UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549 

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 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: None

 

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) 

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined 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 November 10, 2016, GWG Holdings, Inc. had 5,980,190 shares of common stock outstanding.

 

 

 

 
 

 

GWG HOLDINGS, INC.

 

Index to Form 10-Q

for the Quarter Ended September 30, 2016

 

    Page No.
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
  Condensed Consolidated Balance Sheets as of September 30, 2016, and December 31, 2015 1
  Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 2
  Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2016 and 2015 3
  Consolidated Statement of Changes in Stockholders’ Equity 5
  Notes to Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
Item 4. Controls and Procedures 54
     
PART II. OTHER INFORMATION  
   Item 1A. Risk Factors 55
Item 5. Other Information  56
Item 6. Exhibits 56
     
SIGNATURES 57

  

 
 

  

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

  

September 30,
2016

(unaudited)

   December 31,
2015
 
A S S E T S
Cash and cash equivalents  $18,773,828   $34,425,105 
Restricted cash   15,688,025    2,341,900 
Investment in life insurance contracts, at fair value   477,585,100    356,649,715 
Secured MCA advances   6,113,831    - 
Life insurance contract benefits receivable   6,129,022    - 
Other assets   3,131,107    2,461,045 
TOTAL ASSETS  $527,420,913   $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  $63,699,385   $63,279,596 
Series I Secured Notes   17,553,307    23,287,704 
L Bonds   379,858,737    276,482,796 
Accounts payable   2,442,449    1,517,440 
Interest payable   13,633,640    12,340,061 
Other accrued expenses   645,343    1,060,786 
Deferred taxes, net   3,242,586    1,763,968 
TOTAL LIABILITIES  $481,075,447   $379,732,351 
           
STOCKHOLDERS’ EQUITY          
           
CONVERTIBLE PREFERRED STOCK          
(par value $0.001; shares authorized 40,000,000; shares outstanding 2,649,665 and 2,781,735; liquidation preference of $19,872,000 and $20,863,000 on September 30, 2016 and December 31, 2015, respectively)   19,772,931    20,784,841 
           
REDEEMABLE PREFERRED STOCK          
(par value $0.001; shares authorized 100,000; shares outstanding 33,201; liquidation preference of $33,176,600 on September 30, 2016)   33,176,600    - 
           
COMMON STOCK          
(par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,980,190 and 5,941,790 on September 30, 2016 and December 31, 2015)   5,980    5,942 
Additional paid-in capital   15,226,449    17,149,391 
Accumulated deficit   (21,836,494)   (21,794,760)
TOTAL STOCKHOLDERS’ EQUITY   46,345,466    16,145,414 
           
TOTAL LIABILITIES & EQUITY  $527,420,913   $395,877,765 

 

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

 

 1 
 

 

 GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,
2016
   September 30,
2015
   September 30,
2016
   September 30,
2015
 
REVENUE                
Gain on life insurance contracts, net  $13,509,755   $8,189,261   $51,606,815   $33,446,556 
MCA income   286,225    -    654,441    - 
Interest and other income   124,998    93,841    341,098    233,516 
TOTAL REVENUE   13,920,978    8,283,102    52,602,354    33,680,072 
                     
EXPENSES                    
Interest expense   11,983,968    8,650,149    32,009,934    23,149,030 
Employee compensation and benefits   2,912,463    2,308,246    8,450,168    6,180,886 
Legal and professional fees   586,830    822,077    3,097,312    1,988,261 
Other expenses   2,863,212    2,231,341    7,608,057    5,646,402 
TOTAL EXPENSES   18,346,473    14,011,813    51,165,471    36,964,579 
                     
INCOME (LOSS) BEFORE INCOME TAXES   (4,425,495)   (5,728,711)   1,436,883    (3,284,507)
INCOME TAX EXPENSE (BENEFIT)   (1,428,130)   (2,097,633)   1,478,617    (664,905)
                     
NET LOSS  $(2,997,365)   (3,631,078)  $(41,734)  $(2,619,602)
                     
Loss attributable to preferred shareholders   421,026    343,644    1,103,896    1,041,648 
INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS  $(2,576,339)   (3,287,434)  $1,062,162   $(1,577,954)
NET INCOME (LOSS) PER SHARE                    
Basic  $(0.50)   (0.61)  $(0.01)  $(0.44)
Diluted  $(0.50)   (0.61)  $0.13   $(0.44)
                     
WEIGHTED AVERAGE SHARES OUTSTANDING                    
Basic   5,978,322    5,937,320    5,962,938    5,894,956 
Diluted   5,978,322    5,937,320    8,092,196    5,894,956 

 

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

 

 2 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,
2016
   September 30,
2015
   September 30,
2016
   September 30,
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss  $(2,997,365)  $(3,631,078)  $(41,734)  $(2,619,602)
Adjustments to reconcile net loss to net cash flows from operating activities:                    
Gain on life insurance contracts   (21,073,226)   (14,516,881)   (53,846,155)   (26,651,363)
Amortization of deferred financing and issuance costs   2,765,743    1,933,776    6,077,905    1,891,772 
Deferred income taxes   (1,428,130)   (1,916,686)   1,478,617    (664,905)
Preferred stock dividends payable   333,565    173,993    663,614    509,225 
(Increase) decrease in operating assets:                    
Life insurance contract benefits receivable   700,000    2,142,986    (6,129,022)   1,392,986 
Other assets   419,836    (417,990)   (617,630)   (774,539)
Increase (decrease) in operating liabilities:                    
Due to related party   (80,949)   -    (182,730)   - 
Accounts payable and other accrued expenses   (3,216,990)   2,534,269    (2,024,234)   3,836,715 
            NET CASH FLOWS USED IN OPERATING ACTIVITIES   (24,577,516)   (13,697,611)   (54,621,369)   (23,079,711)
                     
CASH FLOWS FROM INVESTING ACTIVITIES                    
Investment in life insurance contracts   (25,770,326)   (13,626,842)   (74,470,362)   (23,850,860)
Carrying value of matured life insurance contracts   1,078,889    80,000    7,381,132    3,822,983 
Investment in Secured MCA advances   (1,965,896)   -    (7,613,310)   - 
Proceeds from Secured MCA advances   220,911    -    1,246,703    - 
             NET CASH FLOWS USED IN INVESTING ACTIVITIES   (26,436,422)   (13,546,842)   (73,455,837)   (20,027,877)
                     
CASH FLOWS FROM FINANCING ACTIVITIES                    
Net borrowings on (repayments of) Senior Credit Facilities   (10,761,048)   -    6,238,952    (7,150,000)
Payments for redemption of Series I Secured Notes   (541,275)   (890,586)   (6,264,018)   (4,508,130)
Proceeds from issuance of L Bonds   64,350,430    37,122,127    135,477,090    87,620,483 
Payments for issuance and redemption of L Bonds   (14,373,447)   (19,363,047)   (37,036,922)   (32,376,104)
Proceeds from (increase in) restricted cash   (4,527,232)   651,630    (13,346,126)   (2,975,507)
Issuance of common stock   31,515    -    244,185    582,000 
Proceeds from issuance of preferred stock   20,786,332    -    31,287,541    - 
Payments for issuance and redemption of preferred stock   (2,556,859)   (21,187)   (4,174,773)   (295,185)
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   52,408,416    17,498,937    112,425,929    40,897,557 
                     
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   1,394,478    (9,745,516)   (15,651,277)   (2,210,031)
                     
CASH AND CASH EQUIVALENTS                    
BEGINNING OF PERIOD   17,379,350    38,198,189    34,425,105    30,662,704 
END OF PERIOD  $18,773,828   $28,452,673   $18,773,828   $28,452,673 

 

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

 

 3 
 

 

 GWG HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED

(unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,
2016
   September 30,
2015
   September 30,
2016
   September 30,
2015
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                
Interest and preferred dividends paid  $

11,516,000

   $5,385,000   $

28,683,000

   $18,529,000 
Premiums paid  $11,785,000   $6,603,000   $29,225,000   $19,069,000 
Stock-based compensation  $162,000   $176,000   $213,000   $208,000 
NON-CASH INVESTING AND FINANCING ACTIVITIES                    
Series I Secured Notes:                    
Conversion of accrued interest and commissions payable to principal  $47,000   $61,000   $234,000   $188,000 
L Bonds:                    
Conversion of accrued interest and commissions payable to principal  $854,000   $491,000   $1,515,000   $929,000 
Issuance of Series A Preferred Stock in lieu of cash dividends  $170,000   $172,000   $509,000   $507,000 
Investment in life insurance contracts included in accounts payable  $1,603,000   $559,000   $1,603,000   $559,000 

 

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

 

 4 
 

 

 GWG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

   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   $16,257,686   $(14,401,486)  $22,389,936 
                                    
Net loss   -    -    -    -    -    (7,393,274)   (7,393,274)
                                    
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 
                                    
Issuance of stock options   -    -    -    -    193,804    -    193,804 
Balance, December 31, 2015   2,781,735   $20,784,841    5,941,790   $5,942   $17,149,391   $(21,794,760)  $16,145,414 
                                    
Net income   -    -    -    -    -    (41,734)   (41,734)
                                    
Issuance of common stock   -    -    36,450    36    244,149    -    244,185 
                                    
Redemption of Series A Preferred Stock   (204,848)   (1,521,358)   1,950    2    19,498    -    (1,501,858)
                                    
Issuance of Series A Preferred Stock   72,778    509,448    -    -    -    -    509,448 
                                    
Issuance of redeemable preferred stock   33,201    33,176,600    -    -    (2,399,219)   -    30,777,381 
                                    
Issuance of stock options   -    -    -    -    212,630    -    212,630 
Balance, September 30, 2016   2,682,866   $52,949,531    5,980,190   $5,980   $15,226,449   $(21,836,494)  $46,345,466 

 

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

 

 5 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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

 

Nature of Business – Through its wholly owned subsidiaries, GWG Holdings, Inc. owns a portfolio of life insurance contracts. As of the date of this report, our portfolio had an aggregate fair value of $477.6 million. We earn income from changes in the fair value of our portfolio and through the benefits we receive from the life insurance contracts we own. We are also involved in other lines of business, including a business that collects commissions for facilitating the conversion of term life insurance contracts into universal, or permanent, life insurance, and a business that participates in the merchant cash advance industry by advancing sums to merchants and lending money to businesses that advance sums to merchants. Operating results for the three- and nine-month periods included in this report are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

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.

 

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. The Company regularly evaluates 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 experienced by the Company may differ materially and adversely from the Company’s 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 contracts, 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 Contracts – ASC 325-30, Investments in Insurance Contracts (“ASC 325-30”), permits a reporting entity to account for its investments in life insurance contracts using either the investment method or the fair value method. We elected to use the fair value method to account for our life insurance contracts. 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 use the term “life insurance contracts” to have the same meaning as “life insurance policies.”

 

We also recognize realized gain (revenue) from a life insurance contract upon one of the two following events: (1) our receipt of notice or verified mortality of the insured; or (2) our sale of the contract, 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 contract benefits and the carrying values of the contract once we receive notice or verify the mortality of the insured. In the case of a contract sale, the gain (or loss) we recognize is the difference between the sale price and the carrying value of the contract on the date of our receipt of sale proceeds.

 

In a case where our acquisition of a contract 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 secured title to the contract. On September 30, 2016 and December 31, 2015, a total of $34,000 and $31,000, respectively, of our “other assets” comprised direct costs and deposits that we advanced for contract acquisitions. 

Other Assets – GWG acquired the exclusive option to license “DNA Methylation Based Predictor of Mortality” technology from the University of California, Los Angeles (UCLA). The technology was discovered by Dr. Steven Horvath and is featured in the September 2016 edition of Aging. In 2013, Dr. Horvath reported that human cells have a mechanism that records biological aging progression based on DNA methylation that is independent from chronological aging progression. In 2016, Dr. Horvath discovered a specific set of DNA methylation-based bio-markers that are highly predictive of all-cause mortality. The discovery was made through a statistical analysis of bio-markers found in DNA samples from over 13,000 individuals whose health had been studied for decades. The implications of Dr. Horvath’s discovery are simple and profound: A biostatistician can review a specific set of identified bio-markers and develop a highly predictive analytical model of an individual’s lifespan. The cost of entering into this exclusive option agreement is listed as “other assets”.

 

 6 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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 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 issuance costs, sales commissions and other direct expenses, which are amortized using the interest method over the term of those borrowings. The Series A Preferred Stock, as described in Note 9, is reported net of issuance costs, sales commissions (including the fair value of warrants issued) and other direct expenses, all of which were fully amortized using the interest method as of December 31, 2015. Selling and issuance costs of Redeemable Preferred Stock and MCA Preferred Stock, described in Notes 10 and 11, are netted against additional paid-in-capital.

 

Earnings (loss) per Share – Basic earnings (loss) per share attributable to non-redeemable interests 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 Preferred Stock, Redeemable Preferred Stock, warrants and stock options.

 

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.

 

Reclassification Certain 2015 amounts have been reclassified to conform to ASU 2015-03, and that adoption reduced our assets, together with a corresponding reduction to our liabilities, by approximately $2,288,000 as of December 31, 2015. There was no impact on our statements of operations in 2015, and these reclassifications had no effect on our reported consolidated net income or loss for prior periods.

  

(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 contracts, pay annual contract premiums, pay interest and other charges under the facility, and collect contract benefits. The agent for the lender authorizes the disbursements from these accounts. At September 30, 2016 and December 31, 2015, there was a balance of $15,688,000, and $2,342,000, respectively, in these restricted cash accounts.

 

(3)      Investment in Life Insurance Contracts

 

Life insurance contracts are valued based on unobservable inputs that are significant to their overall fair value. Changes in the fair value of these contracts are recorded as gain or loss on life insurance contracts, net of cash premiums paid on those contracts, in our consolidated statements of operations. Fair value is determined on a discounted cash flow basis that incorporates life expectancy assumptions 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 contracts, the discount rates observed in the life insurance secondary market, market interest rates, our credit exposure to the insurance companies that issued the life insurance contracts 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 11.07% and 11.09% were applied to our portfolio as of September 30, 2016 and December 31, 2015, respectively.

 

 7 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) 

 

We recognized life insurance benefits of $5,300,000 and $357,000 during the three months ended September 30, 2016 and 2015, respectively, related to contracts with a carrying value of $1,078,000 and $80,000, respectively, and as a result recorded realized gains of $4,221,000 and $277,000. We recognized life insurance benefits of $34,367,000 and $29,732,000 during the nine months ended September 30, 2016 and 2015, respectively, related to contracts with a carrying value of $7,381,000 and $3,823,000, respectively, and as a result recorded realized gains of $26,986,000 and $25,909,000.

 

Reconciliation of gain on life insurance contracts:

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2016   2015   2016   2015 
Change in fair value  $21,073,000   $14,517,000   $53,846,000   $26,651,000 
Premiums and other fees   (11,784,000)   (6,605,000)   (29,225,000)   (19,114,000)
Contract maturities   4,221,000    277,000    26,986,000    25,909,000 
Gain on life insurance contracts, net  $13,510,000   $8,189,000   $51,607,000   $33,446,000 

  

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

 

Years Ending December 31,  Premiums   Servicing   Premiums and Servicing Fees 
Three months ending December 31, 2016  $10,449,000   $188,000   $10,637,000 
2017   43,155,000    750,000    43,905,000 
2018   46,847,000    750,000    47,597,000 
2019   50,813,000    750,000    51,563,000 
2020   56,633,000    750,000    57,383,000 
2021   63,222,000    750,000    63,972,000 
   $271,119,000   $3,938,000   $275,057,000 

 

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 contracts. The proceeds of these capital sources may also be used for the purchase, financing, and maintenance of additional life insurance contracts. 

 

 8 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(4)       Fair Value Definition and Hierarchy

 

ASC 820, Fair Value Measurement (“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 the Company has the ability to access.  Since valuations are based on 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.

 

Level 3 Valuation Process

 

The estimated fair value of our portfolio of life insurance contracts 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 (i) current information about discount rate applied by other reporting companies owning portfolios of life insurance contracts, (ii) the discount rates observed in the life insurance secondary market, (iii) market interest rates, (iv) our credit exposure to the insurance company that issued the life insurance contract and (v) 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 contracts for the periods ended September 30, as follows:

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2016   2015   2016   2015 
Beginning balance  $431,820,000   $301,499,000   $356,650,000   $282,883,000 
Purchases   25,770,000    13,626,000    74,470,000    23,851,000 
Maturities (carrying value)   (1,078,000)   (80,000)   (7,381,000)   (3,823,000)
Net change in fair value   21,073,000    14,517,000    53,846,000    26,651,000 
Ending balance (September 30)  $477,585,000   $329,562,000   $477,585,000   $329,562,000 

 

 9 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

We periodically update the independent life expectancy estimates on the insured lives in our portfolio, other than insured lives covered under small face amount contracts (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.

 

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

 

  

As of 
September 30,
2016

  

As of
December 31,
2015

 
Weighted-average age of insured, years   81.8    82.6 
Weighted-average life expectancy, months   81.8    79.3 
Average face amount per contract  $2,035,000   $2,386,000 
Discount rate   11.07%   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 contract, 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 contracts would increase or (decrease) as summarized below:

 

Change in Fair Value of the Investment in Life Insurance Contracts

 

   Change in life expectancy estimates 
   minus 8 months   minus 4 months   plus  4 months   plus  8 months 
                 
September 30, 2016  $64,713,000   $32,215,000   $(31,450,000)  $(62,258,000)
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% 
                 
September 30, 2016  $50,097,000   $23,990,000   $(22,096,000)  $(42,492,000)
December 31, 2015  $35,024,000   $16,786,000   $(15,485,000)  $(29,803,000)

 

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 $402,416,000 as of September 30, 2016, is approximately $414,023,000 based on a weighted-average market interest rate of 6.36%. 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 contracts collateralizing the debt. The overall rate reflects market, and the carrying value of the facility approximates fair value.

 

Our wholly owned subsidiary GWG MCA Capital, Inc. (“GWG MCA”) participates in the merchant cash advance 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 September 30, 2016, one of our secured loans to Nulook Capital LLC was potentially impaired. The secured loan to Nulook Capital LLC had an outstanding balance of $3,215,000 and a loan loss reserve of $400,000 at September 30, 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. 

 

 10 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

The following table summarizes outstanding warrants as of September 30, 2016:

 

Month issued  Warrants issued   Fair value per share   Risk free
rate
   Volatility   Term 
December 2011   68,937   $0.22    0.42%   25.25%   5 years 
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 
    431,954                     

 

(5)       Credit Facility – Autobahn Funding Company LLC

 

Through our subsidiaries GWG DLP Funding II, LLC (“DLP II”) and GWG DLP Funding III, LLC (“DLP III”), we are party to a $105 million revolving 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 revolving senior credit facility in full with funds received from a new senior secured term loan 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 weighted-average effective interest rate, after excluding an unused line fee, was 5.46% and 5.42% for the three months ended September 30, 2016 and 2015, respectively, and 5.54% and 5.81% for the nine months ended September 30, 2016 and 2015, respectively.

 

The amount outstanding under this facility was $0 and $65,011,000 at September 30, 2016 and December 31, 2015, respectively. GWG Holdings is a performance guarantor of the various obligations of GWG Life, LLC (“GWG Life”), as servicer, under the Agreement. Obligations under the facility are secured by our pledge of ownership in our life insurance contracts to DZ Bank through an arrangement under which Wells Fargo serves as a securities intermediary.

 

The Agreement has certain financial (as described below) and non-financial covenants, and we were in compliance with these covenants at September 30, 2016 and December 31, 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 September 30, 2016, as calculated under the Agreement, was $33,877,000 and $149,361,000, respectively.

 

Total funds available for additional borrowings under the facility at December 31, 2015, was $39,989,000. At September 30, 2016, the amount outstanding was $0 and there were no policies pledged to the facility.

 

(6)       Credit Facility – LNV Corporation

 

On September 14, 2016, we entered into a senior secured term loan with LNV Corporation (“LNV”) as lender through our subsidiary GWG DLP Funding IV, LLC (“DLP IV”) as borrower. The facility is governed by a Loan and Security Agreement (the “Loan Agreement”), with CLMG Corp. (“CLMG”) acting as administrative agent on behalf of the lender 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. 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.

 

At September 30, 2016, the amount outstanding under this facility was $71,250,000 and total funds available for additional borrowing, net of required reserve, was $76,629,000.

 

 11 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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 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 November 10, 2016, the amount set aside in the reserve account is $27,500,000.

 

The Agreement has no financial covenants and certain non-financial reporting covenants, and we were in compliance with these covenants at September 30, 2016.

 

(7)       Series I Secured Notes

 

Series I Secured Notes (“Notes”) are legal obligations of GWG Life and were privately offered and sold from August 2009 through June 2011. The Notes 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 September 30, 2016 and December 31, 2015.

 

The Notes 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 Notes 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 anticipate renewing the Notes.

 

Interest on the Notes is payable monthly, quarterly, annually or at maturity depending on the election of the investor. At September 30, 2016 and December 31, 2015, the weighted-average interest rate of our Notes was 8.63% and 8.47%, respectively. The principal amount of Notes outstanding was $17,830,000 and $23,578,000 at September 30, 2016 and December 31, 2015, respectively. The difference between the amount outstanding on the Notes 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 $82,000 and $275,000 for the three and nine months ended September 30, 2016 and $49,000 and $260,000 for the three and nine months ended September 30, 2015. Future expected amortization of deferred financing costs is $277,000 in total over the next six years.

 

Future contractual maturities of Notes payable and future amortization of their deferred financing costs at September 30, 2016 are as follows: 

 

Years Ending December 31,  Contractual Maturities   Amortization of Deferred Financing Costs 
Three months ending December 31 ,2016  $1,177,000   $5,000 
2017   10,522,000    88,000 
2018   2,401,000    49,000 
2019   1,023,000    22,000 
2020   1,766,000    55,000 
Thereafter   941,000    58,000 
   $17,830,000   $277,000 

 

 12 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited) 

 

(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 September 30, 2016 and December 31, 2015.

 

Effective September 1, 2016, we discontinued the sales of 6-month and 1-year L Bonds. 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 September 30, 2016 and December 31, 2015, the weighted-average interest rate of our L Bonds was 7.16% and 7.18%, respectively. The principal amount of L Bonds outstanding was $384,586,000 and $282,171,000 at September 30, 2016 and December 31, 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 $2,073,000 and $5,362,000 for the three and nine months ended September 30, 2016 and $1,892,000 and $4,232,000 for the three and nine months ended September 30, 2015. Future expected amortization of deferred financing costs as of September 30, 2016 is $11,622,000 in total over the next eight years.

 

Future contractual maturities of L Bonds, and future amortization of their deferred financing costs, at September 30, 2016 are as follows: 

 

Years Ending December 31,  Contractual Maturities   Amortization of Deferred Financing Costs 
Three months ending December 31, 2016  $23,548,000   $115,000 
2017   112,987,000    1,708,000 
2018   101,130,000    3,106,000 
2019   78,098,000    3,222,000 
2020   19,291,000    784,000 
Thereafter   49,532,000    2,687,000 
   $384,586,000   $11,622,000 

 

(9)       Convertible Preferred Stock

 

From July 2011 until September 2012, we privately offered shares of Series A Preferred Stock (“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 included as interest expense in the statements of operations. 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 the rate of $10.00 per share.

 

As of September 30, 2016, we issued an aggregate of 447,000 shares of Series A in satisfaction of $3,129,000 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 September 30, 2016, we had 2,650,000 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.

  

 13 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

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 September 30, 2016 and December 31, 2015, none of these warrants were exercised, and the weighted-average remaining life of these warrants was 0.68 and 1.43 years, respectively.

 

In September 2012, we completed 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 under the Certificate of Designation at a price equal to 110% of their liquidation preference ($7.50 per share) at any time. As of September 30, 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 included as interest expense in the statements of operations. 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 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 permits us to decline requests for redemption in certain circumstances. 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 September 30, 2016, we had sold 33,201 shares of RPS for aggregate gross consideration of $33,177,000, and incurred approximately $2,399,000 of selling costs related to the sale of those shares.

 

(11)       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 September 30, 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 September 30, 2016 at the stated value of their shares plus accrued but unpaid dividends.

 

 14 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(12)       Income Taxes

 

We had a current income tax liability of $0 as of both September 30, 2016 and December 31, 2015. The components of current and deferred income tax expense for the three and nine months ended September 30, 2016 and 2015, respectfully, consisted of the following:

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2016   2015   2016   2015 
Income tax provision (benefit):                
Current:                
Federal  $-   $(141,000)  $-   $- 
State  $-   $(40,000)  $-   $- 
Total current tax expense (benefit)   -    (181,000)   -    - 
Deferred:                    
Federal  $(1,082,000)  $(1,488,000)  $1,121,000   $(504,000)
State  $(346,000)  $(429,000)  $358,000   $(161,000)
Total deferred tax expense (benefit)   (1,428,000)   (1,917,000)   1,479,000    (665,000)
Total income tax expense (benefit)   (1,428,000)   (2,098,000)   1,479,000    (665,000)

 

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 in Athena Structured Funds PLC. As we have no expectation of generating capital gains with the applicable carryforward period, we do not believe that it ismore likely than not” that the deferred asset will be realized.

 

The primary differences between the September 30, 2016 effective tax rate and the statutory federal rate are the accrual of non-deductible preferred stock dividend expense of $2,153,000, 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 contracts and revenue recognition with respect to the mark-to-market of our life insurance portfolio.

 

(13)       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 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(14)       Stock Incentive Plan

 

We adopted our GWG Holdings 2013 Stock Incentive Plan in March 2013. The Compensation Committee of our Board of Directors administers 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.

 

Stock Options – Through September 30, 2016, we issued stock options for 1,237,000 shares of common stock to employees, officers, and directors under the plan. Options for 687,000 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 using Black-Scholes binomial option pricing model. The expected annualized volatility used in the Black-Scholes model valuation of options issued during the period was 25.5%. 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 September 30, 2016, stock options for 415,000 shares were forfeited and stock options for 28,000 shares were exercised.

 

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    239,948    262,448 
Vested during the year   187,473    (187,473)   - 
Forfeited during the year   (6,676)   (72,824)   (79,500)
Balance as of September 30, 2016   687,000    549,563    1,236,563 

 

Compensation expense related to un-vested options not yet recognized is $420,000. We expect to recognize this compensation expense over the next three years ($14,000 in 2016, $240,000 in 2017, $109,000 in 2018, and $57,000 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 September 30, 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   56,358    89,030    145,388 
Vested during the year   56,358    89,030    145,388 
Forfeited during the year   -    -    - 
Balance as of September 30, 2016   56,358    89,030    145,388 

 

A liability for Stock Appreciation Rights - Compensation Expense was recorded on September 30, 2016 in the amount of $3,381 and Compensation Expense was charged for the same amount.

 

(15)       Net Income per Common Share

 

We have outstanding Series A, as described in Note 9. The Series A are dilutive to our net income per common share calculation for the nine-month period ended September 30, 2016. They are anti-dilutive for the three-month period ended September 30, 2016 and for both three and nine-month periods ended September 30, 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 for both three and nine-month periods ended September 30, 2016 and 2015 and have not been included in the fully diluted net loss per common share calculation. We issued RPS (see Note 10). The RPS is dilutive for the nine-month period ended September 30, 2016 and anti-dilutive for the three-month period ended September 30, 2016.

 

 16 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(16)       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 August 31, 2025. 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 these lease arrangements were $102,000 and $71,000 for the three months ended September 30, 2016 and 2015, respectively, and $306,000 and $193,000 for the nine months ended September 30, 2016 and 2015, respectively.

 

Minimum lease payments under the amended lease are as follows:

 

Three months ending December 31, 2016  $44,000 
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 
2026   38,000 
   $1,918,000 

 

(17)       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.

 

(18)       Guarantee of L Bonds

 

We are publicly offering and selling L Bond 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 the 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 GWG’s life insurance contracts are held by wholly owned subsidiaries of GWG Life: DLP III, DLP IV and the Trust. GWG Life’s equity ownership in these subsidiaries serves as collateral for the L Bond obligation. The life insurance contracts held by DLP III and DLP IV are not direct collateral for the L Bond obligations but do 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 provided herein. A majority of insurance contracts 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 contracts and to pay interest and other charges under the senior credit facility.

 

The following represents consolidating financial information as of September 30, 2016 and December 31, 2015, with respect to the financial position, and for the three and nine months ended September 30, 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.

 

 17 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Balance Sheets 

  

September 30, 2016  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
                     
A S S E T S
                     
Cash and cash equivalents  $13,312,751   $4,372,845   $1,088,232   $-   $18,773,828 
Restricted cash   -    4,438,025    11,250,000    -    15,688,025 
Investment in life insurance contracts, at fair value   -    -    477,585,100    -    477,585,100 
Secured MCA advances   -    -    6,113,831    -    6,113,831 
Life insurance contract benefits receivable   -    -    6,129,022    -    6,129,022 
Other assets   4,706,121    1,224,386    54,726    (2,854,126)   3,131,107 
Investment in subsidiaries   422,185,881    429,441,035    -    (851,626,916)   - 
                          
TOTAL ASSETS  $440,204,753   $439,476,291   $502,220,911   $(854,481,042)  $527,420,913 
                          
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  (D E F I C I T) 
                          
LIABILITIES                         
Senior credit facilities  $-   $-   $63,699,385   $-   $63,699,385 
Series I Secured Notes   -    17,553,307    -    -    17,553,307 
L Bonds   379,858,737    -    -    -    379,858,737 
Notes payable to related parties   -    -    2,700,000    (2,700,000)   - 
Accounts payable   699,507    99,705    1,643,237    -    2,442,449 
Interest payable   9,798,735    3,588,954    400,077    (154,126)   13,633,640 
Other accrued expenses   259,722    351,896    33,725    -    645,343 
Deferred taxes, net   3,242,586    -    -    -    3,242,586 
TOTAL LIABILITIES   393,859,287    21,593,862    68,476,424    (2,854,126)   481,075,447 
                          
STOCKHOLDERS’ EQUITY (DEFICIT)                         
Member capital   -    417,882,429    433,744,487    (851,626,916)   - 
Convertible preferred stock   19,772,931    -    -    -    19,772,931 
Redeemable preferred stock   33,176,600    -    -    -    33,176,600 
Common stock   5,980    -    -    -    5,980 
Additional paid-in capital   15,226,449    -    -    -    15,226,449 
Accumulated deficit   (21,836,494)   -    -    -    (21,836,494)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)   46,345,466    417,882,429    433,744,487    (851,626,916)   46,345,466 
                          
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  $440,204,753   $439,476,291   $502,220,911   $(854,481,042)  $527,420,913 

 18 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed 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 contracts, 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  (D E F I C I T) 
                          
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   17,149,391    -    -    -    17,149,391 
Accumulated deficit   (21,794,760)   -    -    -    (21,794,760)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)   16,145,414    269,736,033    291,446,172    (561,182,205)   16,145,414 
                          
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  $303,920,490   $296,069,001   $357,070,479   $(561,182,205)  $395,877,765 

 

 19 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Operations

 

For the nine months ended
September 30, 2016
  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
REVENUE                    
Origination and servicing income  $-   $13,417   $-   $(13,417)  $- 
Gain on life insurance contracts, net   -    -    51,606,815    -    51,606,815 
MCA income   -    -    654,441    -    654,441 
Interest and other income   181,828    31,137    282,259    (154,126)   341,098 
TOTAL REVENUE   181,828    44,554    52,543,515    (167,543)   52,602,354 
                          
EXPENSES                         
Origination and servicing fees   -    -    13,417    (13,417)   - 
Interest expense   25,477,320    1,856,909    4,829,831    (154,126)   32,009,934 
Employee compensation and benefits   4,894,006    3,151,107    405,055    -    8,450,168 
Legal and professional fees   1,642,252    1,308,959    146,101    -    3,097,312 
Other expenses   4,241,825    2,197,133    1,169,099    -    7,608,057 
 TOTAL EXPENSES   36,255,403    8,514,108    6,563,503    (167,543)   51,165,471 
                          
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES   (36,073,575)   (8,469,554)   45,980,012    -    1,436,883 
                          
 EQUITY IN INCOME OF SUBSIDIARY   37,510,458    46,497,731    -    (84,008,189)   - 
                          
INCOME BEFORE INCOME TAXES   1,436,883    38,028,177    45,980,012    (84,008,189)   1,436,883 
                          
INCOME TAX EXPENSE   1,478,617    -    -    -    1,478,617 
NET INCOME (LOSS)  $(41,734)  $38,028,177   $45,980,012   $(84,008,189)  $(41,734)

 

For the nine months ended
September 30, 2015

  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
REVENUE                    
Origination and servicing income  $-   $2,022,774   $-   $(2,022,774)  $- 
Gain on life settlements, net   -    -    33,446,556    -    33,446,556 
Interest and other income   38,944    61,694    132,878    -    233,516 
TOTAL REVENUE   38,944    2,084,468    33,579,434    (2,022,774)   33,680,072 
                          
EXPENSES                         
Origination and servicing fees   -    -    2,022,774    (2,022,774)   - 
Interest expense   18,011,890    1,984,356    3,152,784    -    23,149,030 
Employee compensation and benefits   4,671,183    1,509,703    -    -    6,180,886 
Legal and professional fees   1,427,388    560,873    -    -    1,988,261 
Other expenses   3,251,606    2,297,063    97,733    -    5,646,402 
                          
 TOTAL EXPENSES   27,362,067    6,351,995    5,273,291    (2,022,774)   36,964,579 
                          
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES   (27,323,123)   (4,267,527)   28,306,143    -    (3,284,507)
                          
 EQUITY IN INCOME OF SUBSIDIARY   24,038,616    28,305,979    -    (52,344,595)   - 
                          
NET INCOME (LOSS) BEFORE INCOME TAXES   (3,284,507)   24,038,452    28,306,143    (52,344,595)   (3,284,507)
                          
INCOME TAX BENEFIT   (664,905)   -    -    -    (664,905)
NET INCOME (LOSS)  $(2,619,602)  $24,038,452   $28,306,143   $(52,344,595)  $(2,619,602)

 20 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Operations (continued)

 

For the three months ended

September 30, 2016

  Parent   Guarantor Subsidiary  

Non-

Guarantor Subsidiaries

   Eliminations   Consolidated 
REVENUE                    
Gain on life insurance contracts, net   -    -    13,509,755    -    13,509,755 
MCA income   -    -    286,225    -    286,225 
Interest and other income   75,808    30,126    83,313    (64,249)   124,998 
TOTAL REVENUE   75,808    30,126    13,879,293    (64,249)   13,920,978 
                          
EXPENSES                         
Interest expense   9,747,128    554,938    1,746,151    (64,249)   11,983,968 
Employee compensation and benefits   1,718,683    1,038,058    155,722    -    2,912,463 
Legal and professional fees   263,917    297,804    25,109    -    586,830 
Other expenses   1,464,498    803,106    595,608    -    2,863,212 
 TOTAL EXPENSES   13,194,226    2,693,906    2,522,590    (64,249)   18,346,473 
                          
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES   (13,118,418)   (2,663,780)   11,356,703    -    (4,425,495)
                          
 EQUITY IN INCOME OF SUBSIDIARY   8,692,923    11,361,329    -    (20,054,252)   - 
                          
INCOME (LOSS) BEFORE INCOME TAXES   (4,425,495)   8,697,549    11,356,703    (20,054,252)   (4,425,495)
                          
INCOME TAX BENEFIT   (1,418,130)   -    -    -    (1,428,130)
NET INCOME (LOSS)  $(2,997,365)  $8,697,549   $11,356,703   $(20,054,252)  $(2,997,365)

For the three months ended

September 30, 2015

  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
REVENUE                    
Origination and servicing income  $-   $1,004,024   $-   $(1,004,024)  $- 
Gain on life settlements, net   -    -    8,189,261    -    8,189,261 
Interest and other income   13,922    54,813    25,106    -    93,841 
TOTAL REVENUE   13,922    1,058,837    8,214,367    (1,004,024)   8,283,102 
                          
EXPENSES                         
Origination and servicing fees   -    -    1,004,024    (1,004,024)   - 
Interest expense   6,980,132    525,391    1,144,626    -    8,650,149 
Employee compensation and benefits   1,759,589    548,657    -    -    2,308,246 
Legal and professional fees   598,530    223,547    -    -    822,077 
Other expenses   1,195,417    995,026    40,898    -    2,231,341 
                          
TOTAL EXPENSES   10,533,668    2,292,621    2,189,548    (1,004,024)   14,011,813 
                          
INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES   (10,519,746)   (1,233,784)   6,024,819    -    (5,728,711)
                          
 EQUITY IN INCOME OF SUBSIDIARY   4,791,035    6,024,762    -    (10,815,797)   - 
                          
NET INCOME (LOSS) BEFORE INCOME TAXES   (5,728,711)   4,790,978    6,024,819    (10,815,797)   (5,728,711)
                          
INCOME TAX BENEFIT   (2,097,633)   -    -    -    (2,097,633)
NET INCOME (LOSS)  $(3,631,078)  $4,790,978   $6,024,819   $(10,815,797)  $(3,631,078)

 21 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Condensed Consolidating Statements of Cash Flows 

For the nine months ended
September 30, 2016
  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
CASH FLOWS FROM OPERATING ACTIVITIES                    
Net income  $(41,734)  $38,028,177   $45,980,012   $(84,008,189)  $(41,734)
Adjustments to reconcile net income to net cash flows from operating activities:                         
(Equity) of subsidiaries   (37,510,459)   (46,497,730)   -    84,008,189    - 
Gain on life insurance contracts   -    -    (53,846,155)   -    (53,846,155)
Amortization of deferred financing and issuance costs   5,982,802    (1,364,614)   1,459,717    -    6,077,905 
Deferred income taxes   1,478,617    -    -    -    1,478,617 
Preferred stock dividends payable   663,614    -    -    -    663,614 
(Increase) in operating assets:                         
Life insurance contract benefits receivable   -    -    (6,129,022)        (6,129,022)
Other assets   (114,885,990)   (92,168,163)   -    206,436,523    (617,630)
Increase (decrease) in operating liabilities:                         
Due to related party   (2,867,225)   (15,505)   2,700,000    -    (182,730)
Accounts payable and accrued expenses   2,396,503    2,889,525    (7,310,262)   -    (2,024,234)
NET CASH FLOWS USED IN OPERATING ACTIVITIES   (144,783,872)   (99,128,310)   (17,145,710)   206,436,523    (54,621,369)
                          
CASH FLOWS FROM INVESTING ACTIVITIES                         
Investment in life insurance contracts   -    -    (74,470,362)   -    (74,470,362)
Carrying value of matured life insurance contracts   -    -    7,381,132    -    7,381,132 
Investment in Secured MCA advances   -    -    (7,613,310)   -    (7,613,310)
Proceeds from Secured MCA advances   -    -    1,246,703    -    1,246,703 
NET CASH FLOWS USED IN INVESTING ACTIVITIES   -    -    (73,455,837)   -    (73,455,837)
                          
CASH FLOWS FROM FINANCING ACTIVITIES                         
Net borrowings on Senior Credit Facilities   -    -    6,238,952    -    6,238,952 
Payments for redemption of Series I Secured Notes   -    (6,264,018)   -    -    (6,264,018)
Proceeds from issuance of L Bonds   135,477,090    -    -    -    135,477,090 
Payments for redemption and issuance of L Bonds   (37,036,922)   -    -    -    (37,036,922)
Proceeds from (increase in) restricted cash   -    (2,335,768)   (11,010,358)   -    (13,346,126)
Issuance of common stock   244,185    -    -    -    244,185 
Proceeds from issuance of preferred stock   31,215,986    -    71,555    -    31,287,541 
Payments for issuance and redemption of preferred stock   (4,095,878)   -    (78,895)   -    (4,174,773)
Issuance of member capital   -    110,118,219    96,318,304    (206,436,523)   - 
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   125,804,461    101,518,433    91,539,558    (206,436,523)   112,425,929 
                          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (18,979,411)   2,390,123    938,011    -    (15,651,277)
                          
CASH AND CASH EQUIVALENTS                         
BEGINNING OF THE PERIOD   32,292,162    1,982,722    150,221    -    34,425,105 
                          
END OF THE PERIOD  $13,312,751   $4,372,845   $1,088,232   $-   $18,773,828 

 

 22 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Consolidating Statements of Cash Flows (continued)

 

For the nine months ended
September 30, 2015
  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
CASH FLOWS FROM OPERATING ACTIVITIES                    
Net income (loss)  $(2,619,602)  $24,038,452   $28,306,143   $(52,344,595)  $(2,619,602)
Adjustments to reconcile net income to net cash flows from operating activities:                         
(Equity) of subsidiaries   (24,038,617)   (28,305,978)   -    52,344,595    - 
Gain on life settlements   -    -    (26,651,363)   -    (26,651,363)
Amortization of deferred financing and issuance costs   2,832,487    260,455    (1,201,170)   -    1,891,772 
Deferred income taxes   (664,905)   -    -    -    (664,905)
Convertible, redeemable preferred dividends payable   509,225    -    -    -    509,225 
(Increase) decrease in operating assets:                         
Policy benefits receivable   -    -    1,392,986         1,392,986 
Other assets   (40,145,769)   (26,745,888)   -    66,117,118    (774,539)
Increase (decrease) in operating liabilities:                         
Accounts payable and accrued expenses   4,503,624    123,222    (790,131)   -    3,836,715 
NET CASH FLOWS USED IN OPERATING ACTIVITIES   (30,425,246)   (30,629,737)   1,056,465    66,117,118    (23,079,711)
                          
CASH FLOWS FROM INVESTING ACTIVITIES                         
Investment in life settlements   -    -    (23,850,860)   -    (23,850,860)
Carrying value of matured life insurance contracts   -    -    3,822,983    -    3,822,983 
NET CASH FLOWS USED IN INVESTING ACTIVITIES   -    -    (20,027,877)   -    (20,027,877)
                          
CASH FLOWS FROM FINANCING ACTIVITIES                         
Repayment of senior credit facilities   -    -    (7,150,000)   -    (7,150,000)
Payments for redemption of Series I Secured Notes   -    (4,508,130)   -    -    (4,508,130)
Proceeds from issuance of L Bonds   87,620,483    -    -    -    87,620,483 
Payments for redemption and issuance of L Bonds   (32,376,104)   -    -    -    (32,376,104)
Payments from restricted cash   -    (2,306,300)   (669,207)   -    (2,975,507)
Issuance of common stock   582,000    -    -    -    582,000 
Payments for redemption preferred stock   (295,185)   -    -    -    (295,185)
Issuance of member capital   -    39,176,335    26,940,783    (66,117,118)   - 
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   55,531,194    32,361,905    19,121,576    (66,117,118)   40,897,557 
                          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (4,092,363)   1,732,168    150,164    -    (2,210,031)
                          
CASH AND CASH EQUIVALENTS                         
BEGINNING OF THE PERIOD   30,446,473    216,231    -    -    30,662,704 
                          
END OF THE PERIOD  $26,354,110   $1,948,399   $150,164   $-   $28,452,673 

 23 
 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Consolidating Statements of Cash Flows (continued)

For the three months ended
September 30, 2016
  Parent   Guarantor Subsidiary   Non-Guarantor Subsidiaries   Eliminations   Consolidated 
                     
CASH FLOWS FROM OPERATING ACTIVITIES                    
Net income  $(2,997,365)  $8,697,549   $11,356,703   $(20,054,252)  $(2,997,365)
Adjustments to reconcile net loss to net cash flows from operating activities:                         
(Equity) of subsidiaries   (8,692,924)   (11,361,328)   -    20,054,252    - 
Gain on life insurance contracts   -    -    (21,073,226)   -    (21,073,226)
Amortization of deferred financing and issuance costs   2,072,879    81,849    611,015    -    2,765,743 
Deferred income taxes   (1,428,130)   -    -    -    (1,428,130)
Preferred stock dividends payable   333,565    -    -    -    333,565 
(Increase) in operating assets:                         
Life insurance contract benefits receivable   -    -    700,000    -    700,000 
Other assets   (54,428,152)   (54,272,589)   -    109,120,577    419,836 
Increase (decrease) in operating liabilities:                         
Due to related party   (64,249)   (16,700)   -    -    (80,949)
Accounts payable and other accrued expenses   155,980    2,172,227    (5,545,197)   -    (3,216,990)
NET CASH FLOWS USED IN OPERATING ACTIVITIES   (65,048,396)   (54,698,992)   (13,950,705)   109,120,577    (24,577,516)
                          
CASH FLOWS FROM INVESTING ACTIVITIES                         
Investment in life insurance contracts   -    -    (25,770,326)   -    (25,770,326)
Carrying value of matured life insurance contracts   -    -    1,078,889    -    1,078,889 
Investment in Secured MCA advances   -    -    (1,965,896)        (1,965,896)
Proceeds from Secured MCA advances   -    -    220,911    -    220,911 
NET CASH FLOWS USED IN INVESTING ACTIVITIES   -    -    (26,436,422)   -    (26,436,422)
                          
CASH FLOWS FROM FINANCING ACTIVITIES                         
Net repayment of Senior Credit Facilities   -    -    (10,761,048)        (10,761,048)
Payments for redemption of Series I Secured Notes   -    (541,275)   -    -    (541,275)
Proceeds from issuance of L Bonds   64,350,430    -    -    -    64,350,430 
Payments for redemption and issuance of L Bonds   (14,373,447)   -    -    -    (14,373,447)
Proceeds from (increase in) restricted cash   -    486,283    (5,013,515)   -    (4,527,232)
Issuance of member capital   -    52,304,345    56,816,232    (109,120,577)   - 
Issuance of common stock   31,515    -    -    -    31,515 
Proceeds from issuance of preferred stock   20,786,332    -    -    -    20,786,332 
Payments for issuance and redemption of preferred stock   (2,485,304)   -    (71,555)   -    (2,556,859)
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   68,309,526    52,249,353    40,970,114    (109,120,577)   52,408,416 
                          
NET INCREASE IN CASH AND CASH EQUIVALENTS   3,261,130    (2,449,639)   582,987    -    1,394,478 
                          
CASH AND CASH EQUIVALENTS                         
BEGINNING OF THE PERIOD   10,051,621    6,822,484    505,245    -    17,379,350 
                          
END OF THE PERIOD  $13,312,751   $4,372,845   $1,088,232   $-   $18,773,828 

 24 
 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Consolidating Statements of Cash Flows (continued)

 

For the three months ended
September 30, 2015
  Parent   Guarantor Sub   Non-Guarantor Sub   Eliminations   Consolidated 
                     
CASH FLOWS FROM OPERATING ACTIVITIES                    
Net income (loss)  $(3,631,078)  $4,790,978   $6,024,819   $(10,815,797)  $(3,631,078)
Adjustments to reconcile net loss to net cash flows from operating activities:                         
(Equity) of subsidiaries   (4,791,035)   (6,024,762)   -    10,815,797    - 
Gain on life settlements   -    -    (14,516,881)   -    (14,516,881)
Amortization of deferred financing and issuance costs   1,103,312    49,339    781,125    -    1,933,776 
Deferred income taxes   (1,916,686)   -    -    -    (1,916,686)
Convertible, redeemable preferred stock dividends payable   173,993    -    -    -    173,993 
(Increase) decrease in operating assets:                         
Policy benefits receivable   -    -    2,142,986    -    2,142,986 
Other assets   (22,146,946)   (15,631,849)   -    37,360,805    (417,990)
Increase (decrease) in operating liabilities:                         
Accounts payable and other accrued expenses   2,010,129    (105,418)   629,558    -    2,534,269 
NET CASH FLOWS USED IN OPERATING ACTIVITIES   (29,198,311)   (16,921,712)   (4,938,393)   37,360,805    (13,697,611)
                          
CASH FLOWS FROM INVESTING ACTIVITIES                         
Investment in life settlements   -    -    (13,626,842)   -    (13,626,842)
Carrying value of matured life insurance contracts   -    -    80,000    -    80,000 
NET CASH FLOWS USED IN INVESTING ACTIVITIES   -    -    (13,546,842)   -    (13,546,842)
                          
CASH FLOWS FROM FINANCING ACTIVITIES                         
Payments for redemption of Series I Secured Notes   -    (890,586)   -    -    (890,586)
Proceeds from issuance of L Bonds   37,122,127    -    -    -    37,122,127 
Payments for redemption and issuance of L Bonds   (19,363,047)   -    -    -    (19,363,047)
Proceeds (payments) from restricted cash   -    (2,203,800)   2,855,430    -    651,630 
Issuance of member capital   -    21,730,944    15,629,861    (37,360,805)   - 
Payments for redemption preferred stock   (21,187)   -    -    -    (21,187)
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   17,737,893    18,636,558    18,485,291    (37,360,805)   17,498,937 
                          
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (11,460,418)   1,714,846    56    -    (9,745,516)
                          
CASH AND CASH EQUIVALENTS                         
BEGINNING OF THE PERIOD   37,814,528    233,553    150,108    -    38,198,189 
                          
END OF THE PERIOD  $26,354,110   $1,948,399   $150,164   $-   $28,452,673 

 

 25 
 

 

GWG HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(19)       Concentrations

 

We purchase life insurance contracts written by life insurance companies having investment grade ratings by independent rating agencies. As a result, there may be concentrations of contracts with certain life insurance companies. The following summarizes the face value of insurance contracts with specific life insurance companies exceeding 10% of the total face value held by us.

 

Life insurance company  September 30,   December 31, 
   2016   2015 
AXA Equitable   14.3%   14.0%
John Hancock   13.0%   12.7%
Lincoln National   11.5%   * 
Transamerica   10.1%   * 

 

* percentage does not exceed 10% of the total face value.

 

The following summarizes the number of insurance contracts insuring the lives of persons living in specific states exceeding 10% of the total face value held by us:

 

State of Residence  September 30,   December 31, 
   2016   2015 
California   21.1%   25.2%
Florida   19.0%   20.0%

 

(20)       Subsequent events

 

Subsequent to September 30, 2016, two policies covering two individual matured. The life insurance contract benefits of these policies were $3,240,000 and we recorded realized gains of $2,539,000 on these policies.

 

Subsequent to September 30, 2016, we have issued approximately $6,911,000 in additional principal amount of L Bonds, and 7,350 shares of RPS for gross consideration of approximately $7,350,000.

 

On October 28, 2016, DLP IV completed the closing of the second of two initial advances contemplated under a Loan and Security Agreement with LNV. At this closing, a total of $92,900,000 in loan proceeds were obtained by DLP IV, of which approximately $16,250,000 was used to fund a reserve account required under the Loan and Security Agreement.

 

 26 
 

 

ITEM 2. 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” 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.

 

Such factors include, but are not limited to: 

 

changes in the secondary market for life insurance;
our limited operating history;
the valuation of assets reflected on our financial statements;
the reliability of assumptions underlying our actuarial models;
our reliance on debt financing;
risks relating to the validity and enforceability of the life insurance contracts we purchase;
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 contracts;
our ability to satisfy our debt obligations if we were to sell our entire portfolio of life insurance contracts;
life insurance company credit exposure;
cost-of-insurance (premium) increases on our life insurance contracts;
general economic outlook, including prevailing interest rates;
performance of our investments in life insurance contracts;
financing requirements;
risks associated with our recent entry into the merchant cash advance business;
litigation risks; and
restrictive covenants contained in borrowing agreements.

 

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.

 

 27 
 

 

Overview

 

GWG Holdings, Inc. is a financial services company participating in the life insurance secondary market. We create opportunities for consumers owning life insurance to obtain significant value for their contracts as compared to the traditional options offered by insurance companies. We also create opportunities for investors to participate in the life insurance alternative investment asset class, not correlated to traditional financial markets. In so doing, we enable investors to take advantage of financial opportunities dominated by banks prior to the 2008 credit crisis.

 

We seek to build a profitable and large portfolio of life insurance assets that are well diversified in terms of insurance companies and insureds. We believe that diversification is a key risk mitigation strategy to provide consistent cash flows and reliable investment returns from our portfolio. To grow our portfolio and achieve diversification, we offer investors the opportunity to participate in the yield potentially generated by our portfolio of life insurance assets through a variety of financings and securities offerings. We believe we are well positioned to continue providing investors with yield participation opportunities from the life insurance alternative asset class. 

 

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 contracts 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 Contracts—Fair Value Option

 

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

 

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

 

We initially record our purchase of life insurance contracts at the transaction price, which is the amount paid for the contract, inclusive of all external fees and costs associated with the acquisition. The fair value of our investment in our portfolio of insurance contracts 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 contracts. 

 

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 contracts. 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 contracts and more current information compared to the dataset underlying the 2008 Valuation Basic Table. The new 2015 VBT dataset includes 266 million contracts compared to the 2008 VBT dataset of 75 million. The experience data in the 2015 VBT dataset includes 2.55 million claims on contracts 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.

 

 28 
 

 

In September 2015, Equitable Life Insurance Company (“AXA”) announced pending cost-of-insurance rate increases for certain universal life contracts which were effected on March 1, 2016.  We identified 14 affected contracts in our portfolio. In April 2016, we received updated contract illustrations from AXA and calculated the change in the fair value of our portfolio resulting from the increased premiums to be a reduction of $2,395,000. This reduction was reflected in our balance sheet as of March 31, 2016. Our review of AXA’s cost-of-insurance rate increases is complete as of September 30, 2016.

  

We are aware of additional pending cost of insurance increases affecting approximately 1.1% of our portfolio by face amount of benefits. We will adjust our premium schedules and resultant valuation when we have received the required information from the related carriers.

 

Fair Value Components – Required Premium Payments

 

We must pay the premiums on the life insurance contracts within our portfolio in order to collect the contract benefit. The same probabilistic model and methodologies used to generate expected cash inflows from the life insurance contract 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 represents the internal rate of return we expect to earn on investments in a contract or in the portfolio as a whole at the stated fair value. 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 contracts for the period ending:

 

  September 30, 2016   December 31, 2015  
  11.07%   11.09%  

 

The change in the discount rate incorporates current information about discount rates applied by other reporting companies owning portfolios of life insurance contracts, 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 contracts. Because we use the discount rate to arrive at the fair value of our portfolio, the rate we choose necessarily 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). The carrying value of contracts 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 Model Actuarial Pricing Systems (“MAPS”), to prepare a calculation of our life insurance portfolio. MAPS owns and maintains the portfolio pricing software we use. MAPS processed contract 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 11.07%. MAPS independently calculated the net present value of our portfolio of 625 contracts to be $477.6 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, 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.

 

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Deferred Financing and Issuance Costs

 

Financing costs 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 issuance costs, sales commissions, and other direct expenses, which are amortized using the interest method over the term of each respective borrowing. The L Bonds are reported net of issuance costs, sales commissions, and other direct expenses, which are amortized using the interest method over the term of each respective borrowing. The Series A, as described in Note 9, was reported net of issuance costs, sales commissions, including the fair value of warrants issued, and other direct expenses, which were amortized using the interest method as interest expense over a three-year redemption period. As of December 31, 2015, these costs have been fully amortized.  Selling and issuance costs of RPS and MCA Preferred Stock, described in Notes 10 and 11, are netted against additional paid-in-capital.

 

Principal Revenue and Expense Items

 

We earn revenues from the following three primary sources.

 

Life Insurance Contract Benefits Realized. We recognize the difference between the face value of the contract benefits and carrying value when an insured’s mortality event occurs. We generally collect the face value of the life insurance contract benefit from the insurance company within 45 days of recognizing the revenue.

 

Change in Fair Value of Life Insurance Contracts. We value our portfolio investments for each reporting period in accordance with the fair value principles discussed herein, which includes the expected payment of premiums for future periods as shown in our consolidated financial statements net premium costs.

 

Sale of a Life Insurance Contract. In the event of a sale of a contract, we recognize gain or loss as the difference between the sale price and the carrying value of the contract 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 contracts. 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, and dividends on our Series A and our RPS. When we issue debt, we amortize the issuance costs associated with such indebtedness over the outstanding term of the financing, and classify it as interest expense.

 

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Results of Operations — Three and Nine Months Ended September 30, 2016 Compared to the Same Periods in 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

 

   Three Months Ended September 30,  

Nine Months Ended September 30,

 
   2016   2015   2016   2015 
Revenue recognized from the receipt of contract benefits  $4,221,000   $277,000   $26,986,000   $25,909,000 
Revenue (expense) recognized from the change in fair value of life insurance contracts, net of premiums and carrying costs (1)   9,289,000    7,912,000    24,621,000    7,538,000 
Gain on life insurance contracts, net  $13,510,000   $8,189,000   $51,607,000   $33,447,000 
Number of contracts matured   4    1    16    8 
The change in fair value related to new contracts acquired  $11,668,000   $7,423,000   $29,509,000   $12,546,000 

 

(1) The discount rate applied to estimate the fair value of the portfolio of life insurance contracts we own was 11.07% as of both September 30, 2016 and September 30, 2015.  The carrying value of contracts 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 (see Note 4 to our condensed consolidated financial statements).

 

Expenses.

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2016   2015   Increase (Decrease)   2016   2015   Increase 
Employee compensation and benefits (1)  $2,912,000   $2,308,000   $604,000   $8,450,000   $6,181,000   $2,269,000 
Interest expense (including amortization of deferred financing costs and preferred stock dividends) (2)   11,984,000    8,650,000    3,334,000    32,010,000    23,149,000    8,861,000 
Legal and professional expenses (3)   587,000    822,000    (235,000)   3,097,000    1,988,000    1,109,000 
Other expenses (4)   2,863,000    2,232,000    631,000    7,608,000    5,646,000    1,962,000 
Total expenses  $18,346,000   $14,012,000   $4,334,000   $51,165,000   $36,964,000   $14,201,000 

  

(1) We hired additional members to our sales, marketing, legal and information technology teams.  At the end of 2015 we employed approximately 50 employees, and at September 30, 2016 we employed approximately 67 employees.
(2) The increase in the current period was due to the increase in our average debt outstanding.
(3) Increase is due to SEC filings and other costs related to securities offerings and on-going compliance.
(4) Increase is due to increased public relations, sales and marketing costs associated with growing and servicing our network of independent financial advisors.

 

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Income Tax Expense.

 

The following table reconciles our income tax expense at the statutory federal tax rate to our actual income tax expense: 

  

    Three Months Ended     Nine Months Ended  
    September 30, 2016     September 30, 2015     September 30, 2016     September 30, 2015  
Statutory federal income tax (benefit)   $ (1,561,000 )     34.0 %   $ (1,948,000 )     34.0 %   $ 489,000       34.0 %   $ 1,117,000       34.0 %
State income taxes (benefit), net of federal benefit     (227,000 )     4. 9%     (334,000 )     5.8 %     240,000       16.7 %     (105,000)       3.2 %
Series A preferred stock dividends     354,000       (7.7 )%     175,000       (3.1 )%     732,000       51.0 %     526,000       16.0 %
Other permanent differences     15,000       (0.3 )%     9,000       (0.1 )%     18,000       1.3 %     31,000       1.0 %
Total income tax expense (benefit)   $ (1,419,000 )     30.9 %   $ (2,098,000 )     36.6 %   $ 1,479,000       102.9 %   $ 665,000       20.2 %

 

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 contracts and revenue recognition with respect to the fair value of life insurance portfolio.

 

The primary permanent difference between our effective tax rate and the statutory federal rate are the accrual of preferred stock dividend expense, state income taxes, and other non-deductible expenses. The dividends charged to interest expense were $1.0 million and $0.5 million during the three months ended September 30, 2016 and 2015, respectively, and $2.2 million and $1.5 million during the nine months ended September 30, 2016 and 2015, respectively.

 

Liquidity and Capital Resources

 

We finance our business through a combination of life insurance contract 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 contract acquisition, contract servicing, and portfolio-related financing expenditures including paying principal and interest.

 

As of September 30, 2016 and December 31, 2015, we had approximately $117.2 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 contracts, paying premiums on existing contracts, paying portfolio servicing expenses, and paying principal and interest on our outstanding financing obligations.

 

Debt Financings Summary

 

We had the following outstanding debt balances as of September 30, 2016 and December 31, 2015:

 

   As of September 30, 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  $384,586,000    7.16%  $282,171,000    7.18%
GWG Life, LLC – Series I Secured Notes   17,830,000    8.63%   23,578,000    8.47%
Credit Facility – Autobahn Funding Company LLC (See Note 5 to our consolidated financial statements)   -    -    65,011,000    5.58%
Credit Facility – LNV Corporation (See Note 6 to our consolidated financial statements)   71,250,000    6.45%   -    - 
Total  $473,666,000    7.10%  $370,760,000    6.98%

  

Our total senior credit facilities and other indebtedness balance as of September 30, 2016 and December 31, 2015 was $473.7 million and $370.8 million, respectively. At September 30, 2016, the total outstanding face amount of our Series I Secured Notes outstanding was $17.8 million, less unamortized selling costs of $0.3 million, resulting in a carrying amount of $17.5 million. At December 31, 2015, the total outstanding face amount of our Series I Secured Notes outstanding was $23.6 million, less unamortized selling costs of $0.3 million, resulting in a carrying amount of $23.3 million. At September 30, 2016, the total outstanding face amount of L Bonds was $384.6 million plus $6.9 million of subscriptions in process, less unamortized selling costs of $11.6 million resulting in a carrying amount of $379.9 million. At December 31, 2015, the total outstanding face amount of L Bonds was $282.2 million plus $3.0 million of subscriptions in process, less unamortized selling costs of $8.2 million resulting in a carrying amount of $277.0 million.

 

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The weighted-average interest rate of our outstanding Series I Secured Notes as of September 30, 2016 and December 31, 2015 was 8.63% and 8.47%, respectively, and the weighted-average maturity at those dates was 1.31 and 1.06 years, respectively. The Series I Secured Notes have renewal features. Since we first issued our Series I Secured Notes, we experienced $165.1 million in maturities, of which $125.0 million renewed for an additional term as of September 30, 2016. This provided us with an aggregate renewal rate of approximately 76% 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 September 30, 2016 and December 31, 2015 was 7.16% and 7.18%, respectively, and the weighted-average maturity at those dates was 2.10 and 2.02 years, respectively. Our L Bonds have renewal features. As of September 30, 2016, $252.4 million in aggregate principal amount of our L Bonds had matured since issuance, of which $168.3 million renewed for an additional term. The aggregate renewal rate is approximately 67% for investments in these securities. 

 

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 
2016  $1,177,000   $23,548,000   $24,725,000 
2017   10,522,000    112,987,000    123,509,000 
2018   2,401,000    101,130,000    103,531,000 
2019   1,023,000    78,098,000    79,121,000 
2020   1,766,000    19,291,000    21,057,000 
Thereafter   941,000    49,532,000    50,473,000 
   $17,830,000   $384,586,000   $402,416,000 

 

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 to our consolidated financial statements). 

 

We maintain a $105 million revolving senior credit facility with Autobahn/DZ Bank through DLP III. The revolving senior credit facility is used to pay the premium expenses related to our portfolio of life insurance contracts. As of September 30, 2016 and December 31, 2015, we had approximately $0 million and $65.0 million, respectively, outstanding under the revolving senior credit facility, and maintained an available borrowing base surplus of $76.6 million and $40.0 million, respectively.

 

On September 14, 2016, we entered into a $172 million senior secured term loan with LNV Corp. through GWG Funding DLP IV. We intend to use the proceeds from this facility primarily to grow and maintain our portfolio of life insurance contracts, for liquidity and for general corporate purposes. As of September 30, 2016 we had approximately $71.2 million outstanding under the senior credit facility.

  

Capital expenditures have historically not been material and we do not anticipate making material capital expenditures in 2016 or beyond.

 

Corporate Financing History

 

In November 2009, our wholly owned subsidiary GWG Life offered Series I Secured Notes in a private placement to accredited investors only. This offering was closed in November 2011. As of September 30, 2016 and December 31, 2015, we had approximately $17.8 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 September 30, 2016 and December 31, 2015, respectively, we had approximately $19.8 million and $20.8 million stated value of Series A outstanding.

 

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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.

 

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 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 offering to our earlier $250.0 million public debt offering. Through September 30, 2016, the total amount of these L Bonds sold, including renewals, was $637.1 million. As of September 30, 2016 and December 31, 2015, respectively, we had approximately $384.6 million and $282.2 million, respectively, 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 September 30, 2016 we had issued approximately $33.2 million stated value of RPS.

 

Portfolio Assets and Secured Indebtedness 

 

At September 30, 2016, the fair value of our investments in life insurance contracts of $477.6 million plus our cash balance of $18.8 million, our restricted cash balance of $15.7 million and our life insurance contract benefits receivable of $6.1 million, totaled $518.2 million, representing an excess of portfolio assets over secured indebtedness of $44.5 million. At December 31, 2015, the fair value of our investments in life insurance contracts 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. 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.

  

The following forward-looking table seeks to illustrate the impact of the sale of our portfolio of life insurance assets at various discount rates in order to satisfy our debt obligations as of September 30, 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  $503,331,000   $479,200,000   $456,979,000   $436,470,000   $417,501,000 
Cash, cash equivalents and life insurance contract benefits receivable   40,591,000    40,591,000    40,591,000    40,591,000    40,591,000 
Total assets   543,922,000    519,791,000    497,570,000    477,061,000    458,092,000 
Revolving senior credit facility   71,250,000    71,250,000    71,250,000    71,250,000    71,250,000 
Net after revolving senior credit facility   472,672,000    448,541,000    426,320,000    405,811,000    386,842,000 
Series I Secured Notes and L Bonds   402,416,000    402,416,000    402,416,000    402,416,000    402,416,000 
Net after Series I Secured Notes and L Bonds   70,256,000    46,125,000    23,904,000    3,395,000    (15,574,000)
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 of our life insurance assets at a price equivalent to a discount rate of approximately 13.18% or higher. At December 31, 2015, the impairment occurred at a discount rate of approximately 12.58% or higher. The discount rates used to calculate the fair value of our portfolio were 11.07% and 11.09% as of September 30, 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 significant assumptions made by, and information currently available to, our management.

 

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Cash Flows

 

The payment of premiums and servicing costs to maintain life insurance contracts represents our most significant requirement for cash disbursement. When a contract is purchased, we are able to calculate the minimum premium payments required to maintain the contract in-force. As the insured ages, premium payments increase (see Note 3 to our consolidated financial statements). Nevertheless, the probability of actually needing to pay the premiums decreases as the probability of mortality increases. These scheduled premiums and associated probabilities are factored into our expected internal rate of return and cash-flow modeling. Beyond premiums, we incur contract 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 stable amount of proceeds from the contract 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 RPS.

 

The amount of payments for anticipated premiums and servicing costs (excluding debt 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 
Three months ending December 31, 2016  $10,449,000   $188,000   $10,637,000 
2017   43,155,000    750,000    43,905,000 
2018   46,847,000    750,000    47,597,000 
2019   50,813,000    750,000    51,563,000 
2020   56,633,000    750,000    57,383,000 
2021   63,222,000    750,000    63,972,000 
   $271,119,000   $3,938,000   $275,057,000 

 

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

 

Quarter End Date 

Portfolio

Face Amount

  

12-Month

Trailing

Benefits Collected

  

12-Month

Trailing Premiums Paid

  

12-Month

Trailing

Benefits/
Premium

Coverage
Ratio

 
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    193.6%
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%

 

We believe that the portfolio cash flow results set forth above are consistent with our general investment thesis: that the life insurance contract 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 results 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 contracts. As our receipt of life insurance contract benefits increases, we expect to increasingly use these cash flows to begin paying down our outstanding indebtedness and purchase additional life insurance contracts. 

 

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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

 

GWG Holdings is party to an office lease with U.S. Bank National Association as the landlord. Effective September 1, 2015, GWG Holdings entered into a second amendment to the lease with U.S. Bank National Association (Second Amendment to Lease). The Second Amendment to Lease increases the office space area to 17,687 square feet and extends the lease expiration date by approximately ten years (see Note 16 to our consolidated financial statements).

 

Credit Risk

 

We review the credit risk associated with our portfolio of life insurance contracts when estimating its fair value. In evaluating the contracts’ 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 contracts by generally purchasing life insurance contracts issued only from companies with an investment-grade credit rating by Standard & Poor’s, Moody’s, or A.M. Best Company. See “Portfolio Credit Risk Management” below.

 

Interest Rate Risk

 

Our senior credit facilities are floating-rate financing. In addition, our ability to offer interest rates that attract capital (including in our continuous offering of L Bonds) is generally impacted by prevailing interest rates. Furthermore, while our other indebtedness provides us with fixed-rate financing, our debt coverage ratio is calculated in relation to our total cost of financing. Therefore, rising interest rates could materially 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 reduce the earnings we expect to achieve from our investments in life insurance contracts.

 

Non-GAAP Financial Measures

 

Non-GAAP financial measures disclosed by 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. Please see our financial statements and related notes contained herein.

  

We use non-GAAP financial measures for maintaining compliance with covenants contained in our borrowing agreements 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 occur 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 contracts 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 contracts according to a mortality table as the insureds’ age increases. By comparing the actuarial gain accruing within our portfolio of life insurance contracts 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 contract 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 revolving 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 contracts and (ii) the weighted average of our senior credit facility’s interest rate. These calculations are made using non-GAAP measures in the method described below, without regard to GAAP-based fair value measures.

 

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 contracts 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. Our senior credit facility with Autobahn/DZ Bank requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance contracts at the expected internal rate of return of the contracts we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our net income on a non-GAAP basis. 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   2016   2015   2016   2015 
GAAP net income (loss)  $(2,997,000)  $(3,631,000)  $(42,000)  $(2,620,000)
Unrealized fair value gain (1)   (21,073,000)   (14,517,000)   (53,846,000)   (26,651,000)
Adjusted cost basis increase (2)   19,948,000    13,345,000    51,689,000    37,988,000 
Accrual of unrealized actuarial gain (3)   11,769,000    9,201,000    29,339,000    21,417,000 
Total adjusted non-GAAP net income (4)  $7,647,000   $4,398,000   $27,140,000   $30,134,000 

 

(1) Reversal of unrealized GAAP fair value gain of life insurance contracts for current period.
(2) Adjusted cost basis is increased to include interest, premiums and servicing fees which are not capitalized under GAAP (non-GAAP cost basis).
(3) Accrual of actuarial gain at expected internal rate of return based on the non-GAAP 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 revolving credit facility with Autobahn/DZ Bank.

 

Adjusted Non-GAAP Tangible Net Worth. Our revolving 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. We calculate the adjusted tangible net worth by recognizing the actuarial gain accruing within our life insurance contracts at the expected internal rate of return of the contracts we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our tangible net worth on a non-GAAP basis.

 

   As of September 31, 2016   As of December  31, 2015 
GAAP net worth  $46,345,000   $16,145,000 
Less intangible assets (1)   (20,320,000)   (11,562,000)
GAAP tangible net worth   26,025,000    4,583,000 
Unrealized fair value gain (2)   (247,889,000)   (194,043,000)
Adjusted cost basis increase (3)   230,532,000    190,645,000 
Accrual of unrealized actuarial gain (4)   140,693,000    111,355,000 
Total adjusted non-GAAP tangible net worth  $149,361,000   $112,540,000 

 

(1) Unamortized portion of deferred financing costs and pre-paid insurance.
(2) Reversal of cumulative unrealized GAAP fair value gain on life insurance contracts.
(3) Adjusted cost basis is increased to include interest, premiums and servicing fees, which are not capitalized under GAAP.
(4) Accrual of cumulative actuarial gain at expected internal rate of return based the non-GAAP cost basis.

 

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Excess Spread. Our revolving 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 contracts and the revolving senior credit facility’s interest rate. 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 projected occurrence.  Expected future cash flows represent the size of each potential payment (premiums and contract 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 contract 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 contract benefit amount on the same contract is $1 million, then during the next five years, the probable expected cash-inflow of contract 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.

 

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.

 

  

As of

September 30, 2016

  

As of

December 31, 2015

 
Weighted-average expected IRR (1)   11.65%   11.11%
Weighted-average senior credit facility interest rate (2)   6.45%   5.58%
Excess spread    5.20%   5.53%
Total weighted-average interest rate on indebtedness for borrowed money (3)   7.10%   6.98%
Total excess spread (4)   4.55%   4.13%

 

(1) This represents the weighted-average expected internal rate of return of the life insurance contracts as of the measurement date based upon our non-GAAP cost basis of the insurance contracts and the expected cash flows from the life insurance portfolio.

 

Investment Cost Basis 

As of

September 30, 2016

  

As of

December 31, 2015

 
GAAP fair value  $477,585,000   $356,650,000 
Unrealized fair value gain (A)   (247,889,000)   (194,043,000)
Adjusted cost basis increase (B)   230,532,000    190,645,000 
Investment cost basis (C)  $460,228,000   $353,252,000 

 

(A) This represents the reversal of cumulative unrealized GAAP fair value gain of life insurance contracts.
(B) Adjusted cost basis is increased to include interest, premiums and servicing fees which are not capitalized under GAAP.
(C) This is the non-GAAP cost basis in life insurance contracts from which our expected internal rate of return is calculated.

 

(2) This is the weighted-average interest rate for both senior credit facilities as of the measurement date.

 

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(3) Represents the weighted-average interest rate paid on all interest-bearing indebtedness as of the measurement date, determined as follows:

 

Indebtedness 

As of

September 30, 2016

  

As of

December 31, 2015

 
Senior credit facilities  $71,250,000   $65,011,000 
Series I Secured Notes   17,830,000    23,578,000 
L Bonds   384,586,000    282,171,000 
Total  $473,666,000   $370,760,000 

 

Interest Rates on Indebtedness    
Senior credit facilities   6.45%   5.58%
Series I Secured Notes   8.63%   8.47%
L Bonds   7.16%   7.18%
Weighted-average interest rates paid on indebtedness   7.10%   6.98%

 

(4) Calculated as the weighted-average expected IRR (1) minus the weighted-average interest rate on interest-bearing indebtedness (3).

 

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 and cash equivalents 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 the company’s cash and cash equivalents and the net present value of the life insurance portfolio. The “subordination ratio” must 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 paid on all indebtedness. As of the date of this report, the subordination ratio provisions under the Indenture have expired.

 

  

As of

September 30, 2016

  

As of

December 31, 2015

 
Life insurance portfolio contract benefits  $1,272,078,000   $944,844,000 
Discount rate of future cash flows   7.10%   6.98%
Net present value of Life insurance portfolio contract benefits  $586,332,000   $435,738,000 
Cash and cash equivalents   34,462,000    36,767,000 
Life insurance contract benefits receivable   6,129,000    - 
Total Coverage   626,923,000    472,505,000 
           
Senior credit facilities   71,250,000    65,011,000 
Series I Secured Notes   17,830,000    23,578,000 
L Bonds   384,586,000    282,171,000 
Total Indebtedness  $473,666,000   $370,760,000 
           
Debt Coverage Ratio   75.55%   78.47%
Subordination Ratio   11.36%   13.76%

  

As of September 30, 2016, we were in compliance with both the debt coverage ratio and the subordination ratio.

 

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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 contract benefits) of the IRR expected at the time of purchase for all life insurance contracts in the portfolio. This non-GAAP measure isolates our IRR expectation at purchase and utilizes our underwriting life expectancy assumptions at the time. This measure does not change with the passage of time as compared to our non-GAAP 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 September 30,   As of December 31, 
   2016   2015 
Life insurance portfolio contract benefits  $1,272,078,000   $944,844,000 
Total number of polices   625    396 
           
Non-GAAP Expected Portfolio Internal Rate of Return at Purchase   15.70%   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.


 40 
 

  

Portfolio Information

 

Our portfolio of life insurance contracts, owned by our subsidiaries as of September 30, 2016, is summarized below:

 

Life Insurance Portfolio Summary

 

Total portfolio face value of contract benefits   $ 1,272,078,000  
Average face value per contract   $ 2,035,000  
Average face value per insured life   $ 2,263,000  
Weighted average age of insured (yrs.)*     81.8  
Weighted average life expectancy estimate (yrs.)*     6.8  
Total number of contracts     625  
Number of unique lives     562  
Demographics     73%  Males; 27% Females  
Number of smokers     24  
Largest contract as % of total portfolio     0.79 %
Average contract as % of total portfolio     0.16 %
Average annual premium as % of face value     3.33 %

 

* Averages presented in the table are weighted averages.

 

Our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of September 30, 2016, organized by the insured’s current age and the associated number of contracts and contract benefits, is summarized below:

 

 Distribution of Contracts and Contract Benefits by Current Age of Insured

 

                 Percentage of Total 
Min Age  Max Age  Contracts   Contract Benefits   Wtd. Avg.
Life
Expectancy (yrs.)
  Number of
Contracts
   Contract
Benefits
 
90  96   55   $105,815,000   2.4   8.8%   8.3%
85  89   155   $331,989,000   4.8   24.8%   26.1%
80  84   152   $385,904,000   6.7   24.3%   30.3%
75  79   115   $251,466,000   9.2   18.4%   19.8%
70  74   87   $120,791,000   9.8   13.9%   9.5%
65  69   61   $76,113,000   10.1   9.8%   6.0%
Total      625   $1,272,078,000   6.8   100.0%   100.0%

  

Our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of September 30, 2016, organized by the insured’s estimated life expectancy estimates and associated contract benefits, is summarized below:

 

Distribution of Contracts by Current Life Expectancies of Insured

 

              Percentage of Total
Min LE (Months)  Max LE (Months)  Contracts   Contract
Benefits
   Number of
Contracts
  Contract
Benefits
 
6  47   160   $275,036,000   25.6%   21.6%
48  71   145    300,501,000   23.2%   23.6%
72  95   112    249,118,000   17.9%   19.6%
96  119   97    223,012,000   15.5%   17.6%
120  143   63    134,822,000   10.1%   10.6%
144  202   48    89,589,000   7.7%   7.0%
Total      625   $1,272,078,000   100.0%   100.0%

 

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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 21.25% of the value of our portfolio.

 

Portfolio Credit Risk Management

 

We rely on the payment of life insurance contract benefit claims by life insurance companies as our most significant source of cash flow. The life insurance assets we own represent obligations of third-party life insurance companies to pay face value of the life insurance contract benefits. As a result, we manage this credit risk exposure by generally purchasing contracts issued by insurance companies with investment-grade ratings from Standard & Poor’s, and diversifying our portfolio among a number of insurance companies.

 

As of September 30, 2016, 97.0% of our life insurance contracts, by face value benefits, were issued by insurance companies that maintained an investment-grade rating (BBB- or better) by Standard & Poor’s. Our largest life insurance company credit exposures and their respective Standard & Poor’s credit rating of their respective financial strength and claims paying ability is set forth below:

 

Rank  Contract Benefits  

Percentage

of Contract

Benefit Amount

   Insurance Company  Ins. Co. S&P Rating
1  $182,494,000    14.3%  AXA Equitable Life Insurance Company  A+
2  $165,255,000    13.0%  John Hancock Life Insurance Company (U.S.A.)  AA-
3  $145,721,000    11.5%  Lincoln National Life Insurance Company  AA-
4  $129,116,000    10.1%  Transamerica Life Insurance Company  AA-
5  $89,806,000    7.1%  Metropolitan Life Insurance Company  A+
6  $57,250,000    4.5%  Massachusetts Mutual Life Insurance Company  AA+
7  $50,975,000    4.0%  American General Life Insurance Company  A+
8  $48,095,000    3.8%  Pacific Life Insurance Company  A+
9  $45,300,000    3.6%  Reliastar Life Insurance Company  A
10  $44,990,000    3.5%  West Coast Life Insurance Company  AA-
    959,002,000    75.4%      

 

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 track the yields on certain publicly traded life insurance company bonds as this information is part of the data we consider when valuing our portfolio of life insurance contracts for our financial statements according to GAAP.  Also we believe that these yields provide investors a market-based perspective on the financial strength of the largest life insurance companies backing our portfolio.

 

Name of Bond  Maturity   YTM   Duration (Years)  

Bond

S&P Rating

AXA 7.125%   12/15/2020    1.54%   4.2   BBB
Manulife Finl 4.15%   3/4/2026    2.83%   9.4   A
Lincoln National Corp Ind 3.35%   3/9/2025    3.05%   8.7    A-
Amer Intl Grp 4.875%   6/1/2022    2.48%   5.7    A-
Protective Life 7.375%   10/15/2019    2.18%   3.0    A-
Metro Life Gbl Fd1 4.75%   9/17/2021    3.01%   5.0    AA-
Prudential Finl Inc Mtns Book 4.5%   5/15/2024    2.97%   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 3.02%, which, we believe, reflects in part the financial market’s judgement 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 contract benefits is senior in rank to any other obligation.  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 life insurance contract will collect the insurance contract benefit upon the mortality of the insured.

 

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The complete detail of our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of September 30, 2016, organized by the current age of the insured and the associated contract 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 September 30, 2016)

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.) 
(2)
  Insurance Company  S&P Rating
1  $1,100,000   Male  96  17  Reliastar Life Insurance Company  A
2  $184,000   Male  95  38  Reliastar Life Insurance Company  A
3  $219,000   Male  95  38  Reliastar Life Insurance Company  A
4  $8,000,000   Female  95  14  Massachusetts Mutual Life Insurance Company  AA+
5  $4,000,000   Male  95  25  Metropolitan Life Insurance Company  A+
6  $1,500,000   Female  95  24  Accordia Life and Annuity Company  A-
7  $3,200,000   Male  95  15  West Coast Life Insurance Company  AA-
8  $1,000,000   Female  94  22  Transamerica Life Insurance Company  AA-
9  $250,000   Male  94  23  North American Company for Life and Health Insurance  A+
10  $264,000   Female  94  11  Lincoln Benefit Life Company  BBB+
11  $125,000   Female  94  6  Lincoln National Life Insurance Company  AA-
12  $3,500,000   Male  93  29  Reliastar Life Insurance Company  A
13  $500,000   Male  93  7  John Hancock Life Insurance Company (U.S.A.)  AA-
14  $2,000,000   Female  93  7  Pruco Life Insurance Company  AA-
15  $500,000   Female  93  41  Sun Life Assurance Company of Canada (U.S.)  AA-
16  $250,000   Male  93  7  Transamerica Life Insurance Company  AA-
17  $1,682,773   Female  92  40  Hartford Life and Annuity Insurance Company  BBB+
18  $572,429   Female  92  26  Reliastar Life Insurance Company  A
19  $3,000,000   Male  92  31  West Coast Life Insurance Company  AA-
20  $500,000   Female  92  55  John Hancock Life Insurance Company (U.S.A.)  AA-
21  $5,000,000   Female  92  43  American General Life Insurance Company  A+
22  $400,000   Female  92  59  Principal Life Insurance Company  A+
23  $5,000,000   Female  92  23  John Hancock Life Insurance Company (U.S.A.)  AA-
24  $1,000,000   Female  92  26  Lincoln National Life Insurance Company  AA-
25  $300,000   Female  92  17  West Coast Life Insurance Company  AA-
26  $3,845,000   Female  92  36  Pacific Life Insurance Company  A+
27  $500,000   Male  91  40  Massachusetts Mutual Life Insurance Company  AA+
28  $5,000,000   Male  91  23  John Hancock Life Insurance Company (U.S.A.)  AA-
29  $500,000   Female  91  15  Lincoln National Life Insurance Company  AA-
30  $3,500,000   Female  91  62  John Hancock Life Insurance Company (U.S.A.)  AA-
31  $3,100,000   Female  91  25  Lincoln Benefit Life Company  BBB+
32  $1,500,000   Female  91  54  Lincoln National Life Insurance Company  AA-
33  $3,000,000   Female  91  25  Lincoln National Life Insurance Company  AA-
34  $5,000,000   Female  91  31  Reliastar Life Insurance Company  A
35  $5,000,000   Female  91  12  Lincoln National Life Insurance Company  AA-
36  $500,000   Male  91  41  Reliastar Life Insurance Company  A
37  $1,000,000   Male  91  7  Voya Retirement Insurance and Annuity Company  A
38  $1,203,520   Male  91  33  Columbus Life Insurance Company  AA
39  $1,350,000   Female  91  27  Lincoln National Life Insurance Company  AA-
40  $600,000   Female  91  15  Columbus Life Insurance Company  AA
41  $5,000,000   Female  90  38  Massachusetts Mutual Life Insurance Company  AA+
42  $2,500,000   Female  90  38  American General Life Insurance Company  A+
43  $2,500,000   Male  90  45  Pacific Life Insurance Company  A+
44  $1,000,000   Female  90  40  United of Omaha Life Insurance Company  AA-
45  $375,000   Male  90  33  Lincoln National Life Insurance Company  AA-
46  $1,103,922   Female  90  51  Sun Life Assurance Company of Canada (U.S.)  AA-

 

 43 
 

 

   Face Amount   Gender  Age (ALB)
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
47  $1,000,000   Female  90  54  Transamerica Life Insurance Company  AA-
48  $250,000   Female  90  54  Transamerica Life Insurance Company  AA-
49  $500,000   Female  90  34  Transamerica Life Insurance Company  AA-
50  $2,500,000   Female  90  4  AXA Equitable Life Insurance Company  A+
51  $2,500,000   Female  90  4  AXA Equitable Life Insurance Company  A+
52  $500,000   Female  90  27  Nationwide Life and Annuity Insurance Company  A+
53  $715,000   Female  90  45  Lincoln National Life Insurance Company  AA-
54  $2,225,000   Female  90  74  Transamerica Life Insurance Company  AA-
55  $3,500,000   Female  90  32  Lincoln National Life Insurance Company  AA-
56  $1,000,000   Female  89  45  Metropolitan Life Insurance Company  A+
57  $248,859   Female  89  25  Lincoln National Life Insurance Company  AA-
58  $500,000   Female  89  57  Sun Life Assurance Company of Canada (U.S.)  AA-
59  $250,000   Male  89  60  Metropolitan Life Insurance Company  A+
60  $4,000,000   Female  89  61  Transamerica Life Insurance Company  AA-
61  $5,000,000   Male  89  42  AXA Equitable Life Insurance Company  A+
62  $1,200,000   Male  89  42  Massachusetts Mutual Life Insurance Company  AA+
63  $1,200,000   Male  89  42  Massachusetts Mutual Life Insurance Company  AA+
64  $1,050,000   Male  89  34  John Hancock Life Insurance Company (U.S.A.)  AA-
65  $3,000,000   Male  89  85  Transamerica Life Insurance Company  AA-
66  $1,000,000   Male  89  44  AXA Equitable Life Insurance Company  A+
67  $500,000   Male  89  52  Lincoln National Life Insurance Company  AA-
68  $4,785,380   Female  89  32  John Hancock Life Insurance Company (U.S.A.)  AA-
69  $1,803,455   Female  89  55  Metropolitan Life Insurance Company  A+
70  $1,529,270   Female  89  55  Metropolitan Life Insurance Company  A+
71  $800,000   Male  89  54  Lincoln National Life Insurance Company  AA-
72  $5,000,000   Male  89  41  John Hancock Life Insurance Company (U.S.A.)  AA-
73  $500,000   Female  89  41  Transamerica Life Insurance Company  AA-
74  $400,000   Female  89  41  Lincoln Benefit Life Company  BBB+
75  $3,000,000   Female  89  70  Massachusetts Mutual Life Insurance Company  AA+
76  $200,000   Male  89  40  Lincoln Benefit Life Company  BBB+
77  $4,445,467   Male  89  47  Penn Mutual Life Insurance Company  A+
78  $1,500,000   Male  89  35  Union Central Life Insurance Company  A+
79  $7,500,000   Male  89  39  Lincoln National Life Insurance Company  AA-
80  $3,600,000   Female  89  54  AXA Equitable Life Insurance Company  A+
81  $3,000,000   Male  89  33  Lincoln National Life Insurance Company  AA-
82  $2,000,000   Male  89  36  John Hancock Life Insurance Company (U.S.A.)  AA-
83  $100,000   Female  89  46  American General Life Insurance Company  A+
84  $100,000   Female  89  46  American General Life Insurance Company  A+
85  $396,791   Male  89  26  Lincoln National Life Insurance Company  AA-
86  $1,500,000   Male  89  93  Transamerica Life Insurance Company  AA-
87  $1,000,000   Male  88  45  John Hancock Life Insurance Company (U.S.A.)  AA-
88  $2,000,000   Male  88  45  John Hancock Life Insurance Company (U.S.A.)  AA-
89  $5,000,000   Male  88  41  Lincoln National Life Insurance Company  AA-
90  $5,000,000   Female  88  27  Transamerica Life Insurance Company  AA-
91  $3,000,000   Male  88  36  Transamerica Life Insurance Company  AA-
92  $1,200,000   Male  88  62  Transamerica Life Insurance Company  AA-
93  $6,000,000   Female  88  46  Sun Life Assurance Company of Canada (U.S.)  AA-
94  $250,000   Male  88  40  Wilton Reassurance Life Insurance Company  N/A
95  $330,000   Male  88  60  AXA Equitable Life Insurance Company  A+
96  $175,000   Male  88  60  Metropolitan Life Insurance Company  A+
97  $335,000   Male  88  60  Metropolitan Life Insurance Company  A+
98  $3,000,000   Male  88  65  AXA Equitable Life Insurance Company  A+
99  $2,000,000   Female  88  40  Beneficial Life Insurance Company  N/A
100  $250,000   Female  88  40  John Hancock Life Insurance Company (U.S.A.)  AA-
101  $1,000,000   Female  88  30  New York Life Insurance Company  AA+
102  $1,250,000   Male  88  27  Columbus Life Insurance Company  AA
103  $300,000   Male  88  27  Columbus Life Insurance Company  AA
104  $10,000,000   Female  88  61  West Coast Life Insurance Company  AA-
105  $2,500,000   Male  88  37  Transamerica Life Insurance Company  AA-
106  $8,500,000   Male  88  68  Massachusetts Mutual Life Insurance Company  AA+

 

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   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.) 
(2)
  Insurance Company  S&P Rating
107  $1,000,000   Female  88  41  West Coast Life Insurance Company  AA-
108  $2,000,000   Female  88  41  West Coast Life Insurance Company  AA-
109  $500,000   Female  88  45  Beneficial Life Insurance Company  N/A
110  $800,000   Male  88  44  National Western Life Insurance Company  A
111  $1,269,017   Male  88  25  Hartford Life and Annuity Insurance Company  BBB+
112  $5,000,000   Male  88  68  Lincoln National Life Insurance Company  AA-
113  $4,513,823   Female  88  18  Accordia Life and Annuity Company  A-
114  $2,000,000   Male  88  78  Security Life of Denver Insurance Company  A
115  $2,000,000   Male  88  78  Security Life of Denver Insurance Company  A
116  $2,000,000   Male  88  78  Security Life of Denver Insurance Company  A
117  $309,000   Male  88  27  Transamerica Life Insurance Company  AA-
118  $2,000,000   Female  88  64  U.S. Financial Life Insurance Company  A+
119  $1,365,000   Female  87  82  Transamerica Life Insurance Company  AA-
120  $1,000,000   Female  87  76  Security Life of Denver Insurance Company  A
121  $200,000   Female  87  75  Lincoln National Life Insurance Company  AA-
122  $1,000,000   Male  87  38  Sun Life Assurance Company of Canada (U.S.)  AA-
123  $1,000,000   Male  87  29  Massachusetts Mutual Life Insurance Company  AA+
124  $1,000,000   Female  87  19  State Farm Life Insurance Company  AA-
125  $2,000,000   Male  87  85  Transamerica Life Insurance Company  AA-
126  $209,176   Male  87  81  Lincoln National Life Insurance Company  AA-
127  $2,328,547   Male  87  34  Metropolitan Life Insurance Company  A+
128  $2,000,000   Male  87  34  Metropolitan Life Insurance Company  A+
129  $1,000,000   Male  87  23  Transamerica Life Insurance Company  AA-
130  $500,000   Male  87  69  Metropolitan Life Insurance Company  A+
131  $750,000   Female  87  71  Lincoln National Life Insurance Company  AA-
132  $1,500,000   Female  87  71  Lincoln National Life Insurance Company  AA-
133  $400,000   Female  87  71  Lincoln National Life Insurance Company  AA-
134  $1,250,000   Female  87  71  Lincoln National Life Insurance Company  AA-
135  $2,000,000   Male  87  50  Lincoln National Life Insurance Company  AA-
136  $3,000,000   Female  87  54  Transamerica Life Insurance Company  AA-
137  $347,211   Male  87  30  Pruco Life Insurance Company  AA-
138  $1,800,000   Male  87  41  John Hancock Life Insurance Company (U.S.A.)  AA-
139  $2,000,000   Male  87  51  AXA Equitable Life Insurance Company  A+
140  $1,750,000   Male  87  51  AXA Equitable Life Insurance Company  A+
141  $4,000,000   Male  87  41  Metropolitan Life Insurance Company  A+
142  $2,000,000   Male  87  25  Transamerica Life Insurance Company  AA-
143  $1,425,000   Male  87  63  John Hancock Life Insurance Company (U.S.A.)  AA-
144  $1,500,000   Male  87  48  AXA Equitable Life Insurance Company  A+
145  $1,500,000   Male  86  27  Transamerica Life Insurance Company  AA-
146  $1,500,000   Female  86  96  Lincoln Benefit Life Company  BBB+
147  $3,750,000   Male  86  63  AXA Equitable Life Insurance Company  A+
148  $2,000,000   Male  86  43  Metropolitan Life Insurance Company  A+
149  $3,000,000   Male  86  43  Metropolitan Life Insurance Company  A+
150  $1,000,000   Male  86  29  John Hancock Life Insurance Company (U.S.A.)  AA-
151  $2,000,000   Female  86  73  AXA Equitable Life Insurance Company  A+
152  $1,000,000   Male  86  43  Security Life of Denver Insurance Company  A
153  $3,000,000   Female  86  71  Sun Life Assurance Company of Canada (U.S.)  AA-
154  $125,000   Male  86  53  Jackson National Life Insurance Company  AA
155  $1,500,000   Male  86  66  AXA Equitable Life Insurance Company  A+
156  $1,000,000   Male  86  45  AXA Equitable Life Insurance Company  A+
157  $5,000,000   Male  86  75  Security Life of Denver Insurance Company  A
158  $1,500,000   Male  86  38  Reliastar Life Insurance Company  A
159  $1,500,000   Male  86  38  Reliastar Life Insurance Company  A
160  $5,000,000   Male  86  60  Security Life of Denver Insurance Company  A
161  $500,000   Male  86  31  Genworth Life Insurance Company  BB
162  $1,980,000   Male  86  40  New York Life Insurance Company  AA+
163  $1,000,000   Male  86  36  John Hancock Life Insurance Company (U.S.A.)  AA-
164  $500,000   Male  86  39  New England Life Insurance Company  AA-
165  $4,000,000   Female  86  41  Reliastar Life Insurance Company  A
166  $284,924   Male  86  51  Transamerica Life Insurance Company  AA-
167  $5,000,000   Female  86  80  American General Life Insurance Company  A+

 

 45 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.) 
(2)
  Insurance Company  S&P Rating
168  $500,000   Female  86  25  Transamerica Life Insurance Company  AA-
169  $3,500,000   Female  86  95  Lincoln Benefit Life Company  BBB+
170  $800,000   Male  86  40  Metropolitan Life Insurance Company  A+
171  $5,000,000   Female  85  88  AXA Equitable Life Insurance Company  A+
172  $1,000,000   Female  85  71  John Hancock Life Insurance Company (U.S.A.)  AA-
173  $6,000,000   Female  85  98  American General Life Insurance Company  A+
174  $5,000,000   Male  85  53  AXA Equitable Life Insurance Company  A+
175  $1,433,572   Male  85  44  Security Mutual Life Insurance Company of NY  N/A
176  $2,000,000   Male  85  42  National Life Insurance Company  A
177  $1,000,000   Female  85  34  Metropolitan Life Insurance Company  A+
178  $2,147,816   Female  85  107  John Hancock Life Insurance Company (U.S.A.)  AA-
179  $4,200,000   Female  85  105  Transamerica Life Insurance Company  AA-
180  $750,000   Male  85  75  West Coast Life Insurance Company  AA-
181  $4,000,000   Male  85  26  John Hancock Life Insurance Company (U.S.A.)  AA-
182  $1,000,000   Male  85  65  John Hancock Life Insurance Company (U.S.A.)  AA-
183  $2,000,000   Female  85  86  Lincoln Benefit Life Company  BBB+
184  $2,000,000   Female  85  62  New York Life Insurance Company  AA+
185  $5,000,000   Male  85  62  Lincoln National Life Insurance Company  AA-
186  $2,400,000   Male  85  27  Genworth Life Insurance Company  BB
187  $3,000,000   Male  85  80  Transamerica Life Insurance Company  AA-
188  $8,500,000   Male  85  93  John Hancock Life Insurance Company (U.S.A.)  AA-
189  $600,000   Male  85  88  AXA Equitable Life Insurance Company  A+
190  $7,600,000   Female  85  85  Transamerica Life Insurance Company  AA-
191  $250,000   Male  85  18  Midland National Life Insurance Company  A+
192  $250,000   Male  85  41  Transamerica Life Insurance Company  AA-
193  $2,500,000   Female  85  58  American General Life Insurance Company  A+
194  $2,500,000   Male  85  47  AXA Equitable Life Insurance Company  A+
195  $3,000,000   Male  85  47  Lincoln National Life Insurance Company  AA-
196  $2,000,000   Male  85  73  Pacific Life Insurance Company  A+
197  $7,600,000   Male  85  89  Transamerica Life Insurance Company  AA-
198  $3,000,000   Female  85  36  AXA Equitable Life Insurance Company  A+
199  $250,000   Male  85  68  Voya Retirement Insurance and Annuity Company  A
200  $1,800,000   Female  85  50  Lincoln National Life Insurance Company  AA-
201  $1,703,959   Male  85  58  Lincoln National Life Insurance Company  AA-
202  $3,000,000   Male  85  49  Metropolitan Life Insurance Company  A+
203  $500,000   Male  85  11  Great Southern Life Insurance Company  N/A
204  $2,247,450   Female  85  49  Transamerica Life Insurance Company  AA-
205  $1,000,000   Male  85  46  Hartford Life and Annuity Insurance Company  BBB+
206  $400,000   Male  85  39  Transamerica Life Insurance Company  AA-
207  $1,000,000   Male  85  81  Lincoln National Life Insurance Company  AA-
208  $1,000,000   Male  85  51  Metropolitan Life Insurance Company  A+
209  $3,500,000   Male  85  54  Pacific Life Insurance Company  A+
210  $2,500,000   Male  85  54  AXA Equitable Life Insurance Company  A+
211  $10,000,000   Male  84  116  Pacific Life Insurance Company  A+
212  $87,677   Female  84  47  Protective Life Insurance Company  AA-
213  $1,000,000   Male  84  51  Texas Life Insurance Company  N/A
214  $500,000   Male  84  92  Metropolitan Life Insurance Company  A+
215  $1,000,000   Male  84  57  Lincoln National Life Insurance Company  AA-
216  $3,000,000   Male  84  30  U.S. Financial Life Insurance Company  A+
217  $325,000   Male  84  53  Genworth Life and Annuity Insurance Company  BB
218  $175,000   Male  84  53  Genworth Life and Annuity Insurance Company  BB
219  $850,000   Male  84  48  American General Life Insurance Company  A+
220  $600,000   Male  84  61  Massachusetts Mutual Life Insurance Company  AA+
221  $1,900,000   Male  84  54  American National Insurance Company  A
222  $500,000   Male  84  35  New York Life Insurance Company  AA+
223  $500,000   Male  84  35  New York Life Insurance Company  AA+
224  $5,000,000   Male  84  46  AXA Equitable Life Insurance Company  A+
225  $385,000   Male  84  62  Metropolitan Life Insurance Company  A+
226  $500,000   Male  84  62  Metropolitan Life Insurance Company  A+
227  $75,000   Male  84  39  Fidelity and Guaranty Insurance Company  BBB-
228  $10,000,000   Male  84  62  Lincoln National Life Insurance Company  AA-

 

 46 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
229  $1,500,000   Male  84  67  Lincoln National Life Insurance Company  AA-
230  $250,000   Male  84  41  The Ohio State Life Insurance Company  N/A
231  $3,500,000   Female  84  77  AXA Equitable Life Insurance Company  A+
232  $1,000,000   Female  84  89  West Coast Life Insurance Company  AA-
233  $1,000,000   Female  84  66  American General Life Insurance Company  A+
234  $5,000,000   Female  84  65  Sun Life Assurance Company of Canada (U.S.)  AA-
235  $3,000,000   Female  84  57  Metropolitan Life Insurance Company  A+
236  $750,000   Male  84  67  John Hancock Life Insurance Company (U.S.A.)  AA-
237  $4,500,000   Male  84  61  AXA Equitable Life Insurance Company  A+
238  $1,250,000   Female  84  51  Columbus Life Insurance Company  AA
239  $2,275,000   Male  84  80  Reliastar Life Insurance Company  A
240  $10,000,000   Male  84  72  AXA Equitable Life Insurance Company  A+
241  $340,000   Female  84  75  Jackson National Life Insurance Company  AA
242  $2,300,000   Male  84  13  American General Life Insurance Company  A+
243  $3,500,000   Male  84  60  AXA Equitable Life Insurance Company  A+
244  $6,217,200   Female  84  94  Phoenix Life Insurance Company  B+
245  $2,500,000   Female  84  62  Reliastar Life Insurance Company  A
246  $5,000,000   Female  84  48  Massachusetts Mutual Life Insurance Company  AA+
247  $1,275,000   Male  84  44  General American Life Insurance Company  A+
248  $2,000,000   Female  84  86  Lincoln National Life Insurance Company  AA-
249  $1,000,000   Male  84  41  American General Life Insurance Company  A+
250  $750,000   Male  84  78  AXA Equitable Life Insurance Company  A+
251  $5,000,000   Male  84  71  Lincoln National Life Insurance Company  AA-
252  $3,000,000   Male  83  56  Protective Life Insurance Company  AA-
253  $1,500,000   Male  83  56  American General Life Insurance Company  A+
254  $2,000,000   Female  83  94  Transamerica Life Insurance Company  AA-
255  $1,500,000   Male  83  61  Pacific Life Insurance Company  A+
256  $2,000,000   Male  83  75  New York Life Insurance Company  AA+
257  $5,000,000   Male  83  97  American General Life Insurance Company  A+
258  $250,000   Male  83  132  Reliastar Life Insurance Company  A
259  $1,995,000   Female  83  69  Transamerica Life Insurance Company  AA-
260  $4,000,000   Male  83  46  Lincoln National Life Insurance Company  AA-
261  $10,000,000   Male  83  69  New York Life Insurance Company  AA+
262  $1,000,000   Male  83  59  Hartford Life and Annuity Insurance Company  BBB+
263  $1,000,000   Male  83  59  Jackson National Life Insurance Company  AA
264  $417,300   Male  83  90  Jackson National Life Insurance Company  AA
265  $5,000,000   Male  83  68  Transamerica Life Insurance Company  AA-
266  $2,000,000   Male  83  59  Ohio National Life Assurance Corporation  AA-
267  $1,000,000   Male  83  59  Ohio National Life Assurance Corporation  AA-
268  $500,000   Female  83  92  AXA Equitable Life Insurance Company  A+
269  $350,000   Male  83  26  Jackson National Life Insurance Company  AA
270  $5,000,000   Female  82  68  Security Mutual Life Insurance Company of NY  N/A
271  $5,000,000   Male  82  80  AXA Equitable Life Insurance Company  A+
272  $6,000,000   Male  82  96  Transamerica Life Insurance Company  AA-
273  $8,000,000   Male  82  73  AXA Equitable Life Insurance Company  A+
274  $850,000   Female  82  89  Zurich Life Insurance Company  AA-
275  $550,000   Male  82  106  Genworth Life Insurance Company  BB
276  $500,000   Male  82  54  West Coast Life Insurance Company  AA-
277  $1,680,000   Female  82  59  AXA Equitable Life Insurance Company  A+
278  $1,000,000   Female  82  86  Lincoln National Life Insurance Company  AA-
279  $1,250,000   Male  82  89  Metropolitan Life Insurance Company  A+
280  $3,000,000   Female  82  61  AXA Equitable Life Insurance Company  A+
281  $1,000,000   Male  82  55  AXA Equitable Life Insurance Company  A+
282  $1,250,000   Female  82  75  Principal Life Insurance Company  A+
283  $1,000,000   Male  82  47  AXA Equitable Life Insurance Company  A+
284  $1,500,000   Male  82  60  Lincoln Benefit Life Company  BBB+
285  $700,000   Male  82  91  Banner Life Insurance Company  AA-
286  $3,000,000   Male  82  88  John Hancock Life Insurance Company (U.S.A.)  AA-
287  $10,000,000   Male  82  60  Hartford Life and Annuity Insurance Company  BBB+
288  $1,750,000   Male  82  72  AXA Equitable Life Insurance Company  A+
289  $5,000,000   Male  82  62  AXA Equitable Life Insurance Company  A+
290  $300,000   Female  82  64  Hartford Life and Annuity Insurance Company  BBB+

 

 47 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
291  $250,000   Male  82  70  American General Life Insurance Company  A+
292  $3,500,000   Male  82  76  Metropolitan Life Insurance Company  A+
293  $2,502,000   Male  82  136  Transamerica Life Insurance Company  AA-
294  $10,000,000   Male  82  102  John Hancock Life Insurance Company (U.S.A.)  AA-
295  $250,000   Female  82  93  Accordia Life and Annuity Company  A-
296  $3,000,000   Male  82  115  Principal Life Insurance Company  A+
297  $1,700,000   Male  82  54  Lincoln National Life Insurance Company  AA-
298  $1,210,000   Male  82  56  Lincoln National Life Insurance Company  AA-
299  $3,000,000   Female  82  96  West Coast Life Insurance Company  AA-
300  $7,000,000   Male  82  76  Genworth Life Insurance Company  BB
301  $8,000,000   Male  81  118  Metropolitan Life Insurance Company  A+
302  $3,000,000   Male  81  81  Reliastar Life Insurance Company  A
303  $4,000,000   Male  81  72  Lincoln National Life Insurance Company  AA-
304  $500,000   Male  81  46  Genworth Life and Annuity Insurance Company  BB
305  $3,000,000   Male  81  136  Metropolitan Life Insurance Company  A+
306  $300,000   Female  81  90  Metropolitan Life Insurance Company  A+
307  $200,000   Male  81  64  Protective Life Insurance Company  AA-
308  $150,000   Male  81  64  Protective Life Insurance Company  AA-
309  $150,000   Male  81  64  Protective Life Insurance Company  AA-
310  $350,000   Male  81  64  Lincoln National Life Insurance Company  AA-
311  $1,187,327   Male  81  88  Transamerica Life Insurance Company  AA-
312  $5,000,000   Male  81  99  John Hancock Life Insurance Company (U.S.A.)  AA-
313  $800,000   Male  81  70  North American Company for Life And Health Insurance  A+
314  $2,000,000   Male  81  20  Metropolitan Life Insurance Company  A+
315  $1,000,000   Female  81  80  Lincoln Benefit Life Company  BBB+
316  $6,000,000   Male  81  113  AXA Equitable Life Insurance Company  A+
317  $320,987   Female  81  96  John Hancock Life Insurance Company (U.S.A.)  AA-
318  $130,000   Male  81  43  Genworth Life Insurance Company  BB
319  $5,500,000   Male  81  113  Metropolitan Life Insurance Company  A+
320  $1,000,000   Male  81  114  Protective Life Insurance Company  AA-
321  $2,000,000   Female  81  80  Pacific Life Insurance Company  A+
322  $4,000,000   Male  81  87  Lincoln National Life Insurance Company  AA-
323  $2,000,000   Male  81  74  Metropolitan Life Insurance Company  A+
324  $2,000,000   Male  81  74  Metropolitan Life Insurance Company  A+
325  $4,300,000   Female  81  101  American National Insurance Company  A
326  $200,000   Male  81  59  Kansas City Life Insurance Company  N/A
327  $2,000,000   Female  81  67  Transamerica Life Insurance Company  AA-
328  $1,500,000   Female  81  68  Protective Life Insurance Company  AA-
329  $1,000,000   Male  81  49  Pacific Life Insurance Company  A+
330  $200,000   Male  81  40  Pruco Life Insurance Company  AA-
331  $500,000   Male  81  40  Transamerica Life Insurance Company  AA-
332  $3,000,000   Male  80  35  Pacific Life Insurance Company  A+
333  $3,000,000   Male  80  35  Minnesota Life Insurance Company  A+
334  $3,000,000   Male  80  35  Pruco Life Insurance Company  AA-
335  $5,000,000   Male  80  89  Pacific Life Insurance Company  A+
336  $5,000,000   Male  80  89  Pacific Life Insurance Company  A+
337  $3,601,500   Male  80  85  Transamerica Life Insurance Company  AA-
338  $1,000,000   Male  80  87  Sun Life Assurance Company of Canada (U.S.)  AA-
339  $5,000,000   Male  80  80  John Hancock Life Insurance Company (U.S.A.)  AA-
340  $5,000,000   Male  80  120  Principal Life Insurance Company  A+
341  $150,000   Male  80  85  MetLife Insurance Company USA  A+
342  $1,009,467   Male  80  51  John Hancock Life Insurance Company (U.S.A.)  AA-
343  $7,000,000   Male  80  77  Lincoln Benefit Life Company  BBB+
344  $100,000   Male  80  57  North American Company for Life And Health Insurance  A+
345  $1,000,000   Male  80  108  Lincoln National Life Insurance Company  AA-
346  $5,000,000   Male  80  49  John Hancock Life Insurance Company (U.S.A.)  AA-
347  $6,799,139   Male  80  114  AXA Equitable Life Insurance Company  A+
348  $476,574   Male  80  64  Transamerica Life Insurance Company  AA-
349  $2,250,000   Male  80  85  Massachusetts Mutual Life Insurance Company  AA+
350  $775,000   Male  80  115  Lincoln National Life Insurance Company  AA-

 

 48 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
351  $1,000,000   Female  80  115  John Hancock Life Insurance Company (U.S.A.)  AA-
352  $6,000,000   Male  80  111  AXA Equitable Life Insurance Company  A+
353  $1,445,000   Female  80  97  AXA Equitable Life Insurance Company  A+
354  $1,500,000   Female  80  97  AXA Equitable Life Insurance Company  A+
355  $1,000,000   Male  80  78  Lincoln National Life Insurance Company  AA-
356  $200,000   Male  80  50  Lincoln National Life Insurance Company  AA-
357  $1,000,000   Male  80  102  Metropolitan Life Insurance Company  A+
358  $6,000,000   Male  80  98  AXA Equitable Life Insurance Company  A+
359  $5,000,000   Female  80  108  Reliastar Life Insurance Company  A
360  $750,000   Male  80  61  Lincoln National Life Insurance Company  AA-
361  $5,000,000   Male  80  170  West Coast Life Insurance Company  AA-
362  $3,000,000   Male  80  87  Principal Life Insurance Company  A+
363  $5,000,000   Male  79  129  Lincoln National Life Insurance Company  AA-
364  $3,000,000   Male  79  78  American General Life Insurance Company  A+
365  $5,000,000   Male  79  71  John Hancock Life Insurance Company (U.S.A.)  AA-
366  $500,000   Male  79  60  John Hancock Life Insurance Company (U.S.A.)  AA-
367  $1,000,000   Male  79  106  Metropolitan Life Insurance Company  A+
368  $1,250,000   Male  79  91  AXA Equitable Life Insurance Company  A+
369  $3,000,000   Female  79  81  New York Life Insurance Company  AA+
370  $4,000,000   Male  79  43  Metropolitan Life Insurance Company  A+
371  $2,500,000   Male  79  79  Massachusetts Mutual Life Insurance Company  AA+
372  $2,500,000   Male  79  79  Massachusetts Mutual Life Insurance Company  AA+
373  $500,000   Female  79  108  Columbus Life Insurance Company  AA
374  $4,000,000   Female  79  86  Transamerica Life Insurance Company  AA-
375  $4,000,000   Male  79  140  John Hancock Life Insurance Company (U.S.A.)  AA-
376  $325,000   Male  79  36  American General Life Insurance Company  A+
377  $1,750,000   Male  79  56  John Hancock Life Insurance Company (U.S.A.)  AA-
378  $5,000,000   Male  79  96  Transamerica Life Insurance Company  AA-
379  $3,750,000   Male  79  52  AXA Equitable Life Insurance Company  A+
380  $550,000   Male  79  72  Pruco Life Insurance Company  AA-
381  $300,000   Male  79  72  Pruco Life Insurance Company  AA-
382  $2,000,000   Female  79  50  Transamerica Life Insurance Company  AA-
383  $1,200,000   Female  78  126  Athene Annuity & Life Assurance Company  A-
384  $1,000,000   Male  78  98  Accordia Life and Annuity Company  A-
385  $2,840,000   Male  78  91  Transamerica Life Insurance Company  AA-
386  $750,000   Male  78  82  North American Company for Life and Health Insurance  A+
387  $1,000,000   Male  78  82  John Hancock Life Insurance Company (U.S.A.)  AA-
388  $500,000   Male  78  82  North American Company for Life and Health Insurance  A+
389  $50,000   Male  78  40  Lincoln National Life Insurance Company  AA-
390  $4,000,000   Male  78  62  Massachusetts Mutual Life Insurance Company  AA+
391  $1,000,000   Female  78  68  John Hancock Life Insurance Company (U.S.A.)  AA-
392  $1,000,000   Female  78  123  John Hancock Life Insurance Company (U.S.A.)  AA-
393  $2,000,000   Male  78  94  Lincoln National Life Insurance Company  AA-
394  $2,000,000   Male  78  94  Lincoln National Life Insurance Company  AA-
395  $5,000,000   Male  78  113  Lincoln National Life Insurance Company  AA-
396  $1,000,000   Male  78  115  Principal Life Insurance Company  A+
397  $2,000,000   Male  78  100  Genworth Life Insurance Company  BB
398  $6,250,000   Male  78  185  John Hancock Life Insurance Company (U.S.A.)  AA-
399  $490,620   Male  78  80  Ameritas Life Insurance Corporation  A+
400  $600,000   Male  78  77  Protective Life Insurance Company  AA-
401  $400,000   Male  78  113  John Hancock Life Insurance Company (U.S.A.)  AA-
402  $730,000   Male  77  96  Transamerica Life Insurance Company  AA-
403  $5,000,000   Male  77  142  Pruco Life Insurance Company  AA-
404  $300,000   Male  77  73  Penn Mutual Life Insurance Company  A+
405  $5,000,000   Male  77  131  AXA Equitable Life Insurance Company  A+
406  $3,000,000   Male  77  91  Pruco Life Insurance Company  AA-
407  $3,000,000   Female  77  101  John Hancock Life Insurance Company (U.S.A.)  AA-
408  $5,000,000   Male  77  136  Massachusetts Mutual Life Insurance Company  AA+
409  $5,000,000   Male  77  136  Massachusetts Mutual Life Insurance Company  AA+
410  $200,000   Female  77  139  West Coast Life Insurance Company  AA-
411  $1,100,000   Male  77  133  Accordia Life and Annuity Company  A-
412  $3,000,000   Male  77  97  Protective Life Insurance Company  AA-

 

 49 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating

413 

  $2,000,000   Female  77  113  Accordia Life and Annuity Company  A-
414  $10,000,000   Male  77  127  AXA Equitable Life Insurance Company  A+
415  $2,500,000   Male  77  134  John Hancock Life Insurance Company (U.S.A.)  AA-
416  $2,500,000   Male  77  134  John Hancock Life Insurance Company (U.S.A.)  AA-
417  $1,000,000   Male  77  98  Athene Annuity & Life Assurance Company of New York  A-
418  $7,000,000   Female  77  116  Pacific Life Insurance Company  A+
419  $100,946   Female  77  154  Genworth Life and Annuity Insurance Company  BB
420  $350,000   Male  77  106  AXA Equitable Life Insurance Company  A+
421  $600,000   Male  77  106  AXA Equitable Life Insurance Company  A+
422  $1,000,000   Male  77  77  Pacific Life Insurance Company  A+
423  $2,000,000   Male  77  113  Transamerica Life Insurance Company  AA-
424  $200,000   Male  77  111  Prudential Insurance Company of America  AA-
425  $2,000,000   Female  77  162  Lincoln National Life Insurance Company  AA-
426  $150,000   Male  77  99  Genworth Life Insurance Company  BB
427  $2,000,000   Male  77  58  Athene Annuity & Life Assurance Company  A-
428  $7,097,434   Male  77  153  Lincoln National Life Insurance Company  AA-
429  $5,000,000   Male  77  54  West Coast Life Insurance Company  AA-
430  $1,000,000   Male  76  122  Transamerica Life Insurance Company  AA-
431  $750,000   Male  76  107  Protective Life Insurance Company  AA-
432  $250,000   Male  76  98  Midland National Life Insurance Company  A+
433  $3,000,000   Male  76  51  Accordia Life and Annuity Company  A-
434  $200,000   Male  76  65  Reliastar Life Insurance Company  A
435  $500,000   Male  76  96  AXA Equitable Life Insurance Company  A+
436  $3,000,000   Male  76  108  John Hancock Life Insurance Company (U.S.A.)  AA-
437  $5,000,000   Male  76  108  John Hancock Life Insurance Company (U.S.A.)  AA-
438  $8,000,000   Male  76  94  Metropolitan Life Insurance Company  A+
439  $100,000   Male  76  53  AXA Equitable Life Insurance Company  A+
440  $4,000,000   Female  76  137  American General Life Insurance Company  A+
441  $500,000   Male  76  88  AIG Life Insurance Company  A+
442  $1,000,000   Male  76  155  Security Mutual Life Insurance Company of NY  N/A
443  $355,700   Male  76  103  Security Life of Denver Insurance Company  A
444  $5,000,000   Male  76  54  Lincoln Benefit Life Company  BBB+
445  $250,000   Male  76  135  West Coast Life Insurance Company  AA-
446  $1,000,000   Male  76  112  Transamerica Life Insurance Company  AA-
447  $2,000,000   Male  76  146  John Hancock Life Insurance Company (U.S.A.)  AA-
448  $7,500,000   Female  76  173  Security Life of Denver Insurance Company  A
449  $3,000,000   Female  76  110  General American Life Insurance Company  A+
450  $100,000   Male  76  67  Transamerica Life Insurance Company  AA-
451  $300,000   Female  76  133  Minnesota Life Insurance Company  A+
452  $250,000   Male  76  88  United of Omaha Life Insurance Company  AA-
453  $600,000   Male  75  69  United of Omaha Life Insurance Company  AA-
454  $500,000   Male  75  87  Protective Life Insurance Company  AA-
455  $1,000,000   Male  75  93  Security Life of Denver Insurance Company  A
456  $1,000,000   Male  75  96  Transamerica Life Insurance Company  AA-
457  $500,000   Male  75  89  AXA Equitable Life Insurance Company  A+
458  $500,000   Male  75  103  United of Omaha Life Insurance Company  AA-
459  $750,000   Male  75  27  North American Company for Life And Health Insurance  A+
460  $8,000,000   Female  75  131  West Coast Life Insurance Company  AA-
461  $250,000   Female  75  155  AXA Equitable Life Insurance Company  A+
462  $300,000   Male  75  36  Lincoln National Life Insurance Company  AA-
463  $172,245   Female  75  54  Symetra Life Insurance Company  A
464  $5,004,704   Male  75  133  American General Life Insurance Company  A+
465  $2,000,000   Male  75  119  Pruco Life Insurance Company  AA-
466  $190,000   Male  75  103  Protective Life Insurance Company  AA-
467  $100,000   Male  75  151  Protective Life Insurance Company  AA-
468  $5,000,000   Male  75  129  AIG Life Insurance Company  A+
469  $4,000,000   Male  75  108  Security Mutual Life Insurance Company of NY  N/A
470  $89,626   Female  75  117  Union Central Life Insurance Company  A+
471  $2,000,000   Male  75  94  American General Life Insurance Company  A+
472  $10,000,000   Female  75  134  Reliastar Life Insurance Company  A

 

 50 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
473  $1,000,000   Female  75  150  John Hancock Life Insurance Company (U.S.A.)  AA-
474  $500,000   Male  75  72  American General Life Insurance Company  A+
475  $250,000   Male  75  73  Genworth Life and Annuity Insurance Company  BB
476  $500,000   Male  75  95  Delaware Life Insurance Company  BBB+
477  $370,000   Female  75  125  Minnesota Life Insurance Company  A+
478  $500,000   Male  74  33  Midland National Life Insurance Company  A+
479  $3,000,000   Male  74  71  AXA Equitable Life Insurance Company  A+
480  $500,000   Male  74  61  William Penn Life Insurance Company of New York  AA-
481  $2,500,000   Male  74  103  John Hancock Life Insurance Company (U.S.A.)  AA-
482  $500,000   Male  74  134  Pruco Life Insurance Company  AA-
483  $8,600,000   Male  74  152  AXA Equitable Life Insurance Company  A+
484  $3,000,000   Male  74  103  Transamerica Life Insurance Company  AA-
485  $800,000   Male  74  122  John Hancock Life Insurance Company (U.S.A.)  AA-
486  $1,500,000   Male  74  126  Lincoln National Life Insurance Company  AA-
487  $1,500,000   Male  74  126  Lincoln National Life Insurance Company  AA-
488  $1,500,000   Male  74  126  Lincoln National Life Insurance Company  AA-
489  $2,500,000   Male  74  136  Banner Life Insurance Company  AA-
490  $400,000   Male  74  80  Protective Life Insurance Company  AA-
491  $10,000,000   Male  74  144  John Hancock Life Insurance Company (U.S.A.)  AA-
492  $1,784,686   Male  74  153  Transamerica Life Insurance Company  AA-
493  $250,000   Female  74  171  Protective Life Insurance Company  AA-
494  $500,000   Male  73  122  Ameritas Life Insurance Corporation  A+
495  $370,000   Male  73  122  Ameritas Life Insurance Corporation  A+
496  $750,000   Male  73  130  Security Life of Denver Insurance Company  A
497  $1,000,000   Female  73  120  United of Omaha Life Insurance Company  AA-
498  $500,000   Male  73  106  William Penn Life Insurance Company of New York  AA-
499  $250,000   Male  73  18  Security Life of Denver Insurance Company  A
500  $100,000   Male  73  110  Protective Life Insurance Company  AA-
501  $500,000   Male  73  128  Metropolitan Life Insurance Company  A+
502  $2,000,000   Male  73  120  Voya Retirement Insurance and Annuity Company  A
503  $1,500,000   Male  73  120  Voya Retirement Insurance and Annuity Company  A
504  $300,000   Male  73  114  Protective Life Insurance Company  AA-
505  $250,000   Male  73  68  American General Life Insurance Company  A+
506  $2,500,000   Male  73  104  American General Life Insurance Company  A+
507  $2,000,000   Male  73  131  John Hancock Life Insurance Company (U.S.A.)  AA-
508  $800,000   Male  73  84  Commonwealth Annuity and Life Insurance Company  A-
509  $267,988   Male  73  52  Minnesota Life Insurance Company  A+
510  $300,000   Male  73  111  New England Life Insurance Company  AA-
511  $1,167,000   Male  73  50  Transamerica Life Insurance Company  AA-
512  $1,500,000   Male  73  108  Metropolitan Life Insurance Company  A+
513  $1,000,000   Female  73  144  Reliastar Life Insurance Company  A
514  $10,000,000   Male  73  118  AXA Equitable Life Insurance Company  A+
515  $1,000,000   Male  72  130  AIG Life Insurance Company  A+
516  $2,500,000   Male  72  51  Transamerica Life Insurance Company  AA-
517  $400,000   Male  72  195  Protective Life Insurance Company  AA-
518  $3,000,000   Male  72  75  John Hancock Life Insurance Company (U.S.A.)  AA-
519  $2,000,000   Male  72  100  New York Life Insurance Company  AA+
520  $2,000,000   Male  72  100  New York Life Insurance Company  AA+
521  $5,000,000   Male  72  128  John Hancock Life Insurance Company (U.S.A.)  AA-
522  $250,000   Female  72  108  Protective Life Insurance Company  AA-
523  $2,500,000   Male  72  114  Lincoln National Life Insurance Company  AA-
524  $2,500,000   Male  72  114  John Hancock Life Insurance Company (U.S.A.)  AA-
525  $1,350,000   Male  72  100  Lincoln National Life Insurance Company  AA-
526  $230,000   Male  72  117  Transamerica Life Insurance Company  AA-
527  $139,398   Female  72  23  Lincoln National Life Insurance Company  AA-
528  $190,000   Female  72  191  Protective Life Insurance Company  AA-
529  $420,000   Male  72  131  Protective Life Insurance Company  AA-
530  $75,000   Female  72  102  American General Life Insurance Company  A+
531  $600,000   Male  72  84  AXA Equitable Life Insurance Company  A+
532  $4,000,000   Male  72  141  MONY Life Insurance Company of America  A+

 

 51 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.) 
(2)
  Insurance Company  S&P Rating
533  $420,000   Male  72  122  RiverSource Life Insurance Company  A+
534  $100,000   Male  72  137  Protective Life Insurance Company  AA-
535  $250,000   Male  71  50  Protective Life Insurance Company  AA-
536  $650,000   Female  71  72  Security Life of Denver Insurance Company  A
537  $500,000   Male  71  120  Ohio National Life Assurance Corporation  AA-
538  $232,000   Male  71  179  Protective Life Insurance Company  AA-
539  $185,000   Male  71  131  Genworth Life and Annuity Insurance Company  BB
540  $40,000   Male  71  31  Banner Life Insurance Company  AA-
541  $750,000   Male  71  125  Transamerica Life Insurance Company  AA-
542  $1,250,000   Male  71  99  West Coast Life Insurance Company  AA-
543  $1,500,000   Female  71  153  Pruco Life Insurance Company  AA-
544  $5,000,000   Male  71  91  Transamerica Life Insurance Company  AA-
545  $500,000   Male  71  92  Transamerica Life Insurance Company  AA-
546  $500,000   Male  71  92  North American Company for Life And Health Insurance  A+
547  $300,000   Male  71  195  John Hancock Life Insurance Company (U.S.A.)  AA-
548  $100,000   Male  71  44  Genworth Life and Annuity Insurance Company  BB
549  $150,000   Male  71  34  Protective Life Insurance Company  AA-
550  $150,000   Male  71  34  AXA Equitable Life Insurance Company  A+
551  $1,000,000   Male  71  54  John Hancock Life Insurance Company (U.S.A.)  AA-
552  $202,700   Male  71  117  Farmers New World Life Insurance Company  N/A
553  $5,000,000   Male  71  151  Metropolitan Life Insurance Company  A+
554  $250,000   Female  70  120  Ohio National Life Assurance Corporation  AA-
555  $2,000,000   Male  70  172  John Hancock Life Insurance Company (U.S.A.)  AA-
556  $400,000   Male  70  161  Lincoln National Life Insurance Company  AA-
557  $100,000   Male  70  101  Massachusetts Mutual Life Insurance Company  AA+
558  $92,000   Female  70  199  Protective Life Insurance Company  AA-
559  $175,000   Female  70  111  Lincoln National Life Insurance Company  AA-
560  $1,500,000   Male  70  71  Lincoln National Life Insurance Company  AA-
561  $250,000   Male  70  184  Lincoln National Life Insurance Company  AA-
562  $1,500,000   Male  70  105  Midland National Life Insurance Company  A+
563  $500,000   Male  70  111  Lincoln Benefit Life Company  BBB+
564  $700,000   Male  70  116  Massachusetts Mutual Life Insurance Company  AA+
565  $750,000   Male  69  134  North American Company for Life And Health Insurance  A+
566  $1,000,000   Male  69  191  AXA Equitable Life Insurance Company  A+
567  $1,200,000   Male  69  126  Massachusetts Mutual Life Insurance Company  AA+
568  $2,500,000   Male  69  161  Pruco Life Insurance Company  AA-
569  $2,500,000   Male  69  161  Pruco Life Insurance Company  AA-
570  $4,000,000   Male  69  133  MetLife Insurance Company USA  A+
571  $500,000   Male  69  42  Voya Retirement Insurance and Annuity Company  A
572  $1,000,000   Male  69  87  Protective Life Insurance Company  AA-
573  $2,000,000   Male  69  113  Transamerica Life Insurance Company  AA-
574  $1,000,000   Male  69  113  Genworth Life Insurance Company  BB
575  $250,000   Female  69  158  Protective Life Insurance Company  AA-
576  $1,000,000   Male  69  163  Accordia Life and Annuity Company  A-
577  $1,000,000   Male  69  61  Protective Life Insurance Company  AA-
578  $1,000,000   Male  69  131  Transamerica Life Insurance Company  AA-
579  $1,000,000   Male  69  131  Protective Life Insurance Company  AA-
580  $156,538   Female  69  107  New York Life Insurance Company  AA+
581  $2,000,000   Male  69  51  Metropolitan Life Insurance Company  A+
582  $2,000,000   Male  69  51  Metropolitan Life Insurance Company  A+
583  $1,000,000   Male  69  153  John Hancock Life Insurance Company (U.S.A.)  AA-
584  $400,000   Female  69  142  AXA Equitable Life Insurance Company  A+
585  $300,000   Male  69  90  Protective Life Insurance Company  AA-
586  $1,000,000   Male  68  138  Transamerica Life Insurance Company  AA-
587  $250,000   Female  68  75  Transamerica Life Insurance Company  AA-
588  $750,000   Male  68  161  Northwestern Mutual Life Insurance Company  AA+
589  $2,000,000   Male  68  173  John Hancock Life Insurance Company (U.S.A.)  AA-
590  $150,000   Male  68  117  Protective Life Insurance Company  AA-
591  $600,000   Male  68  88  William Penn Life Insurance Company of New York  AA-
592  $5,616,468   Male  68  180  John Hancock Life Insurance Company (U.S.A.)  AA-
593  $1,100,000   Male  68  156  John Hancock Life Insurance Company (U.S.A.)  AA-
594  $3,000,000   Male  68  193  John Hancock Life Insurance Company (U.S.A.)  AA-

 

 52 
 

 

   Face Amount   Gender  Age (ALB) 
(1)
  LE (mo.)
(2)
  Insurance Company  S&P Rating
595  $400,000   Male  67  191  Lincoln National Life Insurance Company  AA-
596  $3,000,000   Male  67  100  Reliastar Life Insurance Company  A
597  $2,000,000   Male  67  100  AXA Equitable Life Insurance Company  A+
598  $2,000,000   Male  67  100  AXA Equitable Life Insurance Company  A+
599  $1,000,000   Male  67  48  Lincoln National Life Insurance Company  AA-
600  $1,000,000   Male  67  78  Transamerica Life Insurance Company  AA-
601  $350,000   Female  67  85  Assurity Life Insurance Company  N/A
602  $5,000,000   Male  67  105  Athene Annuity & Life Assurance Company  A-
603  $1,000,000   Male  67  149  Sun Life Assurance Company of Canada (U.S.)  AA-
604  $800,000   Male  67  129  Lincoln National Life Insurance Company  AA-
605  $800,000   Male  67  129  Lincoln National Life Insurance Company  AA-
606  $229,725   Female  67  107  Hartford Life and Annuity Insurance Company  BBB+
607  $490,000   Male  67  97  AXA Equitable Life Insurance Company  A+
608  $220,581   Male  67  25  American General Life Insurance Company  A+
609  $1,000,000   Male  67  109  The Savings Bank Life Insurance Company of Massachusetts  A-
610  $320,000   Male  67  162  Transamerica Life Insurance Company  AA-
611  $250,000   Male  67  163  Pruco Life Insurance Company  AA-
612  $125,000   Male  67  50  Genworth Life and Annuity Insurance Company  BB
613  $250,000   Male  67  199  Zurich Life Insurance Company  AA-
614  $650,000   Male  67  185  Lincoln National Life Insurance Company  AA-
615  $400,000   Male  66  132  Jackson National Life Insurance Company  AA
616  $500,000   Female  66  171  Banner Life Insurance Company  AA-
617  $350,000   Male  66  97  RiverSource Life Insurance Company  A+
618  $200,000   Male  66  163  Prudential Insurance Company of America  AA-
619  $200,000   Male  66  163  Prudential Insurance Company of America  AA-
620  $750,000   Male  66  128  Pacific Life Insurance Company  A+
621  $500,000   Male  66  136  Transamerica Life Insurance Company  AA-
622  $500,000   Female  66  132  AIG Life Insurance Company  A+
623  $265,000   Male  65  159  Protective Life Insurance Company  AA-
624  $10,000,000   Male  65  65  Lincoln National Life Insurance Company  AA-
625  $540,000   Male  65  172  West Coast Life Insurance Company  AA-
    1,272,077,891                

  

(1) Person’s age on last birthday (ALB)
(2) The insured’s life expectancy estimate, other than for a small face value insurance contract (i.e., a contract 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.

  

 53 
 

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

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

 

As of September 30, 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 amended, 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 September 30, 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.

  

 54 
 

 

PART II – OTHER INFORMATION

 

ITEM 1A. RISK FACTORS

 

Other than as noted below, there are no material changes to the risk factors disclosed in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Accuracy of the life expectancy estimates and mortality curves we use for small face contracts could have a material and adverse effect on our results of operation and financial condition.

 

As of September 30, 2016, we owned 306 “small face” life insurance policies (i.e., a contract with $1 million in face value benefits or less) having $164 million in face value of insurance benefits. The underwriting processes and mortality curves we use to evaluate, price and purchase small face contracts may be different from, and, as a result, may not be as reliable as, the processes we use for life insurance contracts with larger face values of benefits. While we obtain life expectancy reports from third-party evaluators based on medical evidence, 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 contracts, 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 contracts increases relative to the size of our total portfolio, the accuracy with which we have estimated life expectancies and mortality curves for these contracts will become increasingly material to our business. Any shortcomings in the processes we have used to evaluate, price, purchase and value the small face contracts 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 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, new technology that we believe may be applied to assist us with the mortality predictions in the course of underwriting and valuing life insurance contracts. This technology, however, has not yet been commercially applied in the manner we envision, and it 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 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.

 

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 technology 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.

 

 55 

 

 

ITEM 5. OTHER INFORMATION

 

Origination, Underwriting and Technology

 

We focus on purchasing high quality life insurance assets through our origination practices and underwriting procedures. In general, these practices and procedures strive to meet published guidelines for rated securitizations of life insurance portfolios. At the same time, we seek innovative value-added tools, services, and methodologies to improve both the accuracy and efficiency with which we evaluate and acquire life insurance assets.

 

Since 2013, we have focused on developing our direct origination channels through which we may purchase life insurance policies without the involvement of a life settlement broker, thereby eliminating commission costs and timing delays in the acquisition. We expect to continue allocating considerable resources towards developing our direct origination channels, primarily by outreach and relationship building with financial advisors (who may also sell our investment securities), life insurance agents, and consumers.

 

Our success in direct origination has presented us with the opportunity to purchase a greater number of “small face” life insurance policies with a face value benefit of $1,000,000 or less. 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 contracts because the secondary market industry participants have significantly relied on life settlement 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 contracts, brokers have focused on larger contracts 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.

 

To more fully realize the potential of the direct origination channel we have built, we have developed what we believe to be an efficient, cost-effective, and reliable method of underwriting and purchasing small face policies. In sum, our method is focused on obtaining enough medical information to generate reliable life expectancy estimates, and thereby make informed purchase decisions. We expect to refine this process over time and, to the extent possible, use new technologies to enhance this process and our overall business.

 

To that end, we have recently announced the execution of our option to exclusively license “DNA Methylation Based Predictor of Mortality” technology from the University of California, Los Angeles (UCLA) and discovered by Dr. Steven Horvath. In 2013, Dr. Horvath reported that human cells have a mechanism that records “biological age” progression, based on DNA methylation that is independent from “chronological age.” In 2016, Dr. Horvath discovered a specific set of DNA methylation-based bio-markers that are highly predictive of all-cause mortality. The discovery was made through a statistical analysis of bio-markers found in DNA samples from over 13,000 individuals whose health was studied for decades. The implications of Dr. Horvath’s discovery are simple and profound: Individual lifespans can now be estimated with significantly greater precision. We intend to implement aspects of this technology in our underwriting protocols and to explore how this technology may have commercial value to the primary life insurance, long-term care, and annuity businesses.

 

ITEM 6. EXHIBITS

 

Exhibit    
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 October 14, 2016 (filed herewith).
101.INS   XBRL Instance Document (filed herewith).
101.SCH   XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB   XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

 

 56 
 

 

 

SIGNATURES

 

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

 

  GWG HOLDINGS, INC.
     
Date:  November 10, 2016 By:   /s/ Jon R. Sabes
    Chief Executive Officer
     
Date:  November 10, 2016 By:   /s/ William B. Acheson
    Chief Financial Officer

 

 

 57 
 

 

EXHIBIT INDEX

 

31.1   Section 302 Certification of the Chief Executive Officer
31.2   Section 302 Certification of the Chief Financial Officer
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
99.1   Letter from Model Actuarial Pricing Systems, dated October 14, 2016
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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