 | 641,545 | - | 2,226,712 | |||||||||||||||
Interest payable | 9,882,133 | 3,743,277 | 2,535,189 | - | 16,160,599 | |||||||||||||||
Other accrued expenses | 862,369 | 544,032 | 2,303,952 | (2,033,592 | ) | 1,676,761 | ||||||||||||||
Deferred taxes, net | 2,097,371 | - | - | - | 2,097,371 | |||||||||||||||
TOTAL LIABILITIES | 395,007,930 | 21,423,842 | 161,545,504 | (2,033,592 | ) | 575,943,684 | ||||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
Member capital | - | 425,726,514 | 356,581,671 | (782,308,185 | ) | - | ||||||||||||||
Convertible preferred stock | 19,701,133 | - | - | - | 19,701,133 | |||||||||||||||
Redeemable preferred stock | 59,025,164 | - | - | - | 59,025,164 | |||||||||||||||
Common stock | 5,980 | - | - | - | 5,980 | |||||||||||||||
Additional paid-in capital | 7,383,515 | - | - | - | 7,383,515 | |||||||||||||||
Accumulated deficit | (18,817,294 | ) | - | - | - | (18,817,294 | ) | |||||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 67,298,498 | 425,726,514 | 356,581,671 | (782,308,185 | ) | 67,298,498 | ||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 462,306,428 | $ | 447,150,356 | $ | 518,127,175 | $ | (784,341,777 | ) | $ | 643,242,182 |
F-19 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidating Balance Sheets (continued)
December 31, 2015 | Parent | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
A S S E T S | ||||||||||||||||||||
Cash and cash equivalents | $ | 32,292,162 | $ | 1,982,722 | $ | 150,221 | $ | - | $ | 34,425,105 | ||||||||||
Restricted cash | - | 2,102,257 | 239,643 | - | 2,341,900 | |||||||||||||||
Investment in life insurance policies, at fair value | - | - | 356,649,715 | - | 356,649,715 | |||||||||||||||
Other assets | 1,742,074 | 688,071 | 30,900 | - | 2,461,045 | |||||||||||||||
Investment in subsidiaries | 269,886,254 | 291,295,951 | - | (561,182,205 | ) | - | ||||||||||||||
TOTAL ASSETS | $ | 303,920,490 | $ | 296,069,001 | $ | 357,070,479 | $ | (561,182,205 | ) | $ | 395,877,765 | |||||||||
L I A B I L I T I E S & S T O C K H O L D E R S' E Q U I T Y | ||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Senior credit facilities | $ | - | $ | (1,000,000 | ) | $ | 64,279,596 | $ | - | $ | 63,279,596 | |||||||||
Series I Secured Notes | - | 23,287,704 | - | - | 23,287,704 | |||||||||||||||
L Bonds | 276,482,796 | - | - | - | 276,482,796 | |||||||||||||||
Accounts payable | 280,988 | 157,217 | 1,079,235 | - | 1,517,440 | |||||||||||||||
Interest payable | 8,529,959 | 3,544,626 | 265,476 | - | 12,340,061 | |||||||||||||||
Other accrued expenses | 717,365 | 343,421 | - | - | 1,060,786 | |||||||||||||||
Deferred taxes, net | 1,763,968 | - | - | - | 1,763,968 | |||||||||||||||
TOTAL LIABILITIES | 287,775,076 | 26,332,968 | 65,624,307 | - | 379,732,351 | |||||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
Member capital | - | 269,736,033 | 291,446,172 | (561,182,205 | ) | - | ||||||||||||||
Convertible preferred stock | 20,784,841 | - | - | - | 20,784,841 | |||||||||||||||
Common stock | 5,942 | - | - | - | 5,942 | |||||||||||||||
Additional paid-in capital | 14,563,834 | - | - | - | 17,149,391 | |||||||||||||||
Accumulated deficit | (19,209,203 | ) | - | - | - | (19,209,203 | ) | |||||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 16,145,414 | 269,736,033 | 291,446,172 | (561,182,205 | ) | 16,145,414 | ||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 303,920,490 | $ | 296,069,001 | $ | 357,070,479 | $ | (561,182,205 | ) | $ | 395,877,765 |
F-20 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations
For the year ended December 31, 2016 | Parent | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
REVENUE | ||||||||||||||||||||
Policy servicing fees | $ | - | $ | 13,417 | $ | - | $ | (13,417 | ) | $ | - | |||||||||
Gain on life insurance policies, net | - | 379,405 | 67,422,160 | - | 67,801,565 | |||||||||||||||
MCA income | - | - | 929,303 | - | 929,303 | |||||||||||||||
Interest and other income | 260,087 | 59,340 | 639,414 | (212,375 | ) | 746,466 | ||||||||||||||
TOTAL REVENUE | 260,087 | 452,162 | 68,990,877 | (225,792 | ) | 69,477,334 | ||||||||||||||
EXPENSES | ||||||||||||||||||||
Origination and servicing fees | - | - | 13,417 | (13,417 | ) | - | ||||||||||||||
Interest expense | 32,149,577 | 2,311,819 | 8,094,353 | (212,375 | ) | 42,343,374 | ||||||||||||||
Employee compensation and benefits | 6,874,368 | 4,358,406 | 551,522 | - | 11,784,296 | |||||||||||||||
Legal and professional fees | 2,107,053 | 1,628,408 | 211,915 | - | 3,947,376 | |||||||||||||||
Other expenses | 5,822,621 | 2,871,318 | 1,983,037 | - | 10,676,976 | |||||||||||||||
TOTAL EXPENSES | 46,953,619 | 11,169,951 | 10,854,244 | (225,792 | ) | 68,752,022 | ||||||||||||||
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES | (46,693,532 | ) | (10,717,789 | ) | 58,136,633 | - | 725,312 | |||||||||||||
EQUITY IN INCOME OF SUBSIDIARIES | 47,418,844 | 58,822,543 | - | (106,241,387 | ) | - | ||||||||||||||
NET INCOME BEFORE INCOME TAXES | 725,312 | 48,104,754 | 58,136,633 | (106,241,387 | ) | 725,312 | ||||||||||||||
INCOME TAX EXPENSE | 333,403 | - | - | - | 333,403 | |||||||||||||||
NET INCOME | 391,909 | 48,104,754 | 58,136,633 | (106,241,387 | ) | 391,909 | ||||||||||||||
Preferred stock dividends | (3,537,287 | ) | - | - | - | (3,537,287 | ) | |||||||||||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (3,145,378 | ) | $ | - | $ | - | $ | - | $ | (3,145,378 | ) |
For the year ended December 31, 2015 | Parent | Guarantor Subsidiary | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
REVENUE | ||||||||||||||||||||
Policy servicing fees | $ | - | $ | 2,217,471 | $ | - | $ | (2,217,471 | ) | $ | - | |||||||||
Gain on life insurance policies, net | - | - | 39,381,003 | - | 39,381,003 | |||||||||||||||
Interest and other income | 45,613 | 62,125 | 143,511 | 251,249 | ||||||||||||||||
TOTAL REVENUE | 45,613 | 2,279,596 | 39,524,514 | (2,217,471 | ) | 39,632,252 | ||||||||||||||
EXPENSES | ||||||||||||||||||||
Origination and servicing fees | - | - | 2,217,471 | (2,217,471 | ) | - | ||||||||||||||
Interest expense | 22,416,821 | 2,703,124 | 4,398,743 | - | 29,518,718 | |||||||||||||||
Employee compensation and benefits | 6,007,347 | 2,002,673 | - | - | 8,010,020 | |||||||||||||||
Legal and professional fees | 2,115,580 | 1,037,203 | - | - | 3,152,783 | |||||||||||||||
Other expenses | 4,295,085 | 3,347,294 | 141,971 | - | 7,784,350 | |||||||||||||||
TOTAL EXPENSES | 34,834,863 | 9,090,294 | 6,758,185 | (2,217,471 | ) | 48,465,871 | ||||||||||||||
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES | (34,789,250 | ) | (6,810,698 | ) | 32,766,329 | - | (8,833,619 | ) | ||||||||||||
EQUITY IN INCOME OF SUBSIDIARIES | 25,955,631 | 32,766,108 | - | (58,721,739 | ) | - | ||||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAXES | (8,833,619 | ) | 25,955,410 | 32,766,329 | (58,721,739 | ) | (8,833,619 | ) | ||||||||||||
INCOME TAX BENEFIT | (3,509,587 | ) | - | - | - | (3,509,587 | ) | |||||||||||||
NET INCOME (LOSS) | (5,324,032 | ) | 25,955,410 | 32,766,329 | (58,721,739 | ) | (5,324,032 | ) | ||||||||||||
Preferred stock dividends | (2,069,242 | ) | - | - | - | (2,069,242 | ) | |||||||||||||
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | (7,393,274 | ) | $ | - | $ | - | $ | - | $ | (7,393,274 | ) |
F-21 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows
For the year ended December 31, 2016 | Parent | Guarantor Sub | Non-Guarantor Sub | Eliminations | Consolidated | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
Net income (loss) | $ | 391,909 | $ | 48,104,754 | $ | 58,136,633 | $ | (106,241,387 | ) | $ | 391,909 | |||||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||||
(Equity) of subsidiaries | (47,418,845 | ) | (58,822,542 | ) | - | 106,241,387 | - | |||||||||||||
Gain on life insurance policies, gross | - | - | (48,988,406 | ) | - | (48,988,406 | ) | |||||||||||||
Amortization of deferred financing and issuance costs | 7,720,065 | (1,307,640 | ) | 2,032,827 | - | 8,445,252 | ||||||||||||||
Deferred income taxes | 333,402 | - | - | - | 333,402 | |||||||||||||||
Preferred stock issued in lieu of cash dividends | 689,742 | - | - | - | 689,742 | |||||||||||||||
Preferred stock dividends payable | 302,972 | - | - | - | 302,972 | |||||||||||||||
(Increase) decrease in operating assets: | ||||||||||||||||||||
Life insurance policy benefits receivable | - | - | (5,345,000 | ) | - | (5,345,000 | ) | |||||||||||||
Due from related parties | - | 1,169 | - | - | 1,169 | |||||||||||||||
Other assets | (112,725,117 | ) | (44,866,357 | ) | 19,683,919 | 114,884,593 | (23,022,962 | ) | ||||||||||||
Increase (decrease) in operating liabilities: | ||||||||||||||||||||
Due to related party | (2,033,592 | ) | - | 2,033,592 | - | - | ||||||||||||||
Accounts payable | 572,483 | 574,481 | (437,692 | ) | - | 709,272 | ||||||||||||||
Interest payable | 2,191,113 | 420,259 | 2,256,824 | - | 4,868,196 | |||||||||||||||
Other accrued expenses | 706,718 | 2,873,233 | (7,979,395 | ) | - | (4,399,444 | ) | |||||||||||||
NET CASH FLOWS USED IN OPERATING ACTIVITIES | (149,269,149 | ) | (53,022,643 | ) | 21,393,302 | 114,884,593 | (66,013,897 | ) | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
Investment in life insurance policies | - | - | (94,952,879 | ) | - | (94,952,879 | ) | |||||||||||||
Carrying value of matured life insurance policies | - | - | 10,992,624 | - | 10,992,624 | |||||||||||||||
Investment in Secured MCA advances | - | - | (8,727,924 | ) | - | (8,727,924 | ) | |||||||||||||
Proceeds from Secured MCA advances | - | - | 2,553,466 | - | 2,553,466 | |||||||||||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES | - | - | (90,134,713 | ) | - | (90,134,713 | ) | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||||||
Net borrowings on senior credit facilities | - | - | 97,713,952 | - | 97,713,952 | |||||||||||||||
Payments for redemption of Series I Secured Notes | - | (7,469,462 | ) | - | - | (7,469,462 | ) | |||||||||||||
Proceeds from issuance of L Bonds | 153,874,402 | - | - | - | 153,874,402 | |||||||||||||||
Payment of deferred issuance costs for L Bonds | (10,149,316 | ) | - | - | - | (10,149,316 | ) | |||||||||||||
Payments for redemption of L Bonds | (45,754,691 | ) | - | - | - | (45,754,691 | ) | |||||||||||||
Issuance of common stock | 244,185 | - | - | - | 244,185 | |||||||||||||||
Proceeds (payments) from restricted cash | - | (15,392 | ) | (35,469,305 | ) | - | (35,484,697 | ) | ||||||||||||
Proceeds from issuance of preferred stock | 57,040,946 | - | 71,555 | - | 57,112,501 | |||||||||||||||
Payments for issuance costs of preferred stock | (4,133,526 | ) | - | (7,340 | ) | - | (4,140,866 | ) | ||||||||||||
Payments for redemption of preferred stock | (2,126,678 | ) | - | (71,555 | ) | - | (2,198,233 | ) | ||||||||||||
Payments of preferred stock dividends | (3,537,288 | ) | - | - | - | (3,537,288 | ) | |||||||||||||
Issuance of member capital | - | 107,885,727 | 6,998,866 | (114,884,593 | ) | - | ||||||||||||||
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 145,458,034 | 100,400,873 | 69,236,173 | (114,884,593 | ) | 200,210,487 | ||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (3,811,115 | ) | 47,378,230 | 494,762 | - | 44,061,877 | ||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||
BEGINNING OF THE PERIOD | 32,292,162 | 1,982,722 | 150,221 | - | 34,425,105 | |||||||||||||||
END OF THE PERIOD | $ | 28,481,047 | $ | 49,360,952 | $ | 644,983 | $ | - | $ | 78,486,982 |
F-22 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows (continued)
For the year ended December 31, 2015 | Parent | Guarantor Sub | Non-Guarantor Sub | Eliminations | Consolidated | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||||||
Net income (loss) | $ | (5,324,032 | ) | $ | 25,955,410 | $ | 32,766,329 | $ | (58,721,739 | ) | $ | (5,324,032 | ) | |||||||
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||||||||
(Equity) of subsidiaries | (25,955,632 | ) | (32,766,107 | ) | - | 58,721,739 | - | |||||||||||||
Gain on life insurance policies, gross | - | - | (39,371,059 | ) | - | (39,371,059 | ) | |||||||||||||
Amortization of deferred financing and issuance costs | 4,081,051 | 362,457 | (731,452 | ) | - | 3,712,056 | ||||||||||||||
Deferred income taxes | (3,509,587 | ) | - | - | - | (3,509,587 | ) | |||||||||||||
Preferred stock issued in lieu of cash dividends | 683,133 | - | - | - | 683,133 | |||||||||||||||
Preferred stock dividends payable | 6,800 | - | - | - | 6,800 | |||||||||||||||
(Increase) decrease in operating assets: | ||||||||||||||||||||
Due from related parties | - | (1,256 | ) | - | - | (1,256 | ) | |||||||||||||
Life insurance policy benefits receivable | - | - | 1,750,000 | - | 1,750,000 | |||||||||||||||
Other assets | (58,689,451 | ) | (43,314,345 | ) | - | 101,699,270 | (304,526 | ) | ||||||||||||
Increase (decrease) in operating liabilities: | ||||||||||||||||||||
Accounts payable | (129,909 | ) | (85,463 | ) | 529,236 | - | 313,864 | |||||||||||||
Interest payable | 2,730,921 | 233,786 | (751,178 | ) | - | 2,213,529 | ||||||||||||||
Other accrued expenses | 2,059,136 | 149,242 | (24,985 | ) | - | 2,183,393 | ||||||||||||||
NET CASH FLOWS USED IN OPERATING ACTIVITIES | (84,047,570 | ) | (49,466,276 | ) | (5,833,109 | ) | 101,699,270 | (37,647,685 | ) | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||||||
Investment in life insurance policies | - | - | (38,906,934 | ) | - | (38,906,934 | ) | |||||||||||||
Proceeds from settlement of life insurance policies | - | - | 4,511,289 | - | 4,511,289 | |||||||||||||||
NET CASH FLOWS USED IN INVESTING ACTIVITIES | - | - | (34,395,645 | ) | - | (34,395,645 | ) | |||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||||||
Net repayment of senior credit facilities | - | - | (7,150,000 | ) | - | (7,150,000 | ) | |||||||||||||
Payments for redemption of Series I Secured Notes | - | (4,891,681 | ) | - | - | (4,891,681 | ) | |||||||||||||
Proceeds from issuance of L Bonds | 131,159,348 | - | - | - | 131,159,348 | |||||||||||||||
Payment of deferred issuance costs for L Bonds | (7,499,601 | ) | - | - | - | (7,499,601 | ) | |||||||||||||
Payments for redemption of L Bonds | (35,984,061 | ) | - | - | - | (35,984,061 | ) | |||||||||||||
Proceeds (payments) from restricted cash | - | (2,019,757 | ) | 3,973,910 | - | 1,954,153 | ||||||||||||||
Issuance of common stock | 582,000 | - | - | - | 582,000 | |||||||||||||||
Payments for redemption of preferred stock | (295,185 | ) | - | - | - | (295,185 | ) | |||||||||||||
Payments of preferred stock dividends | (2,069,242 | ) | - | - | - | (2,069,242 | ) | |||||||||||||
Issuance of member capital | - | 58,144,205 | 43,555,065 | (101,699,270 | ) | - | ||||||||||||||
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 85,893,259 | 51,232,767 | 40,378,975 | (101,699,270 | ) | 75,805,731 | ||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,845,689 | 1,766,491 | 150,221 | - | 3,762,401 | |||||||||||||||
CASH AND CASH EQUIVALENTS | ||||||||||||||||||||
BEGINNING OF THE PERIOD | 30,446,473 | 216,231 | - | - | 30,662,704 | |||||||||||||||
END OF THE PERIOD | $ | 32,292,162 | $ | 1,982,722 | $ | 150,221 | $ | - | $ | 34,425,105 |
F-23 |
GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
( 20 ) Concentration
We purchase life insurance policies written by life insurance companies having investment-grade ratings by independent 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 us.
As of December 31, | ||||||||
Life insurance company | 2016 | 2015 | ||||||
John Hancock | 14.36 | % | 12.73 | % | ||||
AXA Equitable | 13.42 | % | 14.00 | % | ||||
Lincoln National | 11.22 | % | * |
* percentage does not exceed 10% of the total face value.
The following summarizes the number of insurance policies held in specific states exceeding 10% of the total face value held by us:
As of December 31, | ||||||||
State of residence | 2016 | 2015 | ||||||
California | 20.72 | % | 25.25 | % | ||||
Florida | 19.42 | % | 19.95 | % |
( 21 ) Subsequent Events
Subsequent to December 31, 2016, eight policies covering seven individuals have matured. The combined insurance benefits of these policies were $15,975,000. We recorded realized gains of $13,956,000 on these seven policies.
Subsequent to December 31, 2016, we have issued approximately an additional $15,318,000 in principal amount of L Bonds.
Subsequent to December 31, 2016 we have issued approximately $16,871,000 of RPS.
On February 9, 2017, we declared a special cash dividend in the amount of $2.50 per share, payable on or about April 14, 2017, to the holders of RPS of record as of the close of business on April 5, 2017.
On February 14, 2017, we began a public offering of up to 150,000 shares of RPS 2 at $1,000 per share. As of the date of this report, we have not sold any shares of RPS 2.
Effective February 16, 2017, Paul Siegert, Director and Executive Chairman, voluntarily resigned from the Board of Directors. As part of his resignation, we agreed to repurchase Mr. Siegert’s 200,445 shares of GWG common stock for an aggregate of approximately $1.604 million. As a separation payment, Mr. Siegert will continue to receive his regular salary payments (annualized to approximately $201,000) through December 31, 2017 and he forfeited all options, both unvested and vested, to purchase shares of GWG common stock. Following his resignation, the Board of Directors appointed Mark Schwarzmann as a director of the Board and Jon Sabes was appointed Chairman of the Board.
( 22 ) Reclassification of Preferred Stock Dividends
For the quarter ended December 31, 2016, we identified an error relating to prior periods in the classification of preferred stock dividends on the consolidated statement of operations and balance sheet. Preferred stock dividends have been classified as interest expense since the third quarter of 2014, when our initial public offering became effective. As a result, dividend cost resulted in an increase of the accumulated deficit on the balance sheet. The preferred stock dividends should have been charged directly to additional paid-in capital and are separately reflected as preferred stock dividends on the consolidated statement of operations. The reclassification of preferred stock dividends did not result in any changes to total equity in any of the periods effected. Additionally, the reclassification did not result in any changes to net loss attributable to common shareholders or net loss per common share for the year ended December 31, 2015.
F-24 |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
There have been no changes in or disagreements with accountants on accounting and financial disclosure.
ITEM 9A. | 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.
As of December 31, 2016, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Securities Exchange Act of 1934 during the period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed 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. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 based on criteria for effective control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission, 2013 framework in “Internal Control—Integrated Framework.” Based on this assessment, our management concluded that, as of the evaluation date, we maintained effective internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION. |
None.
49 |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. | EXECUTIVE COMPENSATION AND RELATED-PARTY TRANSACTION DISCLOSURES. |
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS. |
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
Information in response to this Item is incorporated herein by reference to our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
50 |
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES. |
Documents filed as part of this Form 10-K:
Financial Statement Schedule:
Not applicable.
51 |
Exhibit Index
Exhibit | Description | |
3.1 | Certificate of Incorporation (1) | |
3.2 | Bylaws as amended (filed herewith) | |
3.3 | Certificate of Amendment to Certificate of Incorporation (3) | |
3.4 | Certificate of Designations for Series A Convertible Preferred Stock (3) | |
3.5 | Certificate of Amendment to Certificate of Incorporation (7) | |
3.6 | Certificate of Designation for Redeemable Preferred Stock (17) | |
3.7 | Certificate of Amendment to Certificate of Designation for Redeemable Preferred Stock (17) | |
3.8 | Certificate of Designation for Series 2 Redeemable Preferred Stock (20) | |
4.1 | Indenture with Bank of Utah, dated October 19, 2011 (5) | |
4.2 | Pledge and Security Agreement by and among GWG Holdings, Inc., GWG Life, LLC, Jon R. Sabes, Steven F. Sabes, and Bank of Utah, dated October 19, 2011 (5) | |
4.3 | Intercreditor Agreement by and among Bank of Utah, and Lord Securities Corporation, dated October 19, 2011 (5) | |
4.4 | Amendment No. 1 to Indenture with Bank of Utah, dated December 15, 2011 (6) | |
4.5 | Amendment No. 1 to Pledge and Security Agreement, dated December 15, 2011 (6) | |
4.6 | Amendment No. 2 to Indenture with Bank of Utah, dated January 9, 2015 (10) | |
4.7 | Amendment No. 1 to Intercreditor Agreement, dated January 9, 2015 (11) | |
4.8 | Amendment No. 2 to Pledge and Security Agreement, dated January 9, 2015 (11) | |
4.9 | Amendment No. 3 to Indenture with Bank of Utah, dated June 12, 2015 (12) | |
4.10 | Amendment No. 2 to Intercreditor Agreement, dated June 12, 2015 (12) | |
4.11 | Amendment No. 3 to Pledge and Security Agreement, dated June 12, 2015 (12) | |
4.12 | Form of Subscription Agreement for Redeemable Preferred Stock (16) | |
4.13 | Form of Subscription Agreement for Series 2 Redeemable Preferred Stock (19) | |
10.1 | Second Amended and Restated Credit and Security Agreement with DZ Bank AG Deutsche Zentral-Genossenschaftsbank (as agent), and Autobahn Funding Company LLC (as lender), dated effective May 11, 2015 (9) | |
10.2 | Amended and Restated Performance Guaranty of GWG Holdings, LLC dated as of May 11, 2015, delivered in favor of DZ Bank AG Deutsche Zentral-Genossenschaftsbank (as agent) and Autobahn Funding Company LLC (as lender) (9) | |
10.3 | Pledge Agreement dated November 15, 2010, among Jon R. Sabes, Steven F. Sabes, Opportunity Finance, LLC, SFS Trust 1976, SFS Trust 1992 Esther, SFS Trust 1982, Mokeson, LLC (collectively as pledgors), and Lord Securities Corporation (as trustee and pledgee) (3) | |
10.4 | Third Amended and Restated Note Issuance and Security Agreement dated November 1, 2011, with Lord Securities Corporation (as trustee), GWG LifeNotes Trust (as secured party), and noteholders (2) | |
10.5 | Amendment to Third Amended and Restated Note Issuance and Security Agreement, dated as of November 18, 2013, with Lord Securities Corporation (as trustee for the GWG LifeNotes Trust) (8) | |
10.6 | Loan and Security Agreement with GWG DLP Funding IV, LLC (as borrower), CLMG Corp. (as agent) and LNV Corporation (as lender), dated September 14, 2016 (18) | |
10.7 | Employment Agreement with Jon R. Sabes, dated June 14, 2011 (4) | |
10.8 | Employment Agreement with Steven F. Sabes, dated June 14, 2011 (4) | |
10.9 | Employment Agreement with Paul A. Siegert, dated June 14, 2011 (4) | |
10.10 | Employment Agreement with William B. Acheson, dated May 30, 2014 (13) | |
10.11 | Employment Agreement with Michael D. Freedman, dated September 22, 2014 (14) | |
10.12 | Stock Option Agreement with Michael D. Freedman, dated September 22, 2014 (14) | |
10.13 | 2013 Stock Incentive Plan (15) | |
10.14 | Form of Stock Option Agreement used with 2013 Stock Incentive Plan (13) | |
21 | List of Subsidiaries (filed herewith) | |
23.1 | Consent of Independent Registered Public Accounting Firm (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 Model Actuarial Pricing Systems, dated January 30, 2017 (filed herewith) | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Schema Document | |
101.CAL | XBRL Calculation Linkbase Document | |
101.DEF | XBRL Definition Linkbase Document | |
101.LAB | XBRL Label Linkbase Document | |
101.PRE | XBRL Presentation Linkbase Document |
(1) | Incorporated by reference to Form S-1 Registration Statement filed on June 14, 2011 (File No. 333-174887). |
(2) | Incorporated by reference to Post-Effective Amendment No. 8 to Form S-1/A filed on November 22, 2013 (File No. 333-174887). |
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(3) | Incorporated by reference to Form S-1/A Registration Statement filed on August 23, 2011 (File No. 333-174887). |
(4) | Incorporated by reference to Form S-1/A Registration Statement filed on September 20, 2011 (File No. 333-174887). |
(5) | Incorporated by reference to Form S-1/A Registration Statement filed on October 20, 2011 (File No. 333-174887). |
(6) | Incorporated by reference to Post-Effective Amendment No. 1 to Form S-1/A filed on April 30, 2012 (File No. 333-174887). |
(7) | Incorporated by reference to Quarterly Report on Form 10-Q filed on August 8, 2014. |
(8) | Incorporated by reference to Post-Effective Amendment No. 8 to Form S-1/A filed on November 22, 2013 (File No. 333-174887). |
(9) | Incorporated by reference to Post-Effective Amendment No. 3 to Form S-1/A filed on May 15, 2015 (File No. 333-197227). |
(10) | Incorporated by reference to Form S-1/A Registration Statement filed on November 4, 2014 (File No. 333-197227). |
(11) | Incorporated by reference to Form S-1/A Registration Statement filed on January 7, 2015 (File No. 333-197227). |
(12) | Incorporated by reference to Form S-1/A Registration Statement filed on June 12, 2015 (File No. 333-203879). |
(13) | Incorporated by reference to Form S-1/A Registration Statement filed on June 6, 2014 (File No. 333-195505). |
(14) | Incorporated by reference to Form S-1/A Registration Statement filed on December 19, 2014 (File No. 333-197227). |
(15) (16) |
Incorporated by reference to the registrant’s Definitive Proxy Statement filed on April 30, 2015. Incorporated by reference to Form S-1/A Registration Statement filed on October 23, 2015 (File No. 333-206626). |
(17) | Incorporated by reference to Annual Report on Form 10-K filed on March 22, 2016. |
(18) | Incorporated by reference to Current Report on Form 8-K filed on September 19, 2016. |
(19) | Incorporated by reference to Form S-1/A Registration Statement filed on February 7, 2017 (File No. 333-214896). |
(20) | Incorporated by reference to Current Report on Form 8-K filed on February 22, 2017. |
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Pursuant to the requirements of Section 13 or 15(d) 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: March 15, 2017 | By: | /s/ Jon R. Sabes |
Chief Executive Officer |
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below, as of March 15, 2017, by the following persons on behalf of the registrant and in the capacities indicated below.
Signature | Title | |
/s/ Jon R. Sabes | Chief Executive Officer, Director and Executive Chairman | |
Jon R. Sabes | (Principal Executive Officer) | |
/s/ William B. Acheson | Chief Financial Officer | |
William B. Acheson | (Principal Financial and Accounting Officer) | |
/s/ Steven F. Sabes | Executive Vice President, Director and Secretary | |
Steven F. Sabes | ||
/s/ Mark Schwarzmann | Director | |
Mark Schwarzmann | ||
/s/ David H. Abramson | Director | |
David H. Abramson | ||
/s/ Shawn R. Gensch | Director | |
Shawn R. Gensch | ||
/s/ Charles H. Maguire III | Director | |
Charles H. Maguire III | ||
/s/ Jeffrey L. McGregor | Director | |
Jeffrey L. McGregor |
54
Exhibit 3.2
BYLAWS
of
GWG HOLDINGS, INC.
(a Delaware corporation)
(as amended to and including June 2, 2015)
Article 1
Certain Definitions
As used in these Bylaws, unless the context otherwise requires, the term:
1.1 “Assistant Secretary” means an Assistant Secretary of the Corporation.
1.2 “Assistant Treasurer” means an Assistant Treasurer of the Corporation.
1.3 “Board” means the Board of Directors of the Corporation.
1.4 “Bylaws” means these Bylaws of the Corporation, as the same may be amended from time to time.
1.5 “Certificate of Incorporation” means the Certificate of Incorporation of the Corporation, as the same may be amended, supplemented or restated from time to time.
1.6 “Chief Executive Officer” means Chief Executive Officer of the Corporation.
1.7 “Chairman” means the Chairman of the Board of Directors of the Corporation.
1.8 “Corporation” means GWG Holdings, Inc.
1.9 “Directors” means directors of the Corporation.
1.10 “Entire Board” means all then-authorized directors of the Corporation.
1.11 “General Corporation Law” means Title 8, Chapter 1, of the Delaware Statutes (otherwise known as the General Corporation Law of the State of Delaware), as amended from time to time, together with any corresponding provisions of succeeding law.
1.12 “Office of the Corporation” means the principal executive office of the Corporation, anything in Section 131 of the General Corporation Law to the contrary notwithstanding.
1.13 “President” means the President of the Corporation.
1.14 “Secretary” means the Secretary of the Corporation.
1.15 “Stockholders” means stockholders of record of the Corporation.
1.16 “Treasurer” means the Treasurer of the Corporation.
1.17 “Vice President” means a Vice President of the Corporation.
Article
2
Stockholders
2.1 Place of Meetings. Every meeting of Stockholders may be held at such place, within or without the State of Delaware, as may be designated by resolution of the Board from time to time.
2.2 Annual Meeting. If required by applicable law, a meeting of Stockholders shall be held annually for the election of Directors at such date and time as may be designated by resolution of the Board from time to time. Any other business may be transacted at the annual meeting.
2.3 Special Meetings. Unless otherwise prescribed by applicable law, special meetings of Stockholders may be called at any time by the Entire Board, any two or more Directors, or the Chief Executive Officer, and, in addition, shall be called by the Chairman of the Board, the Chief Executive Officer or the Secretary at the request in writing of Stockholders owning not less than ten percent (10%) of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purposes of the proposed meeting. The officers or Directors shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting. Business transacted at any special meeting of Stockholders shall be limited to the purpose stated in the related notice.
2.4 Fixing Record Date. The Board may fix a record date for the purpose of (a) determining the Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders or any adjournment thereof, (ii) unless otherwise provided in the Certificate of Incorporation, to express consent to corporate action in writing without a meeting or (iii) to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock; or (b) any other lawful action. Any such record date shall not precede the date upon which the resolution fixing the record date was adopted by the Board and, unless otherwise required by applicable law, shall not be (x) in the case of clause (a)(i) above, more than 60 nor less than 10 days before the date of such meeting (unless applicable permits such a record date to be less than 10 days before the date of such meeting, in which case the Board may fix a record date in accordance with applicable law), (y) in the case of clause (a)(ii) above, more than 10 days after the date upon which the resolution fixing the record date was adopted by the Board and (z) in the case of clause (a)(iii) or (b) above, more than 60 days prior to such action. If no such record date is fixed, then:
2.4.1 the record date for determining Stockholders entitled to notice of or to vote at a meeting of Stockholders shall be at the close of business on the day immediately prior to the day on which notice is given, or, if notice is waived, at the close of business on the day immediately prior to the day on which the meeting is held;
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2.4.2 the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting (unless otherwise provided in the Certificate of Incorporation), when no prior action by the Board is required by applicable law, shall be the first day on which a written consent signed by a Stockholder and setting forth the action taken or proposed to be taken is delivered to the Corporation in accordance with applicable law; and when prior action by the Board is required by applicable law, the record date for determining Stockholders entitled to express consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action; and
2.4.3 the record date for determining Stockholders for any purpose other than those specified in Sections 2.4.1 and 2.4.2 shall be at the close of business on the day on which the Board adopts the resolution authorizing the subject corporate action. When a determination of Stockholders of record entitled to notice of or to vote at any meeting of Stockholders has been made as provided in this Section 2.4, such determination shall apply to any adjournment thereof unless the Board fixes a new record date for the adjourned meeting.
2.5 Notice of Meetings of Stockholders. Whenever under the provisions of applicable law, the Certificate of Incorporation or these Bylaws, Stockholders are required or permitted to take any action at a meeting, notice shall be given stating the place, if any, date and hour of the meeting, the means of remote communication, if any, by which Stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, notice of any meeting shall be given to each Stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. Notice may be mailed or given by electronic transmission. If mailed, such notice shall be deemed to be given when deposited in the United States mail, with postage prepaid, directed to the Stockholder at his, her or its address as it appears on the records of the Corporation. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent of the Corporation that the notice required by this Section 2.5 has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. If sent by electronic transmission, notice to a Stockholder shall be deemed to be given if by (i) telecopy (facsimile), when directed to a number at which the Stockholder has consented to receive notice, (ii) electronic mail, when directed to an electronic mail address at which the Stockholder has consented to receive notice, (iii) a posting on an electronic network together with a separate notice to the Stockholder of the specific posting, upon the later of (A) such posting and (B) the giving of the separate notice (which notice may be given in any of the manners provided above), or (iv) any other form of electronic transmission, when directed to the Stockholder. Any meeting of Stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted at the meeting as originally called. If, however, the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Stockholder of record entitled to vote at the meeting.
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2.6 Waivers of Notice. Whenever the giving of any notice to Stockholders is required by applicable law, the Certificate of Incorporation or these Bylaws, a waiver thereof, given by the person entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Stockholder at a meeting shall constitute a waiver of notice of such meeting except when the Stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders need be specified in any waiver of notice unless so required by applicable law, the Certificate of Incorporation or these Bylaws.
2.7 List of Stockholders. The Secretary shall prepare and make, at least 10 days before every meeting of Stockholders, a complete list of the Stockholders entitled to vote at the meeting, and showing the address of each Stockholder and the number of shares registered in the name of each Stockholder. Such list shall be open to the examination of any Stockholder, the Stockholder’s agent, or attorney, at the Stockholder’s expense, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting, during ordinary business hours at the Office of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Stockholder who is present. If the meeting is held solely by means of remote communication, the list shall also be open for examination as provided by applicable law. Except as provided by applicable law, the stock ledger shall be the only evidence as to who are the Stockholders entitled to examine the stock ledger, the list of Stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of Stockholders.
2.8 Quorum of Stockholders; Adjournment. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, at each meeting of Stockholders, the presence, in person or by proxy, of the holders of a majority in voting power of all outstanding shares of stock entitled to vote at the meeting shall constitute a quorum for the transaction of any business at such meeting. In the absence of a quorum, the holders of a majority in voting power of the shares of stock present in person or represented by proxy at any meeting of Stockholders, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.
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2.9 Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, every Stockholder entitled to vote at any meeting of Stockholders shall be entitled to one vote for each share of stock held by such Stockholder which has voting power upon the matter in question. At any meeting of Stockholders, all matters (except as otherwise provided by the Certificate of Incorporation, these Bylaws, the rules and regulations of any stock exchange or listing service applicable to the Corporation, applicable law or pursuant to any rules or regulations applicable to the Corporation or its securities) shall be decided by the affirmative vote of a majority in voting power of shares of stock present in person or represented by proxy and entitled to vote thereon; provided, however, that at all meetings of Stockholders for the election of Directors, a plurality of the votes cast shall be sufficient to elect each Director; and provided, further, that at all meetings of Stockholders at which a determination of when, or with what frequency, any votes (advisory or otherwise) may be taken on matters relating to executive compensation, such determination shall be made by reference to a plurality of the votes cast. Each Stockholder entitled to vote at a meeting of Stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person or persons to act for such Stockholder by proxy but no such proxy shall be voted or acted upon after 180 days from its date, unless the proxy is irrevocable. A proxy shall be irrevocable if it expressly states that it is irrevocable and if, and only so long as, it is coupled with an interest sufficient in law to support an irrevocable power. A Stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary a revocation of the proxy or by delivering a new proxy bearing a later date.
2.10 Voting Procedures and Inspectors of Election at Meetings of Stockholders. The Board, in advance of any meeting of Stockholders, may, and shall if required by applicable law, appoint one or more inspectors, who may be employees of the Corporation, to act at the meeting and make a written report thereof. The Board may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting, the person presiding at the meeting may, and shall if required by applicable law, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall (a) ascertain the number of shares outstanding and the voting power of each, (b) determine the shares represented at the meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of their duties. Unless otherwise provided by the Board, the date and time of the opening and the closing of the polls for each matter upon which the Stockholders will vote at a meeting shall be determined by the person presiding at the meeting and shall be announced at the meeting. No ballot, proxies or votes, or any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls unless state court of the State of Delaware, upon application by a Stockholder, shall determine otherwise. In determining the validity and counting of proxies and ballots cast at any meeting of Stockholders, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for office at an election may serve as an inspector at such election.
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2.11 Conduct of Meetings; Organization. Subject to Section 2.12 through 2.14 of these Bylaws, the Board may adopt by resolution such rules and regulations for the conduct of the meeting of Stockholders as it shall deem appropriate. Unless another officer is designated by the Board, at each meeting of Stockholders, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, the Chairman, or if there is no Chairman or if there be one and the Chairman is absent, a Vice President, and in case more than one Vice President shall be present, that Vice President designated by the Board (or in the absence of any such designation, the most senior Vice President, based on age, present), shall preside over the meeting. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the person presiding over any meeting of Stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such person, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting (subject to the requirements of Sections 2.12 and 2.13 of these Bylaws); (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to Stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the person presiding over the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding officer at any meeting of Stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding officer should so determine, such person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of Stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. The Secretary, or in his or her absence, one of the Assistant Secretaries, shall act as secretary of the meeting. In case none of the officers above designated to act as the person presiding over the meeting or as secretary of the meeting, respectively, shall be present, a person presiding over the meeting or a secretary of the meeting, as the case may be, shall be designated by the Board, and in case the Board has not so acted, in the case of the designation of a person to act as secretary of the meeting, designated by the person presiding over the meeting.
2.12 Order of Business. The order of business at all meetings of Stockholders shall be as determined by the person presiding over the meeting, subject, however, to the following provisions:
2.12.1 At any annual meeting of Stockholders, only such nominations of persons for election to the Board shall be made, and only such other business shall be conducted or considered, as shall have been properly brought before the meeting. For nominations to be properly made at an annual meeting, and proposals of other business to be properly brought before an annual meeting, nominations and proposals of other business must be (a) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly made at the annual meeting, by or at the direction of the Board or (c) otherwise properly requested to be brought before the annual meeting by a Stockholder in accordance with these Bylaws. For nominations of persons for election to the Board or proposals of other business to be properly requested by a Stockholder to be made at an annual meeting, a Stockholder must (i) be a Stockholder of record at the time of giving of notice of such annual meeting by or at the direction of the Board and at the time of the annual meeting, (ii) be entitled to vote at such annual meeting and (iii) comply with the procedures set forth in these Bylaws as to such business or nomination. The immediately preceding sentence shall be the exclusive means for a Stockholder to make nominations or other business proposals (other than matters properly brought under Rule 14a-8 or Rule 14a-11 under the Securities Exchange Act of 1934 (the “Exchange Act”), and included in the Corporation’s notice of meeting) before an annual meeting of Stockholders.
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2.12.2 At any special meeting of Stockholders, only such business shall be conducted or considered, as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting. To be properly brought before a special meeting, proposals of business must be (a) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board or (b) otherwise properly brought before the special meeting, by or at the direction of the Board. In this regard, Nominations of persons for election to the Board may be made at a special meeting of Stockholders at which Directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of the Board or (b) provided that the Board has determined that Directors shall be elected at such meeting, by any Stockholder who (i) is a Stockholder of record at the time of giving of notice of such special meeting and at the time of the special meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the procedures set forth in these Bylaws as to such nomination. The immediately preceding sentence shall be the exclusive means for a Stockholder to make nominations or other business proposals before a special meeting of Stockholders (other than matters properly brought under Rule 14a-8 or Rule 14a-11 under the Exchange Act and included in the Corporation’s notice of meeting).
2.12.3 Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presiding person at the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with these Bylaws and, if any proposed nomination or other business is not in compliance with these Bylaws, to declare that no action shall be taken on such nomination or other proposal and such nomination or other proposal shall be disregarded.
2.13 Advance Notice of Stockholder Business and Nominations.
2.13.1 Without qualification or limitation, but subject to Section 2.13.3(d) of these Bylaws, for any nominations or any other business to be properly brought before an annual meeting by a Stockholder pursuant to Section 2.12.1 of these Bylaws, the Stockholder must have given timely notice thereof (including, in the case of nominations, the completed and signed questionnaire, representation and agreement required by Section 2.14 of these Bylaws) and timely updates and supplements thereof in writing to the Secretary and such other business must otherwise be a proper matter for Stockholder action. To be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the Stockholder must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting, or the public announcement thereof, commence a new time period for the giving of a Stockholder’s notice as described above.
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Notwithstanding anything in the immediately preceding paragraph to the contrary, in the event that the number of Directors to be elected to the Board is increased by the Board, and there is no public announcement by the Corporation naming all of the nominees for Director or specifying the size of the increased Board at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a Stockholder’s notice required by this Section 2.13.1 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
In addition, to be timely, a Stockholder’s notice must further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is 10 business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight business days prior to the date for the meeting, any adjournment or postponement thereof in the case of the update and supplement required to be made as of 10 business days prior to the meeting or any adjournment or postponement thereof.
2.13.2 Subject to Section 2.13.3(d) of these Bylaws, in the event the Corporation calls a special meeting of Stockholders for the purpose of electing one or more Directors to the Board, any Stockholder may nominate a person or persons (as the case may be) for election to such position(s) to be elected as specified in the Corporation’s notice calling the meeting, provided that the Stockholder gives timely notice thereof (including the completed and signed questionnaire, representation and agreement required by Section 2.14 of these Bylaws) and timely updates and supplements thereof in writing to the Secretary. In order to be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to the date of such special meeting and not later than the close of business on the later of the 90th day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than 100 days prior to the date of such special meeting, the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting, or the public announcement thereof, commence a new time period for the giving of a Stockholder’s notice as described above.
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In addition, to be timely, a Stockholder’s notice must further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is 10 business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight business days prior to the date for the meeting, any adjournment or postponement thereof in the case of the update and supplement required to be made as of 10 business days prior to the meeting or any adjournment or postponement thereof.
2.13.3 To be in proper form, a Stockholder’s notice (whether given pursuant to Section 2.12.1 or 2.12.2 of these Bylaws) to the Secretary must include the following, as applicable.
(a) As to the Stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, a Stockholder’s notice must set forth: (i) the name and address of such Stockholder, as they appear on the Corporation’s books, of such beneficial owner, if any, and of their respective affiliates or associates or others acting in concert therewith, (ii) (A) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such Stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, or any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the Corporation, through the delivery of cash or other property, or otherwise, and without regard of whether the Stockholder of record, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation (any of the foregoing, a “Derivative Instrument”) directly or indirectly owned beneficially by such Stockholder, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such Stockholder has a right to vote any class or series of shares of the Corporation, (D) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Stockholder, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Stockholder with respect to any class or series of the shares of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Corporation (any of the foregoing, “Short Interests”), (E) any rights to dividends on the shares of the Corporation owned beneficially by such Stockholder that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such Stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (G) any performance-related fees (other than an asset-based fee) that such Stockholder is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, including without limitation any such interests held by members of such Stockholder’s immediate family sharing the same household, (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such Stockholder, and (I) any direct or indirect interest of such Stockholder in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), and (iii) any other information relating to such Stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement and form of proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of Directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;
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(b) If the notice relates to any business other than a nomination of a Director or Directors that the Stockholder proposes to bring before the meeting, a Stockholder’s notice must, in addition to the matters set forth in paragraph (a) above, also set forth: (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such Stockholder and beneficial owner, if any, in such business, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration), and (iii) a description of all agreements, arrangements and understandings between such Stockholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such Stockholder;
(c) As to each person, if any, whom the Stockholder proposes to nominate for election or reelection to the Board, a Stockholder’s notice must, in addition to the matters set forth in paragraph (a) above, also set forth: (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such Stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the Stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and
(d) With respect to each person, if any, whom the Stockholder proposes to nominate for election or reelection to the Board, a Stockholder’s notice must, in addition to the matters set forth in paragraphs (a) and (c) above, also include a completed and signed questionnaire, representation and agreement required by Section 2.14 of these Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent Director of the Corporation or that could be material to a reasonable Stockholder’s understanding of the independence, or lack thereof, of such nominee.
(e) For purposes of these Bylaws, “public announcement” shall mean disclosure in a press release reported by a regional or national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(f) Notwithstanding the provisions of these Bylaws, a Stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 2.12 of these Bylaws.
(g) Nothing in these Bylaws shall be deemed to affect any rights (i) of Stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act, (ii) of Stockholders to request inclusion of nominees in the Corporation’s proxy statement pursuant to Rule 14a-11 under the Exchange Act or (iii) of the holders of any series of preferred stock if and to the extent provided for under law, the Certificate of Incorporation or these Bylaws. Subject to Rule 14a-8 and Rule 14a-11 under the Exchange Act, nothing in these Bylaws shall be construed to permit any Stockholder, or give any Stockholder the right, to include or have disseminated or described in the Corporation’s proxy statement any nomination of Director or Directors or any other business proposal.
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2.14 Submission of Ouestionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a Director of the Corporation (or, in the case of a nomination brought under Rule 14a-11 of the Exchange Act, to serve as a Director of the Corporation), a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.13 of these Bylaws or, in the case of a nomination brought under Rule 14a-11 of the Exchange Act, prior to the time such person is to begin service as a Director) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request), and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a Director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a Director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a Director that has not been disclosed therein, and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a Director of the Corporation, and will comply with all applicable corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation publicly disclosed from time to time.
2.15 Written Consent of Stockholders Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required by the General Corporation Law to be taken at any annual or special meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered (by hand or by certified or registered mail, return receipt requested, or by electronic or remote communication) to the Office of the Corporation, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of Stockholders are recorded, or to any other officer or agent designated by the Board. Every written consent shall bear the date of signature of each Stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 2.13, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by applicable law, be given to those Stockholders who have not consented in writing, and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation.
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Article
3
Directors
3.1 General Powers. Except as otherwise provided in the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board. The Board may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these Bylaws or applicable law, as it may deem proper for the conduct of its meetings and the management of the Corporation.
3.2 Number; Qualification; Term of Office. The Board shall consist of at least three Directors and up to seven Directors, the precise number thereof to be determined from time to time by resolution of the Board. Except as provided in Section 3.3, Directors shall be elected at the annual meeting of Stockholders by a plurality of the votes cast in the applicable election, and each Director shall hold office until his or her successor is elected and qualified, or until the Director’s earlier death, resignation, disqualification or removal. Directors need not be Stockholders, and need not be residents of the State of Delaware.
3.3 Newly Created Directorships and Vacancies. Unless otherwise provided by applicable law or the Certificate of Incorporation, any newly created directorships resulting from an increase in the authorized number of Directors and any vacancies occurring in the Board for any cause may be filled by the affirmative vote of a majority of the remaining members of the Board, although less than a quorum, or by a sole remaining Director, or may be elected by a plurality of the votes cast by Directors at a Board meeting. A Director so elected shall hold office until the expiration of the term of office of the Director whom he or she has replaced, if applicable, or until a successor is elected and qualified, or until the Director’s earlier death, resignation or removal.
3.4 Resignation and Removal. Any Director may resign at any time by notice given in writing to the Corporation. Such resignation shall take effect at the time therein specified, and, unless otherwise specified in such resignation, the acceptance of such resignation shall not be necessary to make it effective. Any Director or the Entire Board may be removed at any time, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of Directors (considered for this purpose as one class) cast at a meeting of the Stockholders called for that purpose.
3.5 Regular Meetings. Regular meetings of the Board may be held without notice at such times and at such places within or without the State of Delaware as may be determined from time to time by resolution of the Board.
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3.6 Special Meetings. Special meetings of the Board may be held at such times and at such places within or without the State of Delaware whenever called by the Chairman, the Chief Executive Officer or the Secretary, or by any two or more Directors on at least 24 hours’ notice to each Director given by one of the means specified in Section 3.9 hereof other than by mail, or on at least three days’ notice if given by mail. Special meetings shall be called by the Chairman, Chief Executive Officer or Secretary in like manner and on like notice on the written request of any two or more of the Directors then serving as Directors.
3.7 Telephone Meetings. Directors or members of any committee designated by the Board may participate in a meeting of the Board or of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.7 shall constitute presence in person at such meeting.
3.8 Adjourned Meetings. A majority of the Directors present at any meeting of the Board, including an adjourned meeting, whether or not a quorum is present, may adjourn such meeting to another time and place. At least 24 hours’ notice of any adjourned meeting of the Board shall be given to each Director whether or not present at the time of the adjournment, if such notice shall be given by one of the means specified in Section 3.9 hereof other than by mail, or at least three days’ notice if by mail. Any business may be transacted at an adjourned meeting that might have been transacted at the meeting as originally called.
3.9 Notice Procedure. Subject to Sections 3.6 and 3.10 hereof, whenever under applicable law, the Certificate of Incorporation or these Bylaws, notice is required to be given to any Director, such notice shall be deemed given effectively if given in person or by telephone, by mail addressed to such Director at such Director’s address as it appears on the records of the Corporation, with postage thereon prepaid, or by telegram, telecopy (facsimile) or by other means of electronic transmission such as electronic mail.
3.10 Waiver of Notice. Whenever the giving of any notice to Directors is required by applicable law, the Certificate of Incorporation or these Bylaws, a waiver thereof, given by the Director entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting except when the Director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Directors or a committee of Directors need be specified in any waiver of notice unless so required by applicable law, the Certificate of Incorporation or these Bylaws.
3.11 Organization. At each meeting of the Board, the Chairman, or in the absence of the Chairman, the Chief Executive Officer, or in the absence of the Chief Executive Officer, the President, or in the absence of the President, a chairman chosen by a majority of the Directors present, shall preside. If present, the Secretary shall act as secretary at each meeting of the Board. In case the Secretary shall be absent from any meeting of the Board, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all Assistant Secretaries, the person presiding at the meeting may appoint any person to act as secretary of the meeting.
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3.12 Quorum of Directors. The presence in person of a majority of the Entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board.
3.13 Action by Majority Vote. Except as otherwise expressly required by applicable law, the Certificate of Incorporation or these Bylaws, the vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board.
3.14 Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all Directors or members of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee.
Article
4
Committees of the Board
The Board may, by resolution, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present at the meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may, by a unanimous vote, appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by applicable law and to the extent provided in the resolution of the Board designating such committee, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it. Unless otherwise specified in the resolution of the Board designating a committee, at all meetings of such committee, a majority of the then authorized members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings. Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article 3 of these Bylaws.
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Article
5
Officers
5.1 Positions. The officers of the Corporation shall include a Chief Executive Officer, a Secretary, a Treasurer and such other officers as the Board may elect, including a Chairman, President, one or more Vice Presidents and one or more Assistant Secretaries and Assistant Treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by resolution of the Board. The Board may elect one or more Vice Presidents as Executive Vice Presidents and may use descriptive words or phrases to designate the standing, seniority or areas of special competence of the Vice Presidents elected or appointed by it. Any number of offices may be held by the same person unless the Certificate of Incorporation or these Bylaws otherwise provide.
5.2 Election. The officers of the Corporation shall be elected by the Board at its annual meeting or at such other time or times as the Board shall determine.
5.3 Term of Office. Each officer of the Corporation shall hold office for the term for which he or she is elected and until such officer’s successor is elected and qualifies or until such officer’s earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Such resignation shall take effect at the date of receipt of such notice or at such later time as is therein specified, and, unless otherwise specified, the acceptance of such resignation shall not be necessary to make it effective. The resignation of an officer shall be without prejudice to the contractual rights of the Corporation, if any. Any officer may be removed at any time, with or without cause by the Board. Any vacancy occurring in any office of the Corporation may be filled by the Board. The removal of an officer with or without cause shall be without prejudice to the officer’s contract rights, if any. The election or appointment of an officer shall not of itself create contractual rights in favor of such officer.
5.4 Fidelity Bonds. The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise.
5.5 Chairman. The Chairman, if one shall have been appointed, shall preside at all meetings of the Board and shall exercise such powers and perform such other duties as shall be determined from time to time by resolution of the Board.
5.6 Chief Executive Officer. The Chief Executive Officer of the Corporation and shall have general supervision over the business of the Corporation, subject, however, to the control of the Board and of any duly authorized committee of the Board. Except as otherwise provided in Section 2.11, the Chief Executive Officer shall preside at all meetings of the Stockholders and shall also, if a Director, preside at all meetings of the Board at which the Chairman (if there be one) is not present. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts and other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed and, in general, the Chief Executive Officer shall perform all duties incident to the office of a Chief Executive Officer or President of a corporation and such other duties as may from time to time be assigned to the Chief Executive Officer by resolution of the Board.
5.7 President. The President, if any, shall have such powers and perform such duties as may be specified in these bylaws or prescribed by the Board. If the Chief Executive Officer is absent or disabled, the President shall succeed to the Chief Executive Officer’s powers and duties.
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5.8 Vice Presidents. At the request of the Chief Executive Officer or the President, or, in the absence of both the Chief Executive Officer and President, at the request of the Board, the Vice Presidents shall (in such order as may be designated by the Board, or, in the absence of any such designation, in order of seniority based on age) perform all of the duties of the Chief Executive Officer and, in so performing, shall have all the powers of, and be subject to all restrictions upon, the Chief Executive Officer. Any Vice President may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments, except in cases in which the signing and execution thereof shall be expressly delegated by resolution of the Board or by these Bylaws to some other officer or agent of the Corporation, or shall be required by applicable law otherwise to be signed or executed, and each Vice President shall perform such other duties as from time to time may be assigned to such Vice President by resolution of the Board or by the Chief Executive Officer or President.
5.9 Secretary. The Secretary shall attend all meetings of the Board and of the Stockholders and shall record all the proceedings of the meetings of the Board and of the Stockholders in a book to be kept for that purpose, and shall perform like duties for committees of the Board, when required. The Secretary shall give, or cause to be given, notice of all special meetings of the Board and of the Stockholders and shall perform such other duties as may be prescribed by the Board or by the Chief Executive Officer, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation, if any, and the Secretary, or an Assistant Secretary, shall have authority to affix the same on any instrument requiring it, and when so affixed, the seal may be attested by the signature of the Secretary or by the signature of such Assistant Secretary. The Board may, by resolution, give general authority to any other officer to affix the seal of the Corporation and to attest the same by such officer’s signature. The Secretary or an Assistant Secretary may also attest all instruments signed by the Chief Executive Officer, President or any Vice President. The Secretary shall have charge of all the books, records and papers of the Corporation relating to its organization and management, shall see that the reports, statements and other documents required by applicable law are properly kept and filed and, in general, shall perform all duties incident to the office of Secretary of a corporation and such other duties as may from time to time be assigned to the Secretary by resolution of the Board or by the Chief Executive Officer or President.
5.10 Treasurer. The Treasurer, who may also be the Chief Financial Officer, shall have charge and custody of, and be responsible for, all funds, securities and notes of the Corporation; receive and give receipts for moneys due and payable to the Corporation from any sources whatsoever; deposit all such moneys and valuable effects in the name and to the credit of the Corporation in such depositaries as may be designated by the Board; against proper vouchers, cause such funds to be disbursed by checks or drafts on the authorized depositaries of the Corporation signed in such manner as shall be determined by the Board and be responsible for the accuracy of the amounts of all moneys so disbursed; regularly enter or cause to be entered in books or other records maintained for the purpose full and adequate account of all moneys received or paid for the account of the Corporation; have the right to require from time to time reports or statements giving such information as the Treasurer may desire with respect to any and all financial transactions of the Corporation from the officers or agents transacting the same; render to the Chief Executive Officer or the Board, whenever the Chief Executive Officer or the Board shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all financial transactions of the Corporation; disburse the funds of the Corporation as ordered by the Board; and, in general, perform all duties incident to the office of Treasurer of a corporation and such other duties as may from time to time be assigned to the Treasurer by resolution of the Board or by the Chief Executive Officer.
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5.11 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers shall perform such duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by resolution of the Board or by the Chief Executive Officer.
Article
6
Indemnification
6.1 Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a Director or officer of the Corporation or, while a Director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity (an “Other Entity”), including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized by the Board.
6.2 Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by applicable law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article 6 or otherwise.
6.3 Actions by or in the Right of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation. No indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction to be liable to the Corporation or for amounts paid in settlement to the Corporation, unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction shall determine upon application that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. A person entitled to indemnification under this Section shall also be considered a “Covered Person” for all purposes of these Bylaws.
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6.4 Claims. If a claim for indemnification or advancement of expenses under this Article 6 is not paid in full within 30 days after a written claim therefor by the Covered Person has been received by the Corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.
6.5 Nonexclusivity of Rights. The rights conferred on any Covered Person by this Article 6 shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, the Bylaws, agreement, vote of Stockholders or disinterested Directors or otherwise.
6.6 Other Sources. The Corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of an Other Entity shall be reduced by any amount such Covered Person may collect as indemnification or advancement of expenses from such Other Entity.
6.7 Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article 6 shall not adversely affect any right or protection hereunder of any Covered Person in respect of any act or omission occurring prior to the time of such repeal or modification.
6.8 Other Indemnification and Prepayment of Expenses. This Article 6 shall not limit the right of the Corporation, to the extent and in the manner permitted by applicable law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.
Article
7
Certain Litigation Matters
Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article 7.
7.1 Exclusive Forum. Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for any claim or counterclaim, including without limitation (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s Stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law, or (iv) any action asserting a claim governed by the internal affairs doctrine, shall be a state or federal court located within the State of Delaware, in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants.
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Article
8
General Provisions
8.1 Certificates Representing Shares. Shares of the Corporation’s stock may be certificated or uncertificated, as provided under applicable law. Every holder of stock represented by certificates, and upon request every holder of uncertificated shares, shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman, if any, or the Chief Executive Officer, President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by such Stockholder in the Corporation. Any or all of the signatures upon a certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
8.2 Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agents and registry offices or agents at such place or places as may be determined from time to time by the Board.
8.3 Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
8.4 Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to applicable law.
8.5 Certain Acquisitions by Fiduciaries. The provisions of Sections 78.378 to 78.3793 of the General Corporation Law do not apply to (i) an acquisition by a person acting in a fiduciary capacity from another person acting in a fiduciary capacity for the same beneficiaries (and pursuant to the same instrument) or (ii) an acquisition by the spouse of a person acting in a fiduciary capacity or by a relative of such fiduciary within the first, second or third degree of consanguinity, provided that such acquisition is pursuant to the instrument creating such fiduciary relationship. For purposes of this section, “acquisition” has the meaning set forth in Section 78.3783 of the General Corporation Law, and the term “fiduciary” has the meaning set forth in the Uniform Fiduciaries Act as adopted in the State of Delaware.
19 |
8.6 Counting Time. For all purposes of these Bylaws, whenever reference is made herein to a “day” or “days,” such reference shall mean a calendar day. In addition, unless the General Corporation Law specifically requires otherwise, any and all weekend days shall also be considered days for purposes of these Bylaws. Notwithstanding the foregoing, if a due date for a particular action or a date for a meeting of the Board or members would otherwise fall on a federal holiday or weekend day, such due date or date for such meeting shall instead fall on the next business day.
8.7 Seal. The Board may provide for a corporate seal, in which case such corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
8.8 Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board and may be changed by the Board.
8.9 Amendments. These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board, but the Stockholders may make additional Bylaws and may alter and repeal any Bylaws whether adopted by them or otherwise.
11
Exhibit 21
List of Subsidiaries
The following are the registrant’s principal subsidiaries and jurisdictions of organization:
Actüa Life & Annuity Ltd. (Delaware) | |
GWG Life, LLC (Delaware) |
GWG DLP Funding III, LLC (Delaware)
GWG DLP Funding IV, LLC (Delaware)
GWG Life Trust (Utah)
GWG MCA Capital, Inc. (Delaware)
GWG Life USA, LLC (Delaware)
Wirth Park Agency, LLC (Delaware) |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following registration statements of our report dated March 15, 2017, with respect to the consolidated financial statements included in this Annual Report (Form 10-K) for the year ended December 31, 2016: Registration Statement Form S-1 (Nos. 333-197227 and 333-197227-01), and Registration Statement Form S-1 (No. 333-214896).
/s/ Baker Tilly Virchow Krause, LLP
Minneapolis, Minnesota
March 15, 2017
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Jon R. Sabes, certify that:
1. I have reviewed this annual report on Form 10-K 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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.
Date: March 15, 2017 | /s/ Jon R. Sabes |
Jon R. Sabes | |
Chief Executive Officer |
Exhibit 31.2
SECTION 302 CERTIFICATION
I, William B. Acheson, certify that:
2. I have reviewed this annual report on Form 10-K 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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.
Date: March 15, 2017 | /s/ William B. Acheson |
William B. Acheson | |
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 Annual Report of GWG Holdings, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon R. Sabes, Chief Executive Officer of the Company, and I, William B. Acheson, 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/ Jon R. Sabes | |
Jon R. Sabes | |
Chief Executive Officer | |
March 15, 2017 | |
/s/ William B. Acheson | |
William B. Acheson | |
Chief Financial Officer | |
March 15, 2017 |
Exhibit 99.1
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4350 East-West Hwy, Suite 900 Bethesda, MD 20814 +1 (847) 483-9401 |
January 30, 2017
Steven Sabes
Chief Operating Officer GWG Life
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
Steven:
You have asked that we prepare a quarterly valuation of a GWG portfolio of life insurance settlements. The valuations were prepared under the assumptions described below, which you provided in phone conversations and e- mails. We utilized the revised policy portfolio data you provided on 01/24/2017 to project potential cash flows monthly following the 12/31/2016 valuation date, based on the premiums and other values in the policy records provided.
Data Reliance
In preparing these valuations, we relied upon:
● | Policy Data – We have relied on the portfolio data file as provided to us by GWG Life. This file and the policy data contained in it are assumed to have been prepared accurately and reflect current company supported product performance. The 12/31/2016 file had 690 policies with total face amounts of $1,361,675,334, a net increase of 65 policies and net increase of $89,597,443 in face amount over the prior quarter. The 09/30/2016 file had 625 policies with total face amounts of $1,272,077,891. |
● | Future Premiums Data – We have relied on GWG Life’s data regarding the future premiums to be paid on each policy. It is our understanding that GWG Life uses the MAPS software package along with data gathered from the actual premium payments to the life insurance carriers for each policy for projecting future minimum premium streams. |
● | Life Expectancy, Values, plus any adjustments – We have relied on the life expectancy values provided by GWG Life. It is our understanding that GWG Life obtained these LE values using the following industry experts: 21st Services, AVS Underwriting, EMSI, Fasano Associates, ISC Services and/or Predictive Resources. |
Results
Using the assumptions stated below, we calculated the net present values as of the valuation dates using the specified discount rates of 10.96% and 7.30%. These results will be e-mailed to you in the Excel reports generated, including a Portfolio Summary and List of Policies, from the MAPS Portfolio valuation model.
GWG Portfolio as of 12/31/2016 | ||||||||||||||||||
Number of Policies | 690 | |||||||||||||||||
Total Net Death Benefit ($) | 1,361,675,334 | |||||||||||||||||
Discount Rate | 10.96 | % | 7.30 | % | 12.00 | % | 15.00 | % | ||||||||||
Expected Net Present Value ($) | 511,192,354 | 617,378,567 | 486,617,493 | 426,140,445 | ||||||||||||||
Stochastic Analysis – 10,000 Scenarios | ||||||||||||||||||
95th Percentile Net Present Value ($) | 477,514,636 | 583,619,025 | 453,083,592 | 393,158,999 | ||||||||||||||
95% CTE Net Present Value ($) | 469,737,941 | 575,517,921 | 445,371,316 | 385,639,793 |
Model Actuarial Pricing Systems, LP
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4350 East-West Hwy, Suite 900 Bethesda, MD 20814 +1 (847) 483-9401 |
The Expected Net Present Value is the probabilistic average value of the portfolio. These values are calculated actuarially; assuming that the amount of premiums paid and death benefits received are proportional to the probabilities of survival. Since death will occur at an unknown discrete point in time, the actual return for a policy, and a portfolio of policies, may vary significantly from the Expected Value.
The Stochastic analysis can return information about the range of values that might be achieved along with probabilities that the results might be better or worse than the Expected or a specified level. The Stochastic analysis creates random scenarios where a discrete date of death is independently projected for each life based on its mortality curve. The net present value of the portfolio for each scenario is calculated as the present value of projected death benefits minus the present value of projected premiums. The scenarios are ranked by value. The 95th Percentile Net Present Value is the portfolio value exceeded by 95% of the stochastic scenarios. The 95% CTE is the Contingent Tail Expectation for the 95th percentile, and is the average of the 5% of scenarios with the lowest net present value.
The valuations (1) do not include premiums paid before the valuation date, and (2) assume that the insured remains alive at the valuation date. The valuations also assume that the policy COIs and policy expense charges remain at current levels in the future. If these charges are increased, the projected values would decrease. The above values do not consider any federal income or other taxes.
Summary of MAPS Model Settings and Assumptions
We used the following assumptions as discussed with you:
● | Insurance Policy Characteristics: Per portfolio data file as provided. |
● | Policy Issue Date: Per portfolio data file as provided. |
● | Insured Date of Birth and Gender: Per portfolio data file as provided. |
● | Extended Death Benefit After Policy Maturity Age: Per portfolio data file as provided. |
● | Optimized Premium Levels and Timing: Monthly premiums unadjusted per the portfolio data file as provided. |
● | Per Policy and Portfolio Administrative Expenses: None, per the portfolio data file as provided. |
● | Collection of Death Benefit Delay: 0 months, with 0.00% statutory interest credited. |
● | Mortality: 2015 VBT Select & Ultimate Primary tables, by Age, Sex, and Tobacco Use. |
● | Age Basis: Age Nearest Birthday. |
● | Mortality Improvement: None. |
● | Life Expectancy: One blended LE and corresponding UW effective date per life in the portfolio data file as provided. |
● | Adjustment Applied to Stated LE: None. |
● | Improvement Used by Underwriters: No. |
● | Valuation Discount Interest Rates: 10.96% and 7.30% as specified, plus 12% and 15%. |
● | Number of Stochastic Scenarios: 10,000. |
● | Stochastic Random Seed input: 1234567 |
● | Stochastic Percentile Ranks and Contingent Tail Expectations: 95%, with additional reporting at 75%, 85%, 90%, 97%, and 99%. |
Notice on Mortality and Volatility
Parties engaged in life settlements commonly obtain and use "life expectancies" in their considerations. While life expectancies are provided for individuals, they are developed from expected patterns of mortality of large groups of similar individuals. No one knows exactly when any one individual will die, nor is a life expectancy intended to suggest the time until death will be near the life expectancy. Any one individual may live much longer than his or her estimated life expectancy or that projected by applying a mortality rating to any particular mortality table. Even for a large group of lives, the actual mortality for the group may be less than expected for a variety of reasons (such as improvements in medical technology, unanticipated general mortality improvement, or incorrect estimation of the life expectancy). Stochastic simulation and sensitivity testing can help to quantify these risks, but such tests should not be interpreted as a guarantee of any particular financial outcome. Investors will earn less than expected on the policy of any individual who lives longer than his life expectancy.
Background
Model Actuarial Pricing Systems, LP is a subsidiary of Cantor Fitzgerald (a leading global financial services firm) providing life settlement software and services worldwide to a variety of customers including life settlement brokers, providers, consultants and investors.
Since its inception in late 1990s, the MAPS Single Policy Valuation Model has been the industry standard life settlement valuation model for both single life and joint life insurance contracts. Incorporating sophisticated analysis and valuation algorithms, the MAPS Model transformed the life settlements industry by providing actuarially correct valuation of the premium and death benefit cash flows associated with a life settlement transaction.
Very truly yours,
/s/ Lisa Simms | |
Lisa Simms | |
Model Actuarial Pricing Systems, LP |
Model Actuarial Pricing Systems, LP
3(Q7.U=JG''<]S7/R,ZG4BCJ0V3TKG/'&I?V=X:N-K;9;C]RA^O4_EFG
M:==/<^*KESYJ(^GP2")\_*26SQV--
Document and Entity Information - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Mar. 15, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | GWG Holdings, Inc. | |
Entity Central Index Key | 0001522690 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Document Type | 10-K | |
Document Period End Date | Dec. 31, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | FY | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Public Float | $ 0 | |
Entity Common Stock, Shares Outstanding | 5,779,745 |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Convertible preferred stock Series A, par value | $ 0.001 | $ 0.001 |
Convertible preferred stock Series A, shares authorized | 40,000,000 | 40,000,000 |
Convertible preferred stock Series A, shares outstanding | 2,640,521 | 2,781,735 |
Convertible preferred stock Series A, liquidation preference | $ 19,804,000 | $ 20,863,000 |
Redeemable preferred stock, par value | $ 0.001 | |
Redeemable preferred stock, shares authorized | 100,000 | |
Redeemable preferred stock, shares outstanding | 59,183 | |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 210,000,000 | 210,000,000 |
Common stock, shares issued | 5,980,190 | 5,941,790 |
Common stock, shares outstanding | 5,980,190 | 5,941,790 |
Consolidated Statements of Operations - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
REVENUE | ||
Gain on life insurance policies, net | $ 67,801,565 | $ 39,381,003 |
MCA income | 929,303 | |
Interest and other income | 746,466 | 251,249 |
TOTAL REVENUE | 69,477,334 | 39,632,252 |
EXPENSES | ||
Interest expense | 42,343,374 | 29,518,718 |
Employee compensation and benefits | 11,784,296 | 8,010,020 |
Legal and professional fees | 3,947,376 | 3,152,783 |
Other expenses | 10,676,976 | 7,784,350 |
TOTAL EXPENSES | 68,752,022 | 48,465,871 |
INCOME (LOSS) BEFORE INCOME TAXES | 725,312 | (8,833,619) |
Income tax expense (benefit) | (333,403) | 3,509,587 |
NET INCOME (LOSS) | 391,909 | (5,324,032) |
Preferred stock dividends | (3,537,287) | (2,069,242) |
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ (3,145,378) | $ (7,393,274) |
NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS | ||
Basic | $ (0.53) | $ (1.25) |
Diluted | $ (0.53) | $ (1.25) |
WEIGHTED AVERAGE SHARES OUTSTANDING | ||
Basic | 5,967,274 | 5,906,761 |
Diluted | 5,967,274 | 5,906,761 |
Nature of Business and Summary of Significant Accounting Policies |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Nature of Business and Summary of Significant Accounting Policies [Abstract] | |
Nature of Business and Summary of Significant Accounting Policies | ( 1 ) Nature of Business and Summary of Significant Accounting Policies Nature of Business – We are a financial services company committed to finding new ways of disrupting and transforming the life insurance and related industries through innovative products and services, business processes, financing strategies, and advanced epigenetic technology. Historically, we have focused on creating opportunities for consumers to obtain significantly more value for their life insurance policies as compared to the traditional options offered by the insurance industry. As part of our business, we create opportunities for investors to receive income and capital appreciation from our various activities in the life insurance and related industries. Through its wholly owned subsidiaries, GWG Holdings, Inc. owns a portfolio of life insurance policies. As of the date of this report, our portfolio had an aggregate fair value of $511.2 million. We earn income from changes in the fair value of our portfolio and through the benefits we receive upon the mortality of insureds. GWG Holdings, Inc. and all of its subsidiaries are incorporated and organized in Delaware. Unless the context otherwise requires or we specifically so indicate, all references in these footnotes to “we,” “us,” “our,” “our Company,” “GWG,” or the “Company” refer to GWG Holdings, Inc. and its subsidiaries collectively and on a consolidated basis. References to the full names of particular entities, such as “GWG Holdings, Inc.” or “GWG Holdings,” are meant to refer only to the particular entity referenced. On September 30, 2015, GWG Holdings formed a wholly owned subsidiary, Wirth Park Agency, LLC. Wirth Park Agency was formed to convert term life insurance policies into universal, or permanent life insurance. Wirth Park Agency produces commission revenue through this activity. On December 7, 2015, GWG Holdings formed a wholly owned subsidiary, GWG MCA, LLC. On January 13, 2016, GWG MCA, LLC was converted to a corporation and became GWG MCA Capital, Inc. GWG MCA Capital, Inc. was formed to engage in the merchant cash advance business. On August 25, 2016, GWG Holdings formed a wholly owned subsidiary, Actüa Life & Annuity Ltd. to engage in various life insurance related businesses and activities. Use of Estimates – The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the 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, and various other factors that it believes to be reasonable under the circumstances. The actual results that we experience may differ materially and adversely from our estimates. The most significant estimates with regard to these consolidated financial statements relate to (1) the determination of the assumptions used in estimating the fair value of our investments in life insurance policies, and (2) the value of our deferred tax assets and liabilities. 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. Life Insurance Policies – ASC 325-30 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. Under the fair value method we recognize our initial investment at the purchase price. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as revenue in the current period net of premiums paid. We also recognize realized gain (revenue) 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, 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 values of the policy once we determine that collection of the policy benefits is realizable and 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 of our receipt of sale proceeds. 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 balance sheet until the acquisition is complete and we have secured title to the policy. On December 31, 2016 and 2015, a total of $42,000 and $31,000, respectively, of our “other assets” comprised direct costs and deposits that we advanced for policy acquisitions. Other Assets – Actüa Life & Annuity Ltd. (“Actüa”) is a new wholly-owned subsidiary of GWG Holdings engaged in various life insurance businesses and activities. In August 2016, Actüa entered into an exclusive option agreement with the Regents of the University of California to explore the use of predictive mortality forecasting using an epigenetic mortality predictor invented by Dr. Steve Horvath. The cost of entering into this exclusive option agreement is listed as “other assets.” Stock-Based Compensation: We measure and recognize compensation expense for all stock-based payments at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the weighted average fair value of options. For restricted stock grants, fair value is determined as the average price of our common stock on the date of grant. Equity-based compensation expense is recorded in 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 using an option-pricing model is affected by our stock price as well as by assumptions regarding 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 actual and projected employee stock option exercise behaviors. The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. 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 historical and expected future volatility of our stock. To date, we have not paid any dividends on our common stock. Forfeitures for both option and restricted stock grants are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates. Deferred Financing and Issuance Costs – Loans advanced to us under our senior credit facilities, as described in Notes 5 and 6, are reported net of financing costs, which include issuance costs, sales commissions and other direct expenses, which are amortized using the straight-line method over the term of the facility. The Series I Secured Notes and L Bonds, as respectively described in Notes 7 and 8, are reported net of financing costs, which are amortized using the interest method over the term of those borrowings. The Series A, as described in Note 9, is reported net of financing costs (including the fair value of warrants issued), all of which were fully amortized using the interest method as of December 31, 2016. Selling and issuance costs of RPS and Series 2 Redeemable Preferred Stock (“RPS 2”), described in Notes 10 and 11, are netted against additional paid-in-capital. 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 outstanding Series A, RPS, warrants and stock options. Due to our net loss for years ended December 31, 2016 and 2015, there are no dilutive securities. Recently Adopted Pronouncements – On April 7, 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), as part of its simplification initiative. ASU 2015-03 changes the presentation of debt issuance costs by presenting those costs in the balance sheet as a direct deduction from the related debt liability. Amortization of the costs is reported as interest expense. We adopted ASU 2015-03 effective January 1, 2016, as required for public reporting entities. On February 25, 2016, the FASB issued ASU 2016-02 Leases ("ASU 2016-02"). The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 provides more transparency and comparability in the financial statements of lessees by recognizing all leases with a term greater than twelve months on the balance sheet. Leasees will also be required to disclose key information about their leases. Early adoption is permitted. We have not adopted ASU 2016-02 as of December 31, 2016. |
Restrictions on Cash |
12 Months Ended |
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Dec. 31, 2016 | |
Restrictions on Cash [Abstract] | |
Restrictions on Cash | ( 2 ) Restrictions on Cash
Under the terms of our senior credit facilities (discussed in Notes 5 and 6), we are required to maintain collection and escrow accounts that are used to fund the acquisition of policies, pay annual policy premiums, pay interest and other charges under the facility, and collect policy benefits. The agent for the lender authorizes the disbursements from these accounts. At December 31, 2016 and December 31, 2015, there was a balance of $37,827,000, and $2,342,000, respectively, in these restricted cash accounts. |
Investment in Life Insurance Policies |
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Investment in Life Insurance Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment in Life Insurance Policies | ( 3 ) Investment in Life Insurance Policies
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 are recorded as gain or loss on life insurance policies, net of cash premiums paid on those policies, in our 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, assumptions relating to cost-of-insurance (premium) rates and other assumptions. The discount rate we apply incorporates current information about discount rate applied by other reporting companies owning portfolios of life insurance policies, the discount rates observed in the life insurance secondary market, market interest rates, the credit exposure to the insurance companies that issued the life insurance policies and management’s estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole. As a result of management’s analysis, discount rates of 10.96% and 11.09% were applied to our portfolio as of December 31, 2016 and December 31, 2015, respectively.
A summary of our policies, organized according to their estimated life expectancy dates as of the dates indicated, is as follows:
We recognized life insurance benefits of $48,452,000 and $31,232,000 during 2016 and 2015, respectively, related to policies with a carrying value of $10,993,000 and $4,511,000, respectively, and as a result recorded realized gains of $37,459,000 and $26,721,000.
Reconciliation of gain on life insurance policies:
We currently estimate that 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:
Management anticipates funding the premium payments estimated above with proceeds from our senior credit facilities, proceeds from additional debt and equity financing, and proceeds from maturities of life insurance policies. The proceeds of these capital sources may also be used for the purchase, financing, and maintenance of additional life insurance policies. |
Fair Value Definition and Hierarchy |
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Fair Value Definition and Hierarchy [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Definition and Hierarchy | ( 4 ) Fair Value Definition and Hierarchy
ASC 820 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 developed 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.
The hierarchy is broken down into three levels based on the observability of inputs as follows:
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 our portfolio management committee, taking into consideration 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 rate applied by other reporting companies owning portfolios of life insurance policies, the discount rates observed in the life insurance secondary market, market interest rates, the credit exposure to the insurance company that issued the life insurance policy and management’s estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole.
These inputs are then used to estimate the discounted cash flows from the portfolio using the Model Actuarial Pricing System probabilistic portfolio price model, which estimates the cash flows using various mortality probabilities and scenarios. The valuation process includes a review by senior management as of each valuation date. We also engage a third-party expert to independently test the accuracy of the valuations using the inputs we provide on a quarterly basis. See Exhibit 99.1 filed herewith.
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 December 31, as follows:
In the past, we periodically updated the independent life expectancy estimates on the insured lives in our portfolio, other than insured lives covered under small face amount policies (i.e., $1 million in face value benefits or less), on a continuous rotating three-year cycle, and through that effort attempted to update life expectancies for approximately one-twelfth of our portfolio each quarter. Nevertheless, the terms of our senior credit facility with LNV Corporation currently requires us to attempt to update life expectancies on a rotating two-year cycle.
The following table summarizes the inputs utilized in estimating the fair value of our portfolio of life insurance policies:
These assumptions are, by their nature, 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%, while all other variables were 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
Other Fair Value Considerations
The carrying value of 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 Series I Secured Notes and L Bonds, having a combined aggregate face value of $403,681,000 as of December 31, 2016, is approximately $414,419,000 based on a weighted-average market interest rate of 6.45%. The carrying value of the senior credit facilities reflects interest charged at the commercial paper rate or 12-month LIBOR, as applicable, 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 market, and the carrying value of the facility approximates fair value.
GWG MCA participates 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 advances and loans, and determine if an impairment reserve is necessary. At December 31, 2016 one of our secured loans was potentially impaired. The secured loan to Nulook Capital LLC had an outstanding balance of $2,527,000 and a loan loss reserve of $600,000 at December 31, 2016. We deem fair value to be the estimated collectible value on each loan or advance made from GWG MCA. Where we estimate the collectible amount to be less than the outstanding balance, we record a reserve for the difference.
The following table summarizes outstanding warrants as of December 31, 2016:
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Credit Facility - Autobahn Funding Company LLC |
12 Months Ended |
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Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
Credit Facility - Autobahn Funding Company LLC | ( 5 ) Credit Facility – Autobahn Funding Company LLC
Through DLP III, we are party to a $105 million senior credit facility with Autobahn Funding Company LLC (“Autobahn”), with a maturity date of June 30, 2018. The facility is governed by a Credit and Security Agreement (the “Agreement”), and DZ Bank AG Deutsche Zentral-Genossenschaftsbank (“DZ Bank”) acts as the agent for Autobahn under the Agreement. On September 14, 2016, we paid off the senior credit facility in full with funds received from a new senior credit facility with LNV Corporation as described in Note 6.
Advances under the facility bear interest at a commercial paper rate of the lender at the time of the advance, or at the lender’s cost of borrowing plus 4.25%. We make interest payments on a monthly basis. The effective rate of interest was 5.42% at September 14, 2016 and 5.58% at December 31, 2015.
The amount outstanding under this facility was $0 and $65,011,000 at December 31, 2016 and December 31, 2015, respectively. GWG Holdings is a performance guarantor of the various obligations of GWG Life, as servicer, under the Agreement. Obligations under the facility are secured by our pledge of ownership in our life insurance policies to DZ Bank through an arrangement under which Wells Fargo serves as a securities intermediary.
The Agreement has certain financial (as described below) and nonfinancial covenants, and we were in compliance with these covenants at both December 31, 2016 and 2015.
We have agreed to maintain (i) a positive consolidated net income on a non-GAAP basis (as defined and calculated under the Agreement) for each complete fiscal year, (ii) a tangible net worth on a non-GAAP basis (again, as defined and calculated under the Agreement) of not less than $45 million, and (iii) maintain cash and eligible investments of $15 million or above.
Consolidated non-GAAP net income and non-GAAP tangible net worth as of and for the four quarters ended December 31, 2016, as calculated under the Agreement, was $38,642,000 and $182,514,000, respectively.
Total funds available for additional borrowings under the facility at December 31, 2016 and 2015, were $0 and $39,989,000, respectively. |
Credit Facility - CSG Investments, Inc. |
12 Months Ended |
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Dec. 31, 2016 | |
Investments, Debt and Equity Securities [Abstract] | |
Credit Facility - CSG Investments, Inc. | ( 6 ) Credit Facility – CSG Investments, Inc.
On September 14, 2016, we entered into a senior credit facility with LNV Corporation as lender through our subsidiary GWG DLP Funding IV, LLC (“DLP IV”). The facility is governed by a Loan and Security Agreement (the “Loan Agreement”), with CLMG Corp. acting as administrative agent on behalf of the lenders under the Loan Agreement. The Loan Agreement makes available a total of up to $172,300,000 in credit with a maturity date of September 14, 2026. Additional quarterly advances are available under the Loan Agreement at the LIBOR rate as defined by the lender. Interest will accrue on amounts borrowed under the agreement at an annual interest rate, determined as of each date of borrowing or quarterly if there is no borrowing, equal to (A) the greater of 12-month LIBOR or the federal funds rate (as defined in the agreement) plus one-half of one percent per annum, plus (B) 5.75% per annum. Interest payments are made on a quarterly basis.
The amount outstanding under this facility was $162,725,000 at December 31, 2016. Obligations under the facility are secured by a security interest in DLP IV’s assets, for the benefit of the lenders under the Loan Agreement, through an arrangement under which Wells Fargo serves as security intermediary. The life insurance policies owned by DLP IV do not serve as direct collateral for the obligations of GWG Holdings under its L Bonds or Series I Secured Notes. The difference between the outstanding balance as of December 31, 2016 and the carrying amount relates to unamortized debt issuance costs.
The Loan Agreement requires DLP IV to maintain a reserve account in an amount sufficient to pay 12 months of servicing, administrative and third party expenses identified under the Loan Agreement, and 12 months of debt service as calculated under the Loan Agreement. As of December 31, 2016, the amount set aside in the reserve account was $27,500,000.
The Agreement has certain financial and nonfinancial covenants, and we were in compliance with these covenants at December 31, 2016.
Total funds available for additional borrowings under the facility at December 31, 2016 was $0. |
Series I Secured Notes |
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Series I Secured Notes | ( 7 ) Series I Secured Notes
Series I Secured Notes (“Series I”) are legal obligations of GWG Life and were privately offered and sold from August 2009 through June 2011. The Series I are secured by the assets of GWG Life and are subordinate to obligations under our senior credit facilities (see Notes 5 and 6). We are party to a Third Amended and Restated Note Issuance and Security Agreement dated November 1, 2011, as amended, under which GWG Life is obligor, GWG Holdings is guarantor, and Lord Securities Corporation serves as trustee of the GWG Life Trust (“Trust”). This agreement contains certain financial and non-financial covenants, and we were in compliance with these covenants at both December 31, 2016 and 2015.
The Series I were sold with original maturity dates ranging from six months to seven years, and with fixed interest rates varying from 5.65% to 9.55% depending on the term of the note. The Series I 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. Effective September 1, 2016, we no longer renew the Series I.
Interest on the Series I is payable monthly, quarterly, annually or at maturity depending on the election of the investor. At December 31, 2016 and 2015, the weighted-average interest rate of our Series I was 8.68% and 8.47%, respectively. The principal amount of Series I outstanding was $16,614,000 and $23,578,000 at December 31, 2016 and 2015, respectively. The difference between the amount outstanding on the Series I and the carrying amount on our balance sheet is due to netting of unamortized deferred issuance costs. Overall, interest expense includes amortization of deferred financing and issuance costs of $332,000 and $362,000 in 2016 and 2015, respectively. Future expected amortization of deferred financing costs is $209,000 in total over the next five years.
Future contractual maturities of Series I payable and future amortization of their deferred financing costs at December 31, 2016 are as follows:
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L Bonds |
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L Bonds | ( 8 ) L Bonds
Our L Bonds are legal obligations of GWG Holdings. Obligations under the L Bonds are secured by the assets of GWG Holdings and by GWG Life, as a guarantor, and are subordinate to the obligations under our senior credit facilities (see Notes 5 and 6). 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. 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. The Indenture contains certain financial and non-financial covenants, and we were in compliance with these covenants at December 31, 2016 and 2015.
Effective September 1, 2016, we ceased selling 6-month and 1-year L Bonds until further notice. In addition, effective September 1, 2016, the L Bond interest rates changed to 5.50%, 6.25%, 7.50% and 8.50% for the 2-, 3-, 5- and 7-year L Bonds, respectively. 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 December 31, 2016 and 2015, the weighted-average interest rate of our L Bonds was 7.23% and 7.16%, respectively. The principal amount of L Bonds outstanding was $387,067,000 and $282,171,000 at December 31, 2016 and 2015, respectively. The difference between the amount of outstanding L Bonds and the carrying amount on our balance sheets is due to netting of unamortized deferred issuance costs and cash receipts for new issuances in process. Amortization of deferred issuance costs was $7,099,000 and $5,285,000 in 2016 and 2015, respectively. Future expected amortization of deferred financing costs as of December 31, 2016 is $11,636,000 in total over the next eight years.
Future contractual maturities of L Bonds, and future amortization of their deferred financing costs, at December 31, 2016 are as follows:
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Series A Convertible Preferred Stock |
12 Months Ended |
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Dec. 31, 2016 | |
Equity [Abstract] | |
Series Convertible Preferred Stock | ( 9 ) Series A Convertible Preferred Stock
From July 2011 until September 2012, we privately offered shares of Series A of GWG Holdings at $7.50 per share. In the offering, we sold an aggregate of 3,278,000 shares for gross consideration of $24,582,000. Holders of Series A are entitled to cumulative dividends at the rate of 10% per annum, paid quarterly. Dividends on the Series A are accumulating and are recorded as a reduction to additional paid-in capital. Under certain circumstances described in the Certificate of Designation for the Series A, additional Series A shares may be issued in lieu of cash dividends at the rate of $7.00 per share.
Holders of Series A are entitled to a liquidation preference equal to the stated value of their preferred shares (i.e., $7.50 per share) plus accrued but unpaid dividends. Holders of Series A may presently convert each share of their Series A into 0.75 shares of our common stock at a price of $10.00 per share.
As of December 31, 2016, we issued an aggregate of 473,000 shares of Series A in satisfaction of $3,310,000 in dividends on the Series A, and an aggregate of 696,000 shares of Series A were converted into 522,000 shares of our common stock. As of December 31, 2016, we had 2,640,000 Series A shares outstanding with respect to which we incurred aggregate issuance costs of $2,838,000, all of which is included as a component of additional paid-in capital.
Purchasers of Series A in our offering received warrants to purchase an aggregate of 431,954 shares of our common stock at an exercise price of $12.50 per share. The grant date fair value of these warrants was $428,000. As of December 31, 2016, none of these warrants were exercised, 69,000 warrants have expired. The weighted-average remaining life of these warrants was 0.56 and 1.43 years at December 31, 2016 and 2015, respectively. In September 2014, we completed, at our discretion, a public offering of our common stock and, as a result, the Series A was reclassified from temporary equity to permanent equity. We may redeem Series A shares at a price equal to 110% of their liquidation preference ($7.50 per share) at any time. As of December 31, 2016, we have redeemed an aggregate of 277,000 shares of Series A. |
Redeemable Preferred Stock |
12 Months Ended |
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Dec. 31, 2016 | |
Equity [Abstract] | |
Redeemable Preferred Stock | ( 10 ) Redeemable Preferred Stock
Beginning November 30, 2015, we began publicly offering up to 100,000 shares of Redeemable Preferred Stock (“RPS”) at $1,000 per share. 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. 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 Series A, 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 by such holder from us and still held by such holder.
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. Nevertheless, the Certificate of Designation for RPS permits us complete discretion to grant 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.
As of December 31, 2016, we had sold 59,183 shares of RPS for aggregate gross consideration of $59,025,000, and incurred approximately $4,134,000 of selling costs related to the sale of those shares.
At the time of its issuance, we determined that the RPS contained two embedded features: (1) optional redemption by the holder at our discretion and (2) optional conversion by the holder. We determined that each of the embedded features met the definition of a derivative and that the RPS should be considered an equity host for the purposes of assessing the embedded derivatives for potential bifurcation. Based on our assessment under ASC 470 “Debt” we do not believe bifurcation of either the holder’s redemption or conversion feature is appropriate. |
Series 2 Redeemable Preferred Stock |
12 Months Ended |
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Dec. 31, 2016 | |
Series 2 Redeemable Preferred Stock [Abstract] | |
Series 2 Redeemable Preferred Stock | ( 11 ) Series 2 Redeemable Preferred Stock
On February 14, 2017, our public offering up to 150,000 shares of Series 2 Redeemable Preferred Stock (“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, when payable, will be recorded as a reduction to additional paid-in capital. 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 Series A and 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.
Holders of RPS 2 may request that we redeem their RPS 2 at a price equal to their liquidation preference at a price equal to their stated value plus accrued but unpaid dividends, less an applicable redemption fee, if any. Nevertheless, the Certificate of Designation for RPS 2 permits us complete discretion to 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).
We have not sold any shares of RPS 2. |
GWG MCA Capital, Inc - 9% Preferred Stock |
12 Months Ended |
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Dec. 31, 2016 | |
Equity [Abstract] | |
GWG MCA Capital, Inc - 9% Preferred Stock | ( 12 ) GWG MCA Capital, Inc - 9% Preferred Stock
Beginning March 31, 2016, GWG MCA began privately offering up to 2,000,000 shares of GWG MCA 9% Preferred Stock (“MCA Preferred”) at $10.00 per share. Holders of MCA Preferred are entitled to cumulative dividends at a rate of 9% per annum, paid monthly. Dividends on the MCA Preferred are included as interest expense in the statements of operations. As of December 31, 2016, a total of 7,155 shares of MCA Preferred had been sold for aggregate gross consideration of $72,000 and approximately $7,000 of selling costs related to the sale of these shares were incurred.
Holders of MCA Preferred were redeemed as of December 31, 2016 at the stated value of their shares plus accrued but unpaid dividends. |
Income Taxes |
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Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | ( 13 ) Income Taxes
We had a current income tax liability of $0 as of both December 31, 2016 and 2015. The components of deferred income tax expense (benefit) for 2016 and 2015, respectfully, consisted of the following:
We provided a valuation allowance against the deferred tax asset related to a note receivable, which was charged-off for financial reporting purposes, because we believe that, when realized for tax purposes, it will result in a capital loss that will not be utilized because we have no expectation of generating a capital gain within the applicable carryforward period. Therefore, we do not believe that it is “more likely than not” that the deferred tax asset will be realized.
We also provided a valuation allowance against the deferred tax asset related to a tax basis capital loss generated with respect to our settlement and subsequent disposal of an earlier investment. As we have no expectation of generating capital gains with the applicable carryforward period, we do not believe that it is “more likely than not” that the deferred asset will be realized.
The primary differences between the December 31, 2016 effective tax rate and the statutory federal rate are state taxes, and other non-deductible expenses. The most significant temporary differences between GAAP net income and taxable net income are the treatment of interest costs with respect to the acquisition of the life insurance policies and revenue recognition with respect to the mark-to-market of our life insurance portfolio.
The following table provides a reconciliation of our income tax expense (benefit) at the statutory federal tax rate to our actual income tax expense (benefit):
The tax effects of temporary differences that give rise to deferred income taxes were as follows:
At December 31, 2016 and 2015, we had federal net operating loss (“NOL”) carryforwards of $26,642,000 and $17,451,000, respectively, and aggregate state NOL carryforwards of approximately $26,616,000 and $17,423,000, 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. We currently do not believe that any issuance of common stock has resulted in an ownership change under Section 382.
We provide for a valuation allowance when it is not considered “more likely than not” that our deferred tax assets will be realized. At both December 31, 2016 and 2015 based upon all available evidence, we provided a valuation allowance of $2,164,000, against deferred tax assets related to the likelihood of recovering the tax benefit of a capital loss on a note receivable from a related entity and other capital losses. Management believes all other deferred tax assets are recoverable.
ASC 740 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 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 for all open years and 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, 2016.
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 December 31, 2016 and 2015, we recorded no accrued interest or penalties related to uncertain tax positions.
Our income tax returns for tax years ended December 31, 2013, 2014, 2015 and 2016, when filed, remain open to examination by the Internal Revenue Service and various state taxing jurisdictions. Our tax return for tax year 2012 has now been examined by the IRS (finalized April of 2015) but is open for examination by various state taxing jurisdictions. |
Common Stock |
12 Months Ended |
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Dec. 31, 2016 | |
Equity [Abstract] | |
Common Stock | ( 14 ) 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.”
On June 24, 2015 we issued 60,000 restricted common shares at $9.70 per share, determined by the closing market price on the date of grant, to a vendor as payment for services to be rendered over three years. The cost of these shares is amortized over a 12-month period. On March 17, 2016, we issued an additional 6,500 restricted common shares at an average price of $7.16 per share, determined by the closing market price on the date of grant, to this same vendor for additional services provided to us. On April 25, 2016, we issued 25,000 restricted shares of common stock at $6.25 per share, determined by the closing market price on the date of grant, to a vendor as a form of payment for services the vendor is providing to us, which is expensed in the current period. |
Stock Incentive Plan |
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Stock Incentive Plan | ( 15 ) Stock Incentive Plan
We adopted our 2013 Stock Incentive Plan in March 2013. The Compensation Committee of our Board of Directors is responsible for the administration the plan. Incentives 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. 2,000,000 common shares are presently issuable under the plan.
In September 2014, we entered into a stock option agreement with a new management employee granting the employee the right to purchase up to 318,000 of our common stock at an exercise price of $12.50. The grant of such rights to purchase our common stock was treated as an inducement grant and was issued outside the GWG Holdings Inc. 2013 Stock Incentive Plan.
Through December 31, 2016, we had issued stock options for 2,048,000 shares of common stock to employees, officers, and directors under the plan. Options for 738,000 shares have vested, and the remaining options are scheduled to vest over three years. The options were issued with an exercise price between $6.35 and $10.18 for those beneficially owning more than 10% of our common stock, and between $6.00 and $10.25 for all others, which is equal to the estimated market price of the shares on the date of grant. The expected annualized volatility used in the Black-Scholes model valuation of options issued during the period was 25.9%. The annual volatility rate is based on the standard deviation of the average continuously compounded rate of return of five selected comparable companies over the previous 52 weeks. A forfeiture rate of 15% is based on historical information and expected future trend. As of December 31, 2016, stock options for 437,000 shares were forfeited and stock options for 28,000 shares were exercised.
Outstanding stock options:
Compensation expense related to un-vested options not yet recognized is $525,000. We expect to recognize this compensation expense over the next three years ($265,000 in 2017, $157,000 in 2018, and $103,000 in 2019).
Stock Appreciation Rights (SARs) - On September 19, 2016 we issued SARs for 145,388 shares of the common stock to employees. The strike price of the SARs was $8.76, which was equal to the market price of the common stock at the close of business on September 19, 2016. 56,358 of the SARs were vested as of December 31, 2016, on which date the market price of the common stock was $8.82. A forfeiture rate of 15% was used in calculating our liability for the SARs.
Outstanding Stock Appreciation Rights:
A liability for Stock Appreciation Rights - Compensation Expense was recorded on December 31, 2016 in the amount of $4,266 and Compensation Expense was charged for the same amount. |
Net Loss per Common Share |
12 Months Ended |
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Dec. 31, 2016 | |
Net Loss per Common Share [Abstract] | |
Net Loss per Common Share | ( 16 ) Net Loss per Common Share
We have outstanding Series A and RPS, as described in Notes 9 and 10. The Series A and RPS are anti-dilutive to our net loss attributable to common shareholders calculation for the years ended December 31, 2016 and December 31, 2015. We also issued warrants to purchase common stock in conjunction with the sale of Series A (see Note 9). Both those warrants and our vested stock options are anti-dilutive at December 31, 2016 and 2015 and have not been included in the fully diluted net loss per common share calculation. |
Commitments |
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Commitments | ( 17 ) Commitments
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 2026. Under the amended lease we are obligated to pay base rent plus common area maintenance and a share of building operating costs. Rent expenses under this agreement were $415,000 and $283,000 during 2016 and 2015, respectively.
Minimum lease payments under the amended lease are as follows:
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Contingencies |
12 Months Ended |
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Dec. 31, 2016 | |
Commitments and Contingencies [Abstract] | |
Contingencies | ( 18 ) 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. |
Guarantee of L Bonds |
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Guarantee of L Bonds | ( 19 ) Guarantee of L Bonds
We are publicly offering and selling L Bonds under a registration statement declared effective by the SEC, as described in Note 8. Our obligations under the L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all our common stock held individually by our largest stockholders, and by a guarantee and corresponding grant of a security interest in substantially all the assets of GWG Life. As a guarantor, GWG Life has fully and unconditionally guaranteed the payment of principal and interest on the L Bonds. Substantially all of our life insurance policies are held by DLP III, DLP IV and the Trust. The policies held by DLP III and DLP IV are not collateral for the L Bond obligations as such policies serve as direct collateral for the senior credit facilities.
The consolidating financial statements are presented in lieu of separate financial statements and other related disclosures of the subsidiary guarantor and issuer because management does not believe that separate financial statements and related disclosures would be material to investors. There are currently no significant restrictions on the ability of GWG Holdings or GWG Life, the guarantor subsidiary, to obtain funds from its subsidiaries by dividend or loan, except as described in these notes. A majority of insurance policies we own are subject to a collateral arrangement with LNV described in Note 6. Under this arrangement, collection and escrow accounts are used to fund premiums for the insurance policies and to pay interest and other charges under the senior credit facility.
The following represents consolidating financial information as of December 31, 2016 and December 31, 2015, with respect to the financial position, and as of December 31, 2016 and 2015, 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. The guarantor subsidiary column presents the financial information of GWG Life, the guarantor subsidiary of the L Bonds, presenting its investment in DLP III, 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 III, DLP IV and the Trust.
Consolidating Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
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Concentration |
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Concentration [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concentration | ( 20 ) Concentration
We purchase life insurance policies written by life insurance companies having investment-grade ratings by independent 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 us.
* percentage does not exceed 10% of the total face value.
The following summarizes the number of insurance policies held in specific states exceeding 10% of the total face value held by us:
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Subsequent Events |
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Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | ( 21 ) Subsequent Events
Subsequent to December 31, 2016, eight policies covering seven individuals have matured. The combined insurance benefits of these policies were $15,975,000. We recorded realized gains of $13,956,000 on these seven policies.
Subsequent to December 31, 2016, we have issued approximately an additional $15,318,000 in principal amount of L Bonds.
Subsequent to December 31, 2016 we have issued approximately $16,871,000 of RPS.
On February 9, 2017, we declared a special cash dividend in the amount of $2.50 per share, payable on or about April 14, 2017, to the holders of RPS of record as of the close of business on April 5, 2017.
On February 14, 2017, we began a public offering of up to 150,000 shares of RPS 2 at $1,000 per share. As of the date of this report, we have not sold any shares of RPS 2.
Effective February 16, 2017, Paul Siegert, Director and Executive Chairman, voluntarily resigned from the Board of Directors. As part of his resignation, we agreed to repurchase Mr. Siegert’s 200,445 shares of GWG common stock for an aggregate of approximately $1.604 million. As a separation payment, Mr. Siegert will continue to receive his regular salary payments (annualized to approximately $201,000) through December 31, 2017 and he forfeited all options, both unvested and vested, to purchase shares of GWG common stock. Following his resignation, the Board of Directors appointed Mark Schwarzmann as a director of the Board and Jon Sabes was appointed Chairman of the Board. |
Reclassification of Preferred Stock Dividends |
12 Months Ended |
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Dec. 31, 2016 | |
Reclassification Of Preferred Stock Dividends [Abstract] | |
Reclassification of Preferred Stock Dividends | ( 22 ) Reclassification of Preferred Stock Dividends
For the quarter ended December 31, 2016, we identified an error relating to prior periods in the classification of preferred stock dividends on the consolidated statement of operations and balance sheet. Preferred stock dividends have been classified as interest expense since the third quarter of 2014, when our initial public offering became effective. As a result, dividend cost resulted in an increase of the accumulated deficit on the balance sheet. The preferred stock dividends should have been charged directly to additional paid-in capital and are separately reflected as preferred stock dividends on the consolidated statement of operations. The reclassification of preferred stock dividends did not result in any changes to total equity in any of the periods effected. Additionally, the reclassification did not result in any changes to net loss attributable to common shareholders or net loss per common share for the year ended December 31, 2015. |
Nature of Business and Summary of Significant Accounting Policies (Policies) |
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Nature of Business and Summary of Significant Accounting Policies [Abstract] | |
Use of Estimates | Use of Estimates – The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the 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, and various other factors that it believes to be reasonable under the circumstances. The actual results that we experience may differ materially and adversely from our estimates. The most significant estimates with regard to these consolidated financial statements relate to (1) the determination of the assumptions used in estimating the fair value of our investments in life insurance policies, and (2) the value of our deferred tax assets and liabilities. |
Cash and Cash Equivalents | 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. |
Life Insurance Policies | Life Insurance Policies – ASC 325-30 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. Under the fair value method we recognize our initial investment at the purchase price. At each subsequent reporting period, we re-measure the investment at fair value in its entirety and recognize the change in fair value as revenue in the current period net of premiums paid.
We also recognize realized gain (revenue) 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, 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 values of the policy once we determine that collection of the policy benefits is realizable and 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 of our receipt of sale proceeds.
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 balance sheet until the acquisition is complete and we have secured title to the policy. On December 31, 2016 and 2015, a total of $42,000 and $31,000, respectively, of our “other assets” comprised direct costs and deposits that we advanced for policy acquisitions. |
Other Assets | Other Assets– Actüa Life & Annuity Ltd. (“Actüa”) is a new wholly-owned subsidiary of GWG Holdings engaged in various life insurance businesses and activities. In August 2016, Actüa entered into an exclusive option agreement with the Regents of the University of California to explore the use of predictive mortality forecasting using an epigenetic mortality predictor invented by Dr. Steve Horvath. The cost of entering into this exclusive option agreement is listed as “other assets.” |
Stock-Based Compensation | Stock-Based Compensation: We measure and recognize compensation expense for all stock-based payments at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the weighted average fair value of options. For restricted stock grants, fair value is determined as the average price of our common stock on the date of grant. Equity-based compensation expense is recorded in 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 using an option-pricing model is affected by our stock price as well as by assumptions regarding 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 actual and projected employee stock option exercise behaviors. The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. 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 historical and expected future volatility of our stock. To date, we have not paid any dividends on our common stock. Forfeitures for both option and restricted stock grants are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates. |
Deferred Financing and Issuance Costs | Deferred Financing and Issuance Costs – Loans advanced to us under our senior credit facilities, as described in Notes 5 and 6, are reported net of financing costs, which include issuance costs, sales commissions and other direct expenses, which are amortized using the straight-line method over the term of the facility. The Series I Secured Notes and L Bonds, as respectively described in Notes 7 and 8, are reported net of financing costs, which are amortized using the interest method over the term of those borrowings. The Series A, as described in Note 9, is reported net of financing costs (including the fair value of warrants issued), all of which were fully amortized using the interest method as of December 31, 2016. Selling and issuance costs of RPS and Series 2 Redeemable Preferred Stock (“RPS 2”), described in Notes 10 and 11, are netted against additional paid-in-capital.
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Earnings (loss) per Share | 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 outstanding Series A, RPS, warrants and stock options. Due to our net loss for years ended December 31, 2016 and 2015, there are no dilutive securities.
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Recently Adopted Pronouncements | Recently Adopted Pronouncements – On April 7, 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), as part of its simplification initiative. ASU 2015-03 changes the presentation of debt issuance costs by presenting those costs in the balance sheet as a direct deduction from the related debt liability. Amortization of the costs is reported as interest expense. We adopted ASU 2015-03 effective January 1, 2016, as required for public reporting entities. On February 25, 2016, the FASB issued ASU 2016-02 Leases ("ASU 2016-02"). The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 provides more transparency and comparability in the financial statements of lessees by recognizing all leases with a term greater than twelve months on the balance sheet. Leasees will also be required to disclose key information about their leases. Early adoption is permitted. We have not adopted ASU 2016-02 as of December 31, 2016. |
Investment in Life Insurance Policies (Tables) |
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Investment in Life Insurance Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of estimated life expectancy dates report |
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Reconciliation of gain on life insurance policies |
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Estimated expected premium payments to maintain the above life insurance policies assuming no mortalities |
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Fair Value Definition and Hierarchy (Tables) |
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Fair Value Definition and Hierarchy [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of investments in life insurance contracts |
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Summary of inputs utilized in estimating the fair value of life insurance contracts |
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Summary of change in fair value of the investment in life insurance contracts |
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Summary of outstanding warrants |
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Series I Secured Notes (Tables) |
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Future contractual maturities of series I secured notes payable and future amortization of their deferred financing costs |
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L Bonds (Tables) |
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Schedule of future contractual maturities of L Bonds and future amortization of their deferred financing costs |
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Income Taxes (Tables) |
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Income Taxes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of current and deferred income tax expense |
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Schedule of reconciliation of income tax expense (benefit) at the statutory federal tax rate to actual income tax expense (benefit) |
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Summary of tax effects of temporary differences that give rise to deferred income taxes |
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Stock Incentive Plan (Tables) |
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Schedule of outstanding stock options |
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Schedule of outstanding stock appreciation rights |
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Commitments (Tables) |
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Schedule of minimum lease payments under the amendment lease |
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Guarantee of L Bonds (Tables) |
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Guarantee of L Bonds [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of consolidating balance sheets |
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Schedule of consolidated statements of operations |
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Schedule of consolidated statements of cash flows |
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Concentration (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Concentration [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Summary of the face value of insurance contracts |
* percentage does not exceed 10% of the total face value. |
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Summary of the number of insurance contracts |
|
Nature of Business and Summary of Significant Accounting Policies (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Nature of business and summary of significant accounting policies (Textual) | ||
Portfolio of life insurance contracts aggreate fair value | $ 511,200,000 | |
Direct costs and deposits | $ 42,000 | $ 31,000 |
Restrictions on Cash (Details) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Restrictions on Cash (Textual) | ||
Restricted cash | $ 37,827,000 | $ 2,342,000 |
Investment in Life Insurance Policies (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Summary of reconciliation of gain on life settlements | ||
Change in fair value | $ 70,582,000 | $ 39,371,000 |
Premiums and other annual fees | (40,240,000) | (26,711,000) |
Policy maturities | 37,460,000 | 26,721,000 |
Gain on life insurance policies, net | $ 67,802,000 | $ 39,381,000 |
Investment in Life Insurance Policies (Details 2) |
Dec. 31, 2016
USD ($)
|
---|---|
Summary of estimated expected premium payments to maintain the above life insurance policies assuming no mortalities | |
2017 | $ 45,321,000 |
2018 | 50,699,000 |
2019 | 56,219,000 |
2020 | 61,095,000 |
2021 | 68,358,000 |
Estimated expected premium payments | 281,692,000 |
Premiums [Member] | |
Summary of estimated expected premium payments to maintain the above life insurance policies assuming no mortalities | |
2017 | 44,787,000 |
2018 | 50,165,000 |
2019 | 55,685,000 |
2020 | 60,561,000 |
2021 | 67,824,000 |
Estimated expected premium payments | 279,022,000 |
Servicing [Member] | |
Summary of estimated expected premium payments to maintain the above life insurance policies assuming no mortalities | |
2017 | 534,000 |
2018 | 534,000 |
2019 | 534,000 |
2020 | 534,000 |
2021 | 534,000 |
Estimated expected premium payments | $ 2,670,000 |
Investment in Life Insurance Policies (Details Textual) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Investment in Life Insurance Contracts (Textual) | ||
Benefit recognized from insurance policy | $ 48,452,000 | $ 31,232,000 |
Carrying value of life insurance policy | 10,993,000 | 4,511,000 |
Realized gains from life insurance policy | $ 37,459,000 | $ 26,721,000 |
Life insurance policies [Member] | ||
Investment in Life Insurance Contracts (Textual) | ||
Discount rate applied to portfolio | 10.96% | 11.09% |
Fair Value Definition and Hierarchy (Details) - Life Insurance Policies [Member] - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Summary of reconciliation of investments in life insurance contracts | ||
Beginning balance | $ 356,650,000 | $ 282,883,000 |
Purchases | 94,953,000 | 38,907,000 |
Maturities (initial cost basis) | (10,993,000) | (4,511,000) |
Net change in fair value | 70,582,000 | 39,371,000 |
Ending balance | $ 511,192,000 | $ 356,650,000 |
Fair Value Definition and Hierarchy (Details 1) - Life insurance policies [Member] - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Summary of inputs utilized in estimating the fair value | ||
Weighted-average age of insured, years | 81 years 7 months 6 days | 82 years 7 months 6 days |
Weighted-average life expectancy, months | 83 months 6 days | 79 months 9 days |
Average face amount per policy | $ 1,973,000 | $ 2,386,000 |
Discount rate | 10.96% | 11.09% |
Fair Value Definition and Hierarchy (Details Textual) |
12 Months Ended |
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Dec. 31, 2016
USD ($)
| |
Fair Value Definition and Hierarchy (Textual) | |
Life expectancy report, description | We periodically update the independent life expectancy estimates on the insured lives in our portfolio, other than insured lives covered under small face amount policies (i.e., $1 million in face value benefits or less), on a continuous rotating three-year cycle. Accordingly, we update life expectancies for approximately one-twelfth of our portfolio each quarter. |
Description for change in discount factor | 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%, while all other variables were held constant. |
Increase decrease in life expectancy | Four and eight months |
Increase decrease in discount rate | 1% and 2 |
Estimated fair value of series I secured notes payable and L Bonds | $ 403,681,000 |
Debt instruments face value | $ 414,419,000 |
Weighted average market interest rate of secured notes payable | 6.45% |
Loan receivable through credit agreement | $ 2,527,000 |
Loan loss reserve | $ 600,000 |
Credit Facility - Autobahn Funding Company LLC (Details) - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Sep. 14, 2016 |
Dec. 31, 2015 |
|
Credit Facility - Autobahn Funding Company LLC (Textual) | |||
Maximum borrowing amount under line of credit facility | $ 105,000,000 | ||
Expiry date of line of credit | Jun. 30, 2018 | ||
Effective rate of interest | 5.42% | 5.58% | |
Amount outstanding under line of credit facility | $ 0 | $ 65,011,000 | |
Minimum tangible net worth to be maintained by company | 45,000,000 | ||
Minimum cash and eligible investments | 15,000,000 | ||
Consolidated tangible net worth under credit and security agreement | 38,642,000 | ||
Consolidated net income under credit and security agreement | $ 182,514,000 | ||
Credit facility, Description | Advances under the facility bear interest at a commercial paper rate of the lender at the time of the advance, or at the lender's cost of borrowing plus 4.25%. | ||
Funds available for additional borrowings under the borrowing base formula criteria | $ 0 | $ 39,989,000 |
Credit Facility - CSG Investments, Inc. (Details) - USD ($) |
Sep. 14, 2016 |
Dec. 31, 2016 |
---|---|---|
Line of Credit Facility [Line Items] | ||
Secured term loan | $ 172,300,000 | |
Maturity date | Sep. 14, 2026 | |
Interest rate description | Interest will accrue on amounts borrowed under the agreement at an annual interest rate, determined as of each date of borrowing, equal to (A) the greater of 12-month LIBOR or the federal funds rate (as defined in the agreement) plus one-half of one percent per annum, plus (B) 5.75% per annum. Interest payments are made on a quarterly basis. | |
Reserve account | $ 27,500,000 | |
Additional amount borrowing under line of credit | 0 | |
Outstanding amount of credit facility | $ 162,725,000 |
Series I Secured Notes (Details) - Series I Secured Notes Payable [Member] |
Dec. 31, 2016
USD ($)
|
---|---|
Summary of future contractual maturities | |
2017 | $ 10,523,000 |
2018 | 2,401,000 |
2019 | 1,024,000 |
2020 | 1,725,000 |
2021 | 941,000 |
Total | 16,614,000 |
Summary of amortization of deferred financing costs | |
2017 | 41,000 |
2018 | 41,000 |
2019 | 20,000 |
2020 | 52,000 |
2021 | 55,000 |
Total | $ 209,000 |
L Bonds (Details) - Renewable Secured Debentures [Member] |
Dec. 31, 2016
USD ($)
|
---|---|
Contractual Maturities | |
2017 | $ 106,955,000 |
2018 | 109,407,000 |
2019 | 90,463,000 |
2020 | 20,679,000 |
2021 | 28,923,000 |
Thereafter | 30,640,000 |
Total | 387,067,000 |
Amortization of Deferred Financing Costs | |
2017 | 1,178,000 |
2018 | 3,000,000 |
2019 | 3,450,000 |
2020 | 809,000 |
2021 | 1,512,000 |
Thereafter | 1,687,000 |
Total | $ 11,636,000 |
Redeemable Preferred Stock (Details) |
12 Months Ended |
---|---|
Dec. 31, 2016
USD ($)
Tradingdays
$ / shares
shares
| |
Redeemable Preferred Stock (Textual) | |
Minimum conversion price | $ / shares | $ 15.00 |
Number of trading days | Tradingdays | 20 |
Proceeds from redeemable preferred stock | $ | $ 16,871,000 |
Series A 7% redeemable preferred stocks [Member] | |
Redeemable Preferred Stock (Textual) | |
Company offering shares of convertible redeemable preferred stock | shares | 100,000 |
Offering price of series redeemable preferred stock | $ / shares | $ 1,000 |
Redeemable preferred stock par value per share | $ / shares | $ 1,000 |
Dividend rate of convertible redeemable preferred stock | 7.00% |
Preferred stock redemption percentage | 15.00% |
Redeemable Preferred Stock [Member] | |
Redeemable Preferred Stock (Textual) | |
Redeemable preferred stock, shares issued | shares | 59,183 |
Proceeds from redeemable preferred stock | $ | $ 59,025,000 |
Redeemable Preferred Stock For Sale | $ | $ 4,134,000 |
GWG MCA Capital, Inc - 9% Preferred Stock (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2016 |
|
GWG MCA Capital, Inc - 9% Preferred Stock (Textual) | ||
Preferred stock shares sold for cash, shares | 7,350 | |
Proceeds from redeemable preferred stock | $ 16,871,000 | |
Mca Preferred Stock [Member] | ||
GWG MCA Capital, Inc - 9% Preferred Stock (Textual) | ||
Preferred stock shares sold for cash, shares | 2,000,000 | |
Preferred stock, sale price per share | $ 10.00 | |
Percentage of preferred stock issued | 9.00% | |
Redeemable preferred stock, shares issued | 7,155 | |
Proceeds from redeemable preferred stock | $ 72,000 | |
Redeemable Preferred Stock For Sale | $ 7,000 |
Income Taxes (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Deferred: | ||
Federal | $ 252,000 | $ (2,660,000) |
State | 81,000 | (850,000) |
Total income tax expense (benefit) | $ 333,000 | $ (3,510,000) |
Income Taxes (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Summary of reconciliation of income tax expense at the statutory federal tax rate to actual income tax expense | ||
Statutory federal income tax | $ 247,000 | $ (3,004,000) |
State income taxes, net of federal benefit | 56,000 | (561,000) |
Other permanent differences | 30,000 | 55,000 |
Total income tax expense | $ 333,000 | $ (3,510,000) |
Statutory federal income tax, Tax rate | 34.00% | 34.00% |
State income taxes, net of federal benefit, Tax rate | 7.80% | 6.30% |
Other permanent differences, Tax rate | 4.20% | (0.60%) |
Total income tax expense | 46.00% | 39.70% |
Income Taxes (Details 2) - USD ($) |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred tax assets : | ||
Note receivable from related party | $ 2,023,000 | $ 2,023,000 |
Net operating loss carryforwards | 10,781,000 | 7,049,000 |
Other assets | 1,130,000 | 375,000 |
Subtotal | 13,934,000 | 9,447,000 |
Valuation allowance | (2,164,000) | (2,164,000) |
Deferred tax assets | 11,770,000 | 7,283,000 |
Deferred tax liabilities: | ||
Investment in life insurance policies | (13,867,000) | (9,046,000) |
Other | (1,000) | |
Net deferred tax liability | $ (2,097,000) | $ (1,764,000) |
Income Taxes (Details Textual) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Income Taxes (Textual) | ||
Federal net operating loss carryforwards | $ 26,642,000 | $ 17,451,000 |
Operating loss carry forward expiration period | Begin to expire in 2031 | |
Valuation allowance | $ 2,164,000 | 2,164,000 |
Accrued interest or penalties related to uncertain tax positions | ||
State net operating loss carryforwards | $ 26,616,000 | $ 17,423,000 |
Onwership percentage | 50.00% |
Common Stock (Details) - GWG MCA Capital, Inc. (Member) - USD ($) $ / shares in Units, $ in Millions |
1 Months Ended | |||
---|---|---|---|---|
Apr. 25, 2016 |
Mar. 17, 2016 |
Jun. 24, 2015 |
Sep. 30, 2014 |
|
Common Stock (Textual) | ||||
Restricted Common stock issued | 25,000 | 6,500 | 60,000 | 800,000 |
Common stock, par value | $ 6.25 | $ 7.16 | $ 9.70 | $ 12.50 |
Net proceeds | $ 8.6 |
Stock Incentive Plan (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Stock Option [Member] | ||
Outstanding stock options | ||
Beginning Balance | 1,053,615 | 1,000,101 |
Granted during the year | 630,850 | 353,200 |
Vested during the year | ||
Exercised during the year | (27,667) | |
Forfeited during the year | (102,066) | (272,019) |
Ending Balance | 1,582,399 | 1,053,615 |
Vested [Member] | ||
Outstanding stock options | ||
Beginning Balance | 483,703 | 314,288 |
Granted during the year | 22,500 | 79,500 |
Vested during the year | 251,788 | 238,999 |
Exercised during the year | (27,667) | |
Forfeited during the year | (19,926) | (121,417) |
Ending Balance | 738,065 | 483,703 |
Un-vested [Member] | ||
Outstanding stock options | ||
Beginning Balance | 569,912 | 685,813 |
Granted during the year | 608,350 | 273,700 |
Vested during the year | (251,788) | (238,999) |
Exercised during the year | ||
Forfeited during the year | (82,140) | (150,602) |
Ending Balance | 844,334 | 569,912 |
Stock Incentive Plan (Details 1) - Stock Appreciation Rights (SARs) [Member] |
12 Months Ended |
---|---|
Dec. 31, 2016
shares
| |
Outstanding Stock Appreciation Rights: | |
Beginning Balance | |
Granted during the year | 239,735 |
Forfeited during the year | |
Ending Balance | 239,735 |
Vested [Member] | |
Outstanding Stock Appreciation Rights: | |
Beginning Balance | |
Granted during the year | 106,608 |
Forfeited during the year | |
Ending Balance | 106,608 |
Un-vested [Member] | |
Outstanding Stock Appreciation Rights: | |
Beginning Balance | |
Granted during the year | 133,127 |
Forfeited during the year | |
Ending Balance | 133,127 |
Commitments (Details) |
Dec. 31, 2016
USD ($)
|
---|---|
Summary of Minimum lease payments under the lease agreement | |
2017 | $ 178,000 |
2018 | 185,000 |
2019 | 191,000 |
2020 | 198,000 |
2021 | 204,000 |
2022 | 210,000 |
2023 | 217,000 |
2024 | 223,000 |
2025 | 230,000 |
Total | $ 1,836,000 |
Commitments (Details Textual) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
Sep. 01, 2015
ft²
|
|
Commitments (Textual) | |||
Office space in square feet | ft² | 17,687 | ||
Lease term date | Aug. 31, 2026 | ||
Rent expenses | $ | $ 415,000 | $ 283,000 | |
Description of lessor leasing arrangements | 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 August 31, 2026. |
Concentration (Details) |
Dec. 31, 2016 |
Dec. 31, 2015 |
|||
---|---|---|---|---|---|
John Hancock [Member] | |||||
Summary of the face value of insurance contracts with specific life insurance companies | |||||
Face value percentage of insurance contracts with specific life insurance companies | 14.36% | 12.73% | |||
AXA Equitable [Member] | |||||
Summary of the face value of insurance contracts with specific life insurance companies | |||||
Face value percentage of insurance contracts with specific life insurance companies | 13.42% | 14.00% | |||
Lincoln National [Member] | |||||
Summary of the face value of insurance contracts with specific life insurance companies | |||||
Face value percentage of insurance contracts with specific life insurance companies | 11.22% | [1] | |||
|
Concentration (Details Textual) |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Concentration (Textual) | |
Description of issuance contracts with specific life insurance companies and contracts held in specific states | Exceeding 10% of the total face value |
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