424B3 1 f424b3081016_gwglbonds.htm PROSPECTUS

Filed pursuant to Rule 424(b)(3)

Registration Nos. 333-197227 and

333-197227-01

PROSPECTUS SUPPLEMENT NO. 2

to Prospectus dated
April 12, 2016

________________________

GWG HOLDINGS, INC.

________________________

1,000,000 Units of L Bonds
($1,000,000,000)

 This “Prospectus Supplement No. 2 — Supplement to Prospectus dated April 12, 2016,” supplements and amends our prospectus dated April 12, 2016 (referred to simply as our “prospectus”) and replaces and supersedes “Prospectus Supplement No. 1 to Prospectus dated April 12, 2016,” which we filed on May 16, 2016. You should read this supplement together with the prospectus since the information contained herein supplements and amends the information contained in the prospectus. Capitalized terms contained in this supplement have the same meanings as in the prospectus unless otherwise stated herein.

RECENT EVENTS

On August 12, 2016, we filed our Quarterly Report on Form 10-Q for the period ended June 30, 2016. This prospectus supplement has been prepared primarily to set forth certain information contained in that report.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This supplement is part of the prospectus and either it or its contents must accompany the prospectus to satisfy the prospectus-delivery requirements under the Securities Act of 1933.

The date of this prospectus supplement is August 12, 2016

 

TABLE OF CONTENTS

 

 

Page

OFFERED INTEREST RATES

 

1

RISK RELATING TO FORWARD-LOOKING STATEMENTS

 

2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

3

FINANCIAL INFORMATION

 

F-1

________________________

GWG Holdings, Inc.

220 South Sixth Street, Suite 1200

Minneapolis, MN 55402

Tel: (612) 746-1944

Fax: (612) 746-0445

i

OFFERED INTEREST RATES

Our Board of Directors has approved certain changes to the terms and conditions of the L Bonds, to be effective as of September 1, 2016. As of that date, we will no longer offer or sell six-month or one-year L Bonds under the prospectus until further notice. In addition, the interest rates of L Bonds sold under the prospectus from and after that date will be 5.50%, 6.25%, 7.50% and 8.50% for the 2-, 3-, 5- and 7-year L Bonds, respectively.

As of September 1, 2016, the chart set forth on the cover page of the prospectus will read:

Maturity Term

 

Interest Rate
(%)

2 years

 

5.50

3 years

 

6.25

5 years

 

7.50

7 years

 

8.50

In addition, on page 4 of the prospectus in the section entitled “Questions and Answers About this Offering — It seems as though you are offering several bonds with different interest rates and maturities but calling them all L Bonds. Is this the case?,” the answer to the question will read:

All bonds we issue in this offering will have identical terms, excepting the interest rate and the maturity length. In this regard, we have essentially created multiple classes of L Bonds, similar to how companies may have different classes of stocks with slightly different economic rights. Currently, we are offering four classes of L Bonds, as follows:

•         “Class 2-2” L Bonds will mature two years from their issuance and accrue interest at 5.50% per annum.

•         “Class 3-2” L Bonds will mature three years from their issuance and accrue interest at 6.25% per annum.

•         “Class 5-2” L Bonds will mature five years from their issuance and accrue interest at 7.50% per annum.

•         “Class 7-2” L Bonds will mature seven years from their issuance and accrue interest at 8.50% per annum.

The economic terms for each L Bond in any particular class will be identical to all other L Bonds in the same class (other than the date of maturity). In the event we adjust the interest rate for any class of bonds we offer, we will create a new class of L Bonds. Upon the renewal of any L Bonds we have sold, any new interest rate applied to an L Bond will be applied to all L Bonds in the same class.

1

RISK RELATING TO FORWARD-LOOKING STATEMENTS

Certain matters discussed in this prospectus supplement contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions about our operations and the investments we make, including, among other things, factors discussed under the heading “Risk Factors” in the prospectus and the following:

•         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, including our life expectancy estimates;

•         our reliance on debt financing;

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

•         our ability to satisfy our debt obligations if we were to sell our entire portfolio of life insurance policies;

•         life insurance company credit exposure;

•         general economic outlook, including prevailing interest rates;

•         performance of our investments in life insurance policies;

•         financing requirements;

•         litigation risks;

•         restrictive covenants contained in borrowing agreements;

•         increases in the cost of premiums charged by insurers for the policies we own; and

•         our ability to make cash distributions in satisfaction of dividend obligations and redemption requests.

Forward-looking statements can be identified by the use of words like “believes,” “could,” “possibly,” “probably,” “anticipates,” “estimates,” “projects,” “expects,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect,” or “consider” or the negative of these expressions or other variations, or by discussions of strategy that involve risks and uncertainties. All forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements.

We base these forward-looking statements on current expectations and projections about future events and the information currently available to us. Although we believe that the assumptions for these forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Consequently, no representation or warranty can be given that the estimates, opinions, or assumptions made in or referenced by this prospectus supplement will prove to be accurate. Some of the risks, uncertainties and assumptions are identified in the discussion entitled “Risk Factors” in this prospectus supplement. We caution you that the forward-looking statements in this prospectus supplement are only estimates and predictions, or statements or current intent. Actual results or 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. These risks, uncertainties and assumptions include, but are not limited to, those discussed in this prospectus supplement.

2

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

Note: The following discussion and analysis of the financial condition and results of operations of the Company are derived from our Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed with the SEC on August 12, 2016. We have not materially updated this discussion in any way, although it may be presented in a different order than in our Quarterly Report. As indicated in that 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. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See “Risks Relating to Forward-Looking Statements” above and in the prospectus. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results could differ materially from those suggested or implied by any forward-looking statements.

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes beginning at page F-1 of this prospectus supplement, as well as our consolidated financial statements and related notes contained within the prospectus.

Overview

GWG Holdings, Inc. is a specialty finance company and a leading financial purchaser of life insurance assets in the 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 alternative asset classes, such as life insurance, 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 of life insurance assets. To grow our portfolio and achieve the diversification we seek, 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 chose to finance our business in this manner after the 2008 credit crisis, during which banks largely ceased financing alternative asset classes as a result of the regulatory response to the financial crisis. We believe we are well positioned to continue providing investors with yield participation opportunities from alternative asset classes once dominated by the banking sector.

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 contracts associated with these estimates as well as certain other critical accounting contracts.

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.

3

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, which increased our fair value from $425 million to $432 million as of June 30, 2016 (see Note 4 for more information about our valuation process). The contracts receiving the largest increase in value were the contracts on the oldest insured lives in our portfolio.

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 June 30, 2016. We are aware of pending cost of insurance increases affecting approximately 3.8% 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:

June 30, 2016

 

December 31, 2015

11.05%

 

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.

4

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 11.05%. MAPS independently calculated the net present value of our portfolio of 547 contracts to be $431.8 million and furnished us with a letter documenting its calculation. A copy of such letter is filed as Exhibit 99.1 to our Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed with the SEC on August 12, 2016.

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.

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 is “more likely than not” that the deferred asset will be realized.

After assessing the realization of the net deferred tax assets, we believe that it is “more likely than not” that we will be able to realize all of our deferred tax assets other than those which are expected to result in a capital loss.

Deferred Financing and Issuance Costs

Financing costs incurred under the revolving senior credit facility were capitalized and are amortized using the straight-line method over the term of the revolving senior credit facility. 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 Preferred Stock, 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 Redeemable Preferred Stock 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 values when an insured’s mortality event occurs and determine that settlement and collection of the contract benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. We generally collect the face value of the life insurance 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.

5

•         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 revolving senior credit facility, interest paid on our L Bonds and other outstanding indebtedness such as our Series I Secured Notes, and dividends on our Series A Preferred Stock and our Redeemable Preferred Stock. 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.

Results of Operations — Three and Six Months Ended June 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
June 30,

 

Six Months Ended
June 30,

 

 

2016

 

2015

 

2016

 

2015

Revenue recognized from the receipt of contract benefits

 

$

8,137,000

 

$

618,000

 

$

22,765,000

 

$

25,632,000

 

Revenue (expense) recognized from the change in fair value of life insurance contracts, net of premiums and carrying costs(1)

 

 

12,246,000

 

 

7,856,000

 

 

15,332,000

 

 

(375,000

)

Gain on life insurance contracts, net

 

$

20,383,000

 

$

8,474,000

 

$

38,097,000

 

$

25,257,000

 

Number of contracts matured

 

 

6

 

 

1

 

 

12

 

 

7

 

The change in fair value related to new contracts acquired

 

$

9,822,000

 

$

4,511,000

 

$

17,841,000

 

$

5,123,000

 

____________

(1)      The discount rate applied to estimate the fair value of the portfolio of life insurance contracts we own was 11.05% as of June 30, 2016, compared to 11.19% as of June 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 consolidated financial statements).

Expenses.

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

2016

 

2015

 

Increase

 

2016

 

2015

 

Increase

Employee compensation and benefits(1)

 

$

3,071,000

 

$

2,145,000

 

$

926,000

 

$

5,538,000

 

$

3,873,000

 

$

1,665,000

Interest expense (including amortization of deferred financing costs and preferred stock dividends)(2)

 

 

10,366,000

 

 

7,322,000

 

 

3,044,000

 

 

20,026,000

 

 

14,499,000

 

 

5,527,000

Legal and professional expenses(3)

 

 

1,304,000

 

 

643,000

 

 

661,000

 

 

2,510,000

 

 

1,166,000

 

 

1,344,000

Other expenses(4)

 

 

2,333,000

 

 

1,881,000

 

 

452,000

 

 

4,745,000

 

 

3,415,000

 

 

1,330,000

Total expenses

 

$

17,074,000

 

$

11,991,000

 

$

5,083,000

 

$

32,819,000

 

$

22,953,000

 

$

9,866,000

____________

(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 June 30, 2016 we employed approximately 68 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.

6

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

 

Six Months Ended

 

 

June 30,
2016

 

June 30,
2015

 

June 30,
2016

 

June 30,
2015

Statutory federal income tax (benefit)

 

$

1,316,000

 

34.0

%

 

$

(1,167,000

)

 

34.0

%

 

$

2,050,000

 

34.0

%

 

$

831,000

 

34.0

%

State income taxes (benefit), net of federal benefit

 

 

291,000

 

7.5

%

 

 

(187,000

)

 

5.5

%

 

 

466,000

 

7.7

%

 

 

229,000

 

9.4

%

Series A preferred stock dividends

 

 

204,000

 

5.3

%

 

 

168,000

 

 

(4.9

)%

 

 

378,000

 

6.3

%

 

 

351,000

 

14.4

%

Other permanent differences

 

 

11,000

 

0.3

%

 

 

10,000

 

 

(0.3

)%

 

 

13,000

 

0.2

%

 

 

22,000

 

0.8

%

Total income tax expense (benefit)

 

$

1,822,000

 

47.1

%

 

$

(1,176,000

)

 

34.3

%

 

$

2,907,000

 

48.2

%

 

$

1,433,000

 

58.6

%

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 $0.6 million and $0.5 million during the three months ended June 30, 2016 and 2015, respectively, and $1.1 million and $1.0 million during the six months ended June 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 a senior revolving credit facility. We have used our debt offerings and a senior revolving credit facility primarily for contract acquisition, contract servicing, and portfolio-related financing expenditures including paying principal and interest.

As of June 30, 2016 and December 31, 2015, we had approximately $47.2 million and $74.4 million, respectively, in combined available cash and available borrowing base surplus capacity under our revolving credit facility 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 June 30, 2016:

Issuer/Borrower

 

Principal Amount Outstanding

 

Weighted Average Interest Rate

GWG Holdings, Inc. – L Bonds

 

$

334,714,000

 

7.17

%

GWG Life, LLC – Series I Secured Notes

 

 

18,283,000

 

8.62

%

GWG DLP Funding II, LLC – Revolving credit facility

 

 

82,011,000

 

5.48

%

Total

 

$

435,008,000

 

6.91

%

Our total revolving senior credit facility and other indebtedness balance as of June 30, 2016 and December 31, 2015 was $435.0 million and $370.8 million, respectively. At June 30, 2016, the total outstanding face amount under our Series I Secured Notes outstanding was $18.3 million, less unamortized selling costs of $0.3 million, resulting in a carrying amount of $18.0 million. At December 31, 2015, the total outstanding face amount under 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 June 30, 2016, the total outstanding face amount of L Bonds was $334.7 million plus $2.6 million of subscriptions in process, less unamortized selling costs of $10.0 million resulting in a carrying amount of $327.3 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.

The weighted-average interest rate of our outstanding Series I Secured Notes as of June 30, 2016 and December 31, 2015 was 8.62% and 8.47%, respectively, and the weighted-average maturity at those dates was 1.45 and 1.06 years, respectively. The Series I Secured Notes have renewal features. Since we first issued our Series I Secured Notes, we

7

experienced $162.6 million in maturities, of which $123.0 million renewed for an additional term as of June 30, 2016. This provided us with an aggregate renewal rate of approximately 76% for investments in these securities.

The weighted-average interest rate of our outstanding L Bonds as of June 30, 2016 and December 31, 2015 was 7.17% and 7.18%, respectively, and the weighted-average maturity at those dates was 2.01 and 2.02 years, respectively. Our L Bonds have renewal features. As of June 30, 2016, $217.1 million L Bonds matured, of which $143.3 million renewed for an additional term. The aggregate renewal rate is approximately 66% 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

 

$

3,574,000

 

$

58,270,000

 

$

61,844,000

2017

 

 

8,758,000

 

 

85,052,000

 

 

93,810,000

2018

 

 

2,401,000

 

 

87,168,000

 

 

89,569,000

2019

 

 

869,000

 

 

50,526,000

 

 

51,395,000

2020

 

 

1,766,000

 

 

19,457,000

 

 

21,223,000

Thereafter

 

 

915,000

 

 

34,241,000

 

 

35,156,000

 

 

$

18,283,000

 

$

334,714,000

 

$

352,997,000

The L Bonds and Series I Secured Notes are secured by all of our assets, and are subordinate to our revolving senior credit facility with Autobahn/DZ Bank. 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 6 and 7 to our consolidated financial statements).

We maintain a $105 million revolving senior credit facility with Autobahn/DZ Bank through GWG Life’s wholly owned subsidiaries DLP II and DLP III. The revolving senior credit facility is used to pay the premium expenses related to our portfolio of life insurance contracts. As of June 30, 2016 and December 31, 2015, we had approximately $82.0 million and $65.0 million, respectively, outstanding under the revolving senior credit facility, and maintained an available borrowing base surplus of $23.0 million and $40.0 million, respectively. Effective May 11, 2015, we amended and restated our senior credit facility to reduce the interest cost and extend the term of the facility to June 2018 (see Note 5 to our consolidated financial statements).

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 June 30, 2016 and December 31, 2015, we had approximately $18.3 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 Preferred Stock, having received an aggregate $24.6 million in subscriptions for our Series A Preferred Stock. These subscriptions consisted of $14.0 million in conversions of outstanding Series I Secured Notes and $10.6 million of new investments. As of June 30, 2016 and December 31, 2015, respectively, we had approximately $20.4 million and $20.8 million of Series A Preferred Stock outstanding.

In January 2012, we began publicly offering up to $250.0 million in debt securities (initially named “Renewable Secured Debentures” and subsequently renamed “L Bonds”) that was completed 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 June 30, 2016, the total amount of these L Bonds sold, including renewals, was $551.9 million. As of June 30, 2016 and December 31, 2015, respectively, we had approximately $334.7 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 Redeemable Preferred Stock at a per-share price of $1,000. As of June 30, 2016 we had issued approximately $12.2 million of Redeemable Preferred Stock.

8

Effective February 4, 2016, GWG MCA began to offer for sale up to of 2,000,000 shares of 9% Preferred Stock at an offering price of $10 per share in a private placement. As of June 30, 2016, GWG MCA had issued approximately $72,000 of MCA Preferred Stock.

Portfolio Assets and Secured Indebtedness

At June 30, 2016, the fair value of our investments in life insurance contracts of $431.8 million plus our cash balance of $17.4 million, our restricted cash balance of $11.2 million and our life insurance contract benefits receivable of $6.8 million, totaled $467.2 million, representing an excess of portfolio assets over secured indebtedness of $32.2 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 revolving senior credit facility with Autobahn/DZ Bank. The L Bonds and Series I Secured Notes are pari passu with respect to a security interest in our asset 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 June 30, 2016. In all cases, the sale of the life insurance assets owned by DLP III will be used first to satisfy all amounts owing under the revolving senior credit facility with Autobahn/DZ Bank. The net sale proceeds remaining after satisfying all obligations under the revolving senior credit facility 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

 

$

454,883,000

 

$

432,872,000

 

$

412,635,000

 

$

393,947,000

 

 

$

376,654,000

 

Cash, cash equivalents and life insurance contract benefits receivable

 

 

35,369,000

 

 

35,369,000

 

 

35,369,000

 

 

35,369,000

 

 

 

35,369,000

 

Total assets

 

 

490,202,000

 

 

468,241,000

 

 

448,004,000

 

 

429,316,000

 

 

 

412,023,000

 

Revolving senior credit facility Autobahn/DZ Bank

 

 

82,011,000

 

 

82,011,000

 

 

82,011,000

 

 

82,011,000

 

 

 

82,011,000

 

Net after revolving senior credit facility

 

 

408,191,000

 

 

386,230,000

 

 

365,993,000

 

 

347,305,000

 

 

 

330,012,000

 

Series I Secured Notes and L Bonds

 

 

352,997,000

 

 

352,997,000

 

 

352,997,000

 

 

352,997,000

 

 

 

352,997,000

 

Net after Series I Secured Notes and
L Bonds

 

 

55,194,000

 

 

33,233,000

 

 

12,996,000

 

 

(5,692,000

)

 

 

(22,985,000

)

Impairment to Series I Secured Notes and L Bonds

 

 

No impairment

 

 

No impairment

 

 

No impairment

 

 

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 12.69% 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 11.05% and 11.09% as of June 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 prospectus supplement, 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.

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 facility, when permitted, and through the issuance of debt securities, including the L Bonds, and equity securities including our Redeemable Preferred Stock.

9

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

Six months ending December 31, 2016

 

$

18,708,000

 

$

656,000

 

$

19,364,000

2017

 

 

39,266,000

 

 

656,000

 

 

39,922,000

2018

 

 

43,010,000

 

 

656,000

 

 

43,666,000

2019

 

 

48,131,000

 

 

656,000

 

 

48,787,000

2020

 

 

53,558,000

 

 

656,000

 

 

54,214,000

2021

 

 

59,829,000

 

 

656,000

 

 

60,485,000

 

 

$

262,502,000

 

$

3,936,000

 

$

266,438,000

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

March 31, 2012

 

$

482,455,000

 

$

4,203,000

 

$

14,977,000

 

28.1

%

June 30, 2012

 

 

489,255,000

 

 

8,703,000

 

 

15,412,000

 

56.5

%

September 30, 2012

 

 

515,661,000

 

 

7,833,000

 

 

15,837,000

 

49.5

%

December 31, 2012

 

 

572,245,000

 

 

7,350,000

 

 

16,597,000

 

44.3

%

March 31, 2013

 

 

639,755,000

 

 

11,350,000

 

 

18,044,000

 

62.9

%

June 30, 2013

 

 

650,655,000

 

 

13,450,000

 

 

19,182,000

 

70.1

%

September 30, 2013

 

 

705,069,000

 

 

18,450,000

 

 

20,279,000

 

91.0

%

December 31, 2013

 

 

740,648,000

 

 

16,600,000

 

 

21,733,000

 

76.4

%

March 31, 2014

 

 

771,940,000

 

 

12,600,000

 

 

21,930,000

 

57.5

%

June 30, 2014

 

 

784,652,000

 

 

6,300,000

 

 

22,598,000

 

27.9

%

September 30, 2014

 

 

787,964,000

 

 

4,300,000

 

 

23,121,000

 

18.6

%

December 31, 2014

 

 

779,099,000

 

 

18,050,000

 

 

23,265,000

 

77.6

%

March 31, 2015

 

 

754,942,000

 

 

46,675,000

 

 

23,786,000

 

196.2

%

June 30, 2015

 

 

806,274,000

 

 

47,125,000

 

 

24,348,000

 

193.6

%

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

%

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.

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.

10

Off-Balance Sheet Arrangements

GWG Holdings is party to an office lease with U.S. Bank National Association as the landlord. The original lease was for 11,695 square feet of office space located at 220 South Sixth Street, Minneapolis, Minnesota. The original lease agreement was effective April 22, 2012, amended on December 14, 2014 and expired on August 31, 2015. 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 facility is 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 the Notes to our consolidated financial statements and our financial statements 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.

11

Our senior credit facility 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 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 under which our L Bonds were and continue to be issued, and the note issuance and security agreement under which our Series I Secured Notes were issued, 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 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
June 30,

 

Six Months Ended
June 30,

 

 

2016

 

2015

 

2016

 

2015

GAAP net income (loss)

 

$

1,881,000

 

 

$

(2,250,000

)

 

$

2,956,000

 

 

$

1,011,000

 

Unrealized fair value gain(1)

 

 

(21,241,000

)

 

 

(14,028,000

)

 

 

(32,773,000

)

 

 

(12,134,000

)

Adjusted cost basis increase(2)

 

 

16,373,000

 

 

 

12,414,000

 

 

 

31,740,000

 

 

 

24,643,000

 

Accrual of unrealized actuarial gain(3)

 

 

9,391,000

 

 

 

7,974,000

 

 

 

17,570,000

 

 

 

12,216,000

 

Total adjusted non-GAAP net income(4)

 

$

6,404,000

 

 

$

4,110,000

 

 

$

19,493,000

 

 

$

25,736,000

 

____________

(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 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
June 30,
2016

 

As of
December 31,
2015

GAAP net worth

 

$

30,385,000

 

 

$

16,160,000

 

Less intangible assets(1)

 

 

(15,970,000

)

 

 

(11,562,000

)

GAAP tangible net worth

 

 

14,415,000

 

 

 

4,598,000

 

Unrealized fair value gain(2)

 

 

(226,816,000

)

 

 

(194,043,000

)

Adjusted cost basis increase(3)

 

 

211,930,000

 

 

 

190,645,000

 

Accrual of unrealized actuarial gain(4)

 

 

128,925,000

 

 

 

111,355,000

 

Total adjusted non-GAAP tangible net worth(5)

 

$

128,454,000

 

 

$

112,555,000

 

____________

(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.

(5)      We must maintain a total adjusted non-GAAP tangible net worth of $45 million to maintain compliance with our revolving credit facility with Autobahn/DZ Bank.

12

Excess Spread. Our revolving senior credit facility 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
June 30,
2016

 

As of
December 31,
2015

Weighted-average expected IRR(1)

 

11.59

%

 

11.11

%

Weighted-average revolving credit facility interest rate(2)

 

5.48

%

 

5.58

%

Excess spread(3)

 

6.11

%

 

5.53

%

Total weighted-average interest rate on indebtedness for borrowed money(4)

 

6.91

%

 

6.98

%

Total excess spread(5)

 

4.68

%

 

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
June 30,
2016

 

As of
December 31,
2015

GAAP fair value

 

$

431,820,000

 

 

$

356,650,000

 

Unrealized fair value gain(A)

 

 

(226,816,000

)

 

 

(194,043,000

)

Adjusted cost basis increase(B)

 

 

211,931,000

 

 

 

190,645,000

 

Investment cost basis(C)

 

$

416,935,000

 

 

$

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 revolving senior credit facility interest rate as of the measurement date.

(3)      We must maintain an excess spread of 2.00% relating to our revolving senior credit facility to maintain compliance under such facility.

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

Indebtedness

 

As of
June 30,
2016

 

As of
December 31,
2015

Revolving senior credit facility

 

$

82,011,000

 

$

65,011,000

Series I Secured Notes

 

 

18,283,000

 

 

23,578,000

L Bonds

 

 

334,714,000

 

 

282,171,000

Total

 

$

435,008,000

 

$

370,760,000

13

Interest Rates on Indebtedness

 

 

 

 

Revolving senior credit facility

 

5.48

%

 

5.58

%

Series I Secured Notes

 

8.62

%

 

8.47

%

L Bonds

 

7.17

%

 

7.18

%

Weighted-average interest rates paid on indebtedness

 

6.91

%

 

6.98

%

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

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 prospectus supplement, the subordination ratio provisions under the Indenture have expired.

 

 

As of
June 30,
2016

 

As of
December 31,
2015

Life insurance portfolio contract benefits

 

$

1,154,798,000

 

 

$

944,844,000

 

Discount rate of future cash flows

 

 

6.91

%

 

 

6.98

%

Net present value of Life insurance portfolio contract benefits

 

$

535,915,000

 

 

$

435,738,000

 

Cash and cash equivalents

 

 

28,540,000

 

 

 

36,767,000

 

Life insurance contract benefits receivable

 

 

6,829,000

 

 

 

—

 

Total Coverage

 

 

571,284,000

 

 

 

472,505,000

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

82,011,000

 

 

 

65,011,000

 

Series I Secured Notes

 

 

18,283,000

 

 

 

23,578,000

 

L Bonds

 

 

334,714,000

 

 

 

282,171,000

 

Total Indebtedness

 

$

435,008,000

 

 

$

370,760,000

 

 

 

 

 

 

 

 

 

 

Debt Coverage Ratio

 

 

76.15

%

 

 

78.47

%

Subordination Ratio

 

 

14.36

%

 

 

13.76

%

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

Non-GAAP Net Asset Value. The non-GAAP net asset value attempts to measure the economic value of our common equity by netting interest-bearing debt and the redemption/liquidation value of our outstanding preferred stock against the value of our portfolio of life insurance (discounted at our weighted-average interest rate paid on indebtedness) and cash, cash equivalents and life insurance contract benefits receivable, if any, at the end of the measurement period. Management believes this is a useful alternative way to view the common equity value attributable to the current gross yield spread in our portfolio of life insurance.

 

 

As of
June 30,
 2016

 

As of
December 31,
 2015

Life insurance portfolio contract benefits

 

$

1,154,798,000

 

 

$

944,844,000

 

Discount rate of future cash flows

 

 

6.91

%

 

 

6.98

%

Net present value of life insurance contract benefits

 

$

535,915,000

 

 

$

435,738,000

 

Cash and cash equivalents

 

$

28,540,000

 

 

$

36,767,000

 

Life insurance contract benefits receivable

 

$

6,829,000

 

 

$

—

 

Interest bearing debt

 

$

(435,008,000

)

 

$

(370,760,000

)

Preferred stock redemption value

 

$

(24,418,000

)

 

$

(22,949,000

)

Net asset value

 

$

111,858,000

 

 

$

78,796,000

 

Per share

 

$

18.72

 

 

$

13.26

 

Shares outstanding (basic)

 

 

5,974,790

 

 

 

5,941,790

 

14

The discount rate used in this calculation is our weighted-average cost of financing and is separate and distinct from the discount rate used to determine the GAAP fair value of our portfolio of life insurance policies.

The following table illustrates the impact on the non-GAAP net asset value of different discount rates (discounted at our weighted-average interest rate paid on indebtedness) as of June 30, 2016.

Discount rate of future cash flows   5.91%   6.91%   7.91%   8.91%
Net asset value  $143,307,000   $111,858,000   $83,164,000   $56,915,000 
Per share  $23.99   $18.72   $13.92   $9.53 

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
June 30,
2016

 

As of
December 31,
2015

Life insurance portfolio contract benefits

 

$

1,154,798,000

 

 

$

945,000,000

 

Total number of polices

 

 

547

 

 

 

396

 

 

 

 

 

 

 

 

 

 

Non-GAAP Expected Portfolio Internal Rate of Return at Purchase

 

 

15.59

%

 

 

15.71

%

We have in the past reported Non-GAAP Blended Portfolio Internal Rate of Return, which is the weighted average (by face amount of contract benefits) of the IRR attained on contracts that have matured and the IRR we expect to earn on our current portfolio. We use this non-GAAP measure to assess the reasonableness of our yield expectation of the portfolio over time. However, since reporting the Blended Internal Rate of Return we realized that when we have significant maturities within a short period of time after purchase (as we did in the three months ending June 30, 2016) the Blended Internal Rate of Return calculation’s effectiveness in characterizing long-term yield expectations of the portfolio is reduced. In addition, the value of reporting the Blended Internal Rate of Return was to illustrate that the ultimate IRR earned on the portfolio is expected to converge near the Expected Internal Rate of Return at Purchase. We expect to continue to report The Non-GAAP Expected Portfolio Internal Rate of Return at Purchase until we have a statistically significant population of maturities within the portfolio to accurately measure this expected convergence.

Additionally, we participate in a new and developing asset class, and as a result will continue to seek better and more useful metrics to measure the value and performance of our portfolio and business over time.

Portfolio Information

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

Life Insurance Portfolio Summary

Total portfolio face value of contract benefits

 

$

1,154,798,000

 

Average face value per contract

 

$

2,111,000

 

Average face value per insured life

 

$

2,342,000

 

Average age of insured (yrs.)*

 

 

82.1

 

Average life expectancy estimate (yrs.)*

 

 

6.8

 

Total number of contracts

 

 

547

 

Number of unique lives

 

 

493

 

Demographics

 

 

73% Males; 27% Females

 

Number of smokers

 

 

18

 

Largest contract as % of total portfolio

 

 

0.87

%

Average contract as % of total portfolio

 

 

0.18

%

Average annual premium as % of face value

 

 

3.25

%

____________

*         Averages presented in the table are weighted averages.

15

Our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of June 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

 

 

 

 

 

 

 

 

Wtd. Avg. Life

 

Percentage of Total

Min Age

 

Max Age

 

Contracts

 

Contract
Benefits

 

Expectancy
(yrs.)

 

Number of
Contracts

 

Contract
Benefits

90

 

95

 

43

 

$

81,533,000

 

2.4

 

7.9

%

 

7.1

%

85

 

89

 

141

 

$

296,388,000

 

4.7

 

25.8

%

 

25.7

%

80

 

84

 

148

 

$

396,632,000

 

6.8

 

27.0

%

 

34.3

%

75

 

79

 

101

 

$

226,984,000

 

8.9

 

18.5

%

 

19.7

%

70

 

74

 

75

 

$

103,093,000

 

9.7

 

13.7

%

 

8.9

%

65

 

69

 

39

 

$

50,168,000

 

10.7

 

7.1

%

 

4.3

%

Total

 

 

 

547

 

$

1,154,798,000

 

6.8

 

100.0

%

 

100.0

%

Our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of June 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

 

137

 

$

239,047,000

 

25.0

%

 

20.7

%

48

 

71

 

130

 

 

270,257,000

 

23.8

%

 

23.4

%

72

 

95

 

107

 

 

243,996,000

 

19.6

%

 

21.1

%

96

 

119

 

89

 

 

219,415,000

 

16.3

%

 

19.0

%

120

 

143

 

50

 

 

111,482,000

 

9.1

%

 

9.7

%

144

 

202

 

34

 

 

70,601,000

 

6.2

%

 

6.1

%

Total

 

 

 

547

 

$

1,154,798,000

 

100.0

%

 

100.0

%

We track concentrations of pre-existing medical conditions among insured individuals within our portfolio based on information contained in life expectancy reports. We track these medical conditions within the following ten primary disease categories: (1) cancer, (2) cardiovascular, (3) cerebrovascular, (4) dementia, (5) diabetes, (6) multiple, (7) neurological disorders, (8) no disease, (9) other, and (10) respiratory diseases. Our primary disease categories are summary generalizations based on the ICD-9 codes we track on each insured individuals within our portfolio. ICD-9 codes, published by the World Health Organization, are used worldwide for medical diagnoses and treatment systems, as well as morbidity and mortality statistics. Currently, the only primary disease category within our portfolio that represents a concentration of over 10% is cardiovascular, which constitutes 20.8% 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.

16

As of June 30, 2016, 97.6% 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

 

$

174,254,000

 

15.1

%

 

AXA Equitable Life Insurance Company

 

A+

2

 

$

124,766,000

 

10.8

%

 

Transamerica Life Insurance Company

 

AA-

3

 

$

115,605,000

 

10.0

%

 

John Hancock Life Insurance Company (U.S.A.)

 

AA-

4

 

$

75,653,000

 

6.5

%

 

Voya Retirement Insurance and Annuity Company

 

A

5

 

$

65,806,000

 

5.7

%

 

Metropolitan Life Insurance Company

 

A+

6

 

$

58,569,000

 

5.1

%

 

Jefferson-Pilot Life Insurance Company

 

AA-

7

 

$

55,204,000

 

4.8

%

 

Lincoln National Life Insurance Company

 

AA-

8

 

$

50,675,000

 

4.4

%

 

American General Life Insurance Company

 

A+

9

 

$

48,095,000

 

4.2

%

 

Pacific Life Insurance Company

 

A+

10

 

$

45,450,000

 

3.9

%

 

Massachusetts Mutual Life Insurance Company

 

AA+

 

 

 

814,077,000

 

70.5

%

 

 

 

 

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

 

3.29

%

 

5.0

 

BBB

Manulife Finl 4.9%

 

9/17/2020

 

2.54

%

 

4.7

 

A

Lincoln National Corp Ind 4%

 

9/1/2023

 

3.44

%

 

7.7

 

A-

Amer Intl Grp 5%

 

4/26/2023

 

3.23

%

 

7.3

 

A-

Protective Life 7.375%

 

10/15/2019

 

2.85

%

 

3.8

 

A-

Metlife 3.048%

 

12/15/2022

 

2.94

%

 

7.0

 

A-

Prudential Finl Inc Mtns Book 4.5%

 

11/16/2021

 

2.86

%

 

5.9

 

A

Average yield on insurance bonds

 

 

 

3.02

%

 

5.9

 

 

The table above indicates the current yields to maturity (YTM) for the senior bonds of selected life insurance carriers with durations, on average, that our 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.

17

The complete detail of our portfolio of life insurance contracts, owned by our wholly owned subsidiaries as of June 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 June 30, 2016)

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

1

 

$

4,000,000

 

Male

 

95

 

25.0

 

MetLife Investors USA Insurance Company

 

A+

2

 

$

1,100,000

 

Male

 

95

 

17.4

 

Voya Retirement Insurance and Annuity Company

 

A

3

 

$

1,500,000

 

Female

 

95

 

22.4

 

Aviva Life Insurance Company

 

A-

4

 

$

3,200,000

 

Male

 

95

 

15.7

 

West Coast Life Insurance Company

 

AA-

5

 

$

1,000,000

 

Female

 

94

 

22.5

 

Transamerica Life Insurance Company

 

AA-

6

 

$

264,000

 

Female

 

94

 

11.8

 

Lincoln Benefit Life Company

 

BBB+

7

 

$

125,000

 

Female

 

94

 

8.0

 

Lincoln National Life Insurance Company

 

AA-

8

 

$

250,000

 

Male

 

93

 

24.9

 

North American Company for Life and Health Insurance

 

A+

9

 

$

3,500,000

 

Male

 

93

 

30.8

 

Voya Retirement Insurance and Annuity Company

 

A

10

 

$

250,000

 

Male

 

93

 

8.5

 

Transamerica Life Insurance Company

 

AA-

11

 

$

572,429

 

Female

 

92

 

28.5

 

Voya Retirement Insurance and Annuity Company

 

A

12

 

$

3,000,000

 

Male

 

92

 

32.9

 

West Coast Life Insurance Company

 

AA-

13

 

$

500,000

 

Male

 

92

 

8.2

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

14

 

$

500,000

 

Female

 

92

 

57.8

 

John Hancock Life Insurance Company

 

AA-

15

 

$

5,000,000

 

Female

 

92

 

44.3

 

American General Life Insurance Company

 

A+

16

 

$

2,000,000

 

Female

 

92

 

8.4

 

Pruco Life Insurance Company

 

AA-

17

 

$

400,000

 

Female

 

92

 

61.3

 

Principal Life Insurance Company

 

A+

18

 

$

500,000

 

Female

 

92

 

43.4

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

19

 

$

5,000,000

 

Female

 

92

 

25.2

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

20

 

$

300,000

 

Female

 

92

 

19.2

 

West Coast Life Insurance Company

 

AA-

21

 

$

700,000

 

Female

 

91

 

37.4

 

Transamerica Life Insurance Company

 

AA-

22

 

$

1,682,773

 

Female

 

91

 

42.3

 

Hartford Life and Annuity Insurance Company

 

BBB+

23

 

$

500,000

 

Male

 

91

 

42.3

 

Massachusetts Mutual Life Insurance Company

 

AA+

24

 

$

5,000,000

 

Male

 

91

 

23.8

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

25

 

$

3,100,000

 

Female

 

91

 

26.8

 

Lincoln Benefit Life Company

 

BBB+

26

 

$

1,500,000

 

Female

 

91

 

56.1

 

Jefferson-Pilot Life Insurance Company

 

AA-

27

 

$

3,000,000

 

Female

 

91

 

26.3

 

Jefferson-Pilot Life Insurance Company

 

AA-

28

 

$

500,000

 

Male

 

91

 

43.0

 

Voya Retirement Insurance and Annuity Company

 

A

29

 

$

1,000,000

 

Male

 

91

 

7.8

 

Voya Retirement Insurance and Annuity Company

 

A

30

 

$

600,000

 

Female

 

91

 

16.1

 

Columbus Life Insurance Company

 

AA

31

 

$

3,845,000

 

Female

 

91

 

38.0

 

Pacific Life Insurance Company

 

A+

32

 

$

500,000

 

Female

 

90

 

17.4

 

Lincoln Financial Group

 

AA-

33

 

$

1,000,000

 

Female

 

90

 

42.3

 

United of Omaha Life Insurance Company

 

AA-

34

 

$

3,500,000

 

Female

 

90

 

64.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

35

 

$

375,000

 

Male

 

90

 

35.0

 

Lincoln National Life Insurance Company

 

AA-

36

 

$

2,500,000

 

Female

 

90

 

5.7

 

AXA Equitable Life Insurance Company

 

A+

37

 

$

2,500,000

 

Female

 

90

 

5.7

 

AXA Equitable Life Insurance Company

 

A+

38

 

$

5,000,000

 

Female

 

90

 

32.4

 

Voya Retirement Insurance and Annuity Company

 

A

39

 

$

5,000,000

 

Female

 

90

 

13.3

 

Lincoln National Life Insurance Company

 

AA-

40

 

$

715,000

 

Female

 

90

 

51.3

 

Jefferson-Pilot Life Insurance Company

 

AA-

41

 

$

1,203,520

 

Male

 

90

 

34.9

 

Columbus Life Insurance Company

 

AA

42

 

$

1,350,000

 

Female

 

90

 

28.5

 

Jefferson-Pilot Life Insurance Company

 

AA-

43

 

$

3,500,000

 

Female

 

90

 

33.9

 

Lincoln National Life Insurance Company

 

AA-

44

 

$

5,000,000

 

Female

 

89

 

39.6

 

Massachusetts Mutual Life Insurance Company

 

AA+

18

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

45

 

$

2,500,000

 

Female

 

89

 

40.1

 

American General Life Insurance Company

 

A+

46

 

$

2,500,000

 

Male

 

89

 

47.2

 

Pacific Life Insurance Company

 

A+

47

 

$

4,000,000

 

Female

 

89

 

63.1

 

Transamerica Life Insurance Company

 

AA-

48

 

$

5,000,000

 

Male

 

89

 

43.8

 

AXA Equitable Life Insurance Company

 

A+

49

 

$

1,103,922

 

Female

 

89

 

52.8

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

50

 

$

1,000,000

 

Female

 

89

 

56.5

 

Transamerica Life Insurance Company

 

AA-

51

 

$

250,000

 

Female

 

89

 

56.5

 

Transamerica Life Insurance Company

 

AA-

52

 

$

1,050,000

 

Male

 

89

 

36.0

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

53

 

$

3,000,000

 

Male

 

89

 

87.7

 

Transamerica Life Insurance Company

 

AA-

54

 

$

1,000,000

 

Male

 

89

 

45.3

 

AXA Equitable Life Insurance Company

 

A+

55

 

$

500,000

 

Male

 

89

 

51.8

 

Lincoln National Life Insurance Company

 

AA-

56

 

$

4,785,380

 

Female

 

89

 

33.1

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

57

 

$

1,803,455

 

Female

 

89

 

41.2

 

Metropolitan Life Insurance Company

 

A+

58

 

$

1,529,270

 

Female

 

89

 

41.2

 

Metropolitan Life Insurance Company

 

A+

59

 

$

800,000

 

Male

 

89

 

56.4

 

Lincoln National Life Insurance Company

 

AA-

60

 

$

5,000,000

 

Male

 

89

 

42.7

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

61

 

$

500,000

 

Female

 

89

 

29.1

 

Nationwide Life and Annuity Insurance Company

 

A+

62

 

$

2,225,000

 

Female

 

89

 

76.0

 

Transamerica Life Insurance Company

 

AA-

63

 

$

3,000,000

 

Female

 

89

 

72.2

 

Massachusetts Mutual Life Insurance Company

 

AA+

64

 

$

1,500,000

 

Male

 

89

 

37.0

 

Union Central Life Insurance Company

 

A+

65

 

$

3,000,000

 

Male

 

89

 

34.7

 

Jefferson-Pilot Life Insurance Company

 

AA-

66

 

$

2,000,000

 

Male

 

89

 

37.8

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

67

 

$

396,791

 

Male

 

89

 

28.3

 

Lincoln National Life Insurance Company

 

AA-

68

 

$

1,500,000

 

Male

 

89

 

96.0

 

Transamerica Life Insurance Company

 

AA-

69

 

$

1,000,000

 

Female

 

88

 

47.3

 

MetLife Investors USA Insurance Company

 

A+

70

 

$

248,859

 

Female

 

88

 

27.4

 

Lincoln National Life Insurance Company

 

AA-

71

 

$

500,000

 

Female

 

88

 

59.1

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

72

 

$

5,000,000

 

Female

 

88

 

28.7

 

Transamerica Life Insurance Company

 

AA-

73

 

$

3,000,000

 

Male

 

88

 

38.8

 

Transamerica Life Insurance Company

 

AA-

74

 

$

1,200,000

 

Male

 

88

 

64.8

 

Transamerica Life Insurance Company

 

AA-

75

 

$

250,000

 

Male

 

88

 

61.9

 

Metropolitan Life Insurance Company

 

A+

76

 

$

6,000,000

 

Female

 

88

 

48.3

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

77

 

$

330,000

 

Male

 

88

 

62.5

 

AXA Equitable Life Insurance Company

 

A+

78

 

$

175,000

 

Male

 

88

 

62.5

 

Metropolitan Life Insurance Company

 

A+

79

 

$

335,000

 

Male

 

88

 

62.5

 

Metropolitan Life Insurance Company

 

A+

80

 

$

3,000,000

 

Male

 

88

 

68.2

 

AXA Equitable Life Insurance Company

 

A+

81

 

$

2,000,000

 

Female

 

88

 

42.6

 

Beneficial Life Insurance Company

 

N/A

82

 

$

250,000

 

Female

 

88

 

42.6

 

John Hancock Life Insurance Company

 

AA-

83

 

$

1,000,000

 

Female

 

88

 

32.1

 

New York Life Insurance Company

 

AA+

84

 

$

1,250,000

 

Male

 

88

 

29.3

 

Columbus Life Insurance Company

 

AA

85

 

$

300,000

 

Male

 

88

 

29.3

 

Columbus Life Insurance Company

 

AA

86

 

$

10,000,000

 

Female

 

88

 

63.0

 

West Coast Life Insurance Company

 

AA-

87

 

$

2,500,000

 

Male

 

88

 

38.8

 

Transamerica Life Insurance Company

 

AA-

88

 

$

1,000,000

 

Female

 

88

 

43.2

 

West Coast Life Insurance Company

 

AA-

89

 

$

2,000,000

 

Female

 

88

 

43.2

 

West Coast Life Insurance Company

 

AA-

90

 

$

800,000

 

Male

 

88

 

45.8

 

National Western Life Insurance Company

 

A

91

 

$

500,000

 

Female

 

88

 

43.3

 

Transamerica Life Insurance Company

 

AA-

92

 

$

400,000

 

Female

 

88

 

43.3

 

Lincoln Benefit Life Company

 

BBB+

93

 

$

1,269,017

 

Male

 

88

 

27.3

 

Hartford Life and Annuity Insurance Company

 

BBB+

19

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

94

 

$

200,000

 

Male

 

88

 

39.2

 

Lincoln Benefit Life Company

 

BBB+

95

 

$

4,445,467

 

Male

 

88

 

48.8

 

Penn Mutual Life Insurance Company

 

A+

96

 

$

7,500,000

 

Male

 

88

 

40.9

 

Jefferson-Pilot Life Insurance Company

 

AA-

97

 

$

3,600,000

 

Female

 

88

 

49.5

 

AXA Equitable Life Insurance Company

 

A+

98

 

$

5,000,000

 

Male

 

88

 

70.5

 

Lincoln National Life Insurance Company

 

AA-

99

 

$

4,513,823

 

Female

 

88

 

19.3

 

Aviva Life Insurance Company

 

A-

100

 

$

309,000

 

Male

 

88

 

29.3

 

Transamerica Life Insurance Company

 

AA-

101

 

$

100,000

 

Female

 

88

 

48.1

 

American General Life Insurance Company

 

A+

102

 

$

100,000

 

Female

 

88

 

48.1

 

American General Life Insurance Company

 

A+

103

 

$

2,000,000

 

Female

 

88

 

66.0

 

U.S. Financial Life Insurance Company

 

A+

104

 

$

1,000,000

 

Male

 

87

 

50.9

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

105

 

$

2,000,000

 

Male

 

87

 

50.9

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

106

 

$

5,000,000

 

Male

 

87

 

43.3

 

Jefferson-Pilot Life Insurance Company

 

AA-

107

 

$

1,365,000

 

Female

 

87

 

84.9

 

Transamerica Life Insurance Company

 

AA-

108

 

$

1,000,000

 

Female

 

87

 

78.5

 

Voya Retirement Insurance and Annuity Company

 

A

109

 

$

200,000

 

Female

 

87

 

77.1

 

Lincoln National Life Insurance Company

 

AA-

110

 

$

1,000,000

 

Male

 

87

 

40.2

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

111

 

$

1,000,000

 

Male

 

87

 

31.3

 

Massachusetts Mutual Life Insurance Company

 

AA+

112

 

$

1,000,000

 

Female

 

87

 

20.8

 

State Farm Life Insurance Company

 

AA-

113

 

$

2,000,000

 

Male

 

87

 

87.8

 

Transamerica Life Insurance Company

 

AA-

114

 

$

209,176

 

Male

 

87

 

83.9

 

Lincoln National Life Insurance Company

 

AA-

115

 

$

8,500,000

 

Male

 

87

 

70.4

 

Massachusetts Mutual Life Insurance Company

 

AA+

116

 

$

1,000,000

 

Male

 

87

 

25.6

 

Transamerica Life Insurance Company

 

AA-

117

 

$

500,000

 

Male

 

87

 

71.2

 

Metropolitan Life Insurance Company

 

A+

118

 

$

2,000,000

 

Male

 

87

 

51.6

 

Jefferson-Pilot Life Insurance Company

 

AA-

119

 

$

347,211

 

Male

 

87

 

32.9

 

Prudential Life Insurance Company

 

AA-

120

 

$

500,000

 

Female

 

87

 

47.3

 

Beneficial Life Insurance Company

 

N/A

121

 

$

1,800,000

 

Male

 

87

 

43.1

 

John Hancock Variable Life Insurance Company

 

AA-

122

 

$

4,000,000

 

Male

 

87

 

42.9

 

Metropolitan Life Insurance Company

 

A+

123

 

$

2,000,000

 

Male

 

87

 

80.6

 

Voya Retirement Insurance and Annuity Company

 

A

124

 

$

2,000,000

 

Male

 

87

 

80.6

 

Voya Retirement Insurance and Annuity Company

 

A

125

 

$

2,000,000

 

Male

 

87

 

80.6

 

Voya Retirement Insurance and Annuity Company

 

A

126

 

$

1,500,000

 

Male

 

87

 

50.7

 

AXA Equitable Life Insurance Company

 

A+

127

 

$

1,500,000

 

Male

 

86

 

28.9

 

Transamerica Life Insurance Company

 

AA-

128

 

$

3,750,000

 

Male

 

86

 

65.5

 

AXA Equitable Life Insurance Company

 

A+

129

 

$

2,000,000

 

Male

 

86

 

45.9

 

Metropolitan Life Insurance Company

 

A+

130

 

$

3,000,000

 

Male

 

86

 

45.9

 

Metropolitan Life Insurance Company

 

A+

131

 

$

1,000,000

 

Male

 

86

 

31.2

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

132

 

$

2,000,000

 

Female

 

86

 

75.3

 

AXA Equitable Life Insurance Company

 

A+

133

 

$

3,000,000

 

Female

 

86

 

73.8

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

134

 

$

125,000

 

Male

 

86

 

55.8

 

Jackson National Life Insurance Company

 

AA

135

 

$

1,500,000

 

Male

 

86

 

68.4

 

AXA Equitable Life Insurance Company

 

A+

136

 

$

1,000,000

 

Male

 

86

 

47.2

 

AXA Equitable Life Insurance Company

 

A+

137

 

$

2,328,547

 

Male

 

86

 

35.4

 

Metropolitan Life Insurance Company

 

A+

138

 

$

2,000,000

 

Male

 

86

 

35.4

 

Metropolitan Life Insurance Company

 

A+

139

 

$

5,000,000

 

Male

 

86

 

77.9

 

Voya Retirement Insurance and Annuity Company

 

A

140

 

$

1,500,000

 

Male

 

86

 

39.7

 

Voya Retirement Insurance and Annuity Company

 

A

141

 

$

1,500,000

 

Male

 

86

 

39.7

 

Voya Retirement Insurance and Annuity Company

 

A

142

 

$

3,000,000

 

Female

 

86

 

73.8

 

Transamerica Life Insurance Company

 

AA-

20

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

143

 

$

5,000,000

 

Male

 

86

 

62.5

 

Voya Retirement Insurance and Annuity Company

 

A

144

 

$

1,000,000

 

Male

 

86

 

38.0

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

145

 

$

500,000

 

Male

 

86

 

41.5

 

New England Life Insurance Company

 

AA-

146

 

$

4,000,000

 

Female

 

86

 

43.1

 

Voya Retirement Insurance and Annuity Company

 

A

147

 

$

5,000,000

 

Female

 

86

 

82.5

 

American General Life Insurance Company

 

A+

148

 

$

2,000,000

 

Male

 

86

 

53.5

 

AXA Equitable Life Insurance Company

 

A+

149

 

$

1,750,000

 

Male

 

86

 

53.5

 

AXA Equitable Life Insurance Company

 

A+

150

 

$

2,000,000

 

Male

 

86

 

26.6

 

Transamerica Life Insurance Company

 

AA-

151

 

$

1,425,000

 

Male

 

86

 

66.0

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

152

 

$

800,000

 

Male

 

86

 

42.8

 

Metropolitan Life Insurance Company

 

A+

153

 

$

5,000,000

 

Female

 

85

 

90.3

 

AXA Equitable Life Insurance Company

 

A+

154

 

$

1,000,000

 

Female

 

85

 

73.8

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

155

 

$

6,000,000

 

Female

 

85

 

100.1

 

American General Life Insurance Company

 

A+

156

 

$

1,433,572

 

Male

 

85

 

45.9

 

Security Mutual Life Insurance Company of NY

 

N/A

157

 

$

1,500,000

 

Female

 

85

 

98.3

 

Lincoln Benefit Life Company

 

BBB+

158

 

$

1,000,000

 

Female

 

85

 

36.3

 

Metropolitan Life Insurance Company

 

A+

159

 

$

750,000

 

Male

 

85

 

77.8

 

West Coast Life Insurance Company

 

AA-

160

 

$

4,000,000

 

Male

 

85

 

28.3

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

161

 

$

1,000,000

 

Male

 

85

 

67.7

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

162

 

$

2,000,000

 

Female

 

85

 

88.3

 

Lincoln Benefit Life Company

 

BBB+

163

 

$

1,000,000

 

Male

 

85

 

44.5

 

Voya Retirement Insurance and Annuity Company

 

A

164

 

$

2,000,000

 

Female

 

85

 

64.0

 

New York Life Insurance Company

 

AA+

165

 

$

5,000,000

 

Male

 

85

 

64.0

 

Jefferson-Pilot Life Insurance Company

 

AA-

166

 

$

2,400,000

 

Male

 

85

 

28.9

 

Genworth Life Insurance Company

 

BB

167

 

$

3,000,000

 

Male

 

85

 

83.2

 

Transamerica Life Insurance Company

 

AA-

168

 

$

600,000

 

Male

 

85

 

91.1

 

AXA Equitable Life Insurance Company

 

A+

169

 

$

7,600,000

 

Female

 

85

 

87.1

 

Transamerica Life Insurance Company

 

AA-

170

 

$

250,000

 

Male

 

85

 

19.9

 

Midland National Life Insurance Company

 

A+

171

 

$

2,500,000

 

Female

 

85

 

54.5

 

American General Life Insurance Company

 

A+

172

 

$

2,500,000

 

Male

 

85

 

49.5

 

AXA Equitable Life Insurance Company

 

A+

173

 

$

3,000,000

 

Male

 

85

 

49.5

 

Lincoln National Life Insurance Company

 

AA-

174

 

$

500,000

 

Male

 

85

 

32.9

 

Genworth Life Insurance Company

 

BB

175

 

$

1,980,000

 

Male

 

85

 

42.8

 

New York Life Insurance Company

 

AA+

176

 

$

3,000,000

 

Female

 

85

 

37.5

 

AXA Equitable Life Insurance Company

 

A+

177

 

$

250,000

 

Male

 

85

 

70.5

 

Voya Retirement Insurance and Annuity Company

 

A

178

 

$

1,800,000

 

Female

 

85

 

52.0

 

Jefferson-Pilot Life Insurance Company

 

AA-

179

 

$

1,703,959

 

Male

 

85

 

57.1

 

Jefferson-Pilot Life Insurance Company

 

AA-

180

 

$

500,000

 

Male

 

85

 

12.0

 

Great Southern Life Insurance Company

 

N/A

181

 

$

1,000,000

 

Male

 

85

 

48.2

 

Hartford Life and Annuity Insurance Company

 

BBB+

182

 

$

3,500,000

 

Female

 

85

 

97.1

 

Lincoln Benefit Life Company

 

BBB+

183

 

$

1,000,000

 

Male

 

85

 

83.6

 

Lincoln National Life Insurance Company

 

AA-

184

 

$

1,000,000

 

Male

 

85

 

53.6

 

Metropolitan Life Insurance Company

 

A+

185

 

$

5,000,000

 

Male

 

84

 

55.4

 

AXA Equitable Life Insurance Company

 

A+

186

 

$

10,000,000

 

Male

 

84

 

118.7

 

Pacific Life Insurance Company

 

A+

187

 

$

1,000,000

 

Male

 

84

 

53.7

 

Texas Life Insurance Company

 

N/A

188

 

$

500,000

 

Male

 

84

 

95.1

 

Metropolitan Life Insurance Company

 

A+

189

 

$

2,000,000

 

Male

 

84

 

44.4

 

National Life Insurance Company

 

A

190

 

$

3,000,000

 

Male

 

84

 

31.9

 

U.S. Financial Life Insurance Company

 

A+

191

 

$

2,147,816

 

Female

 

84

 

109.3

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

21

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

192

 

$

4,200,000

 

Female

 

84

 

107.8

 

Transamerica Life Insurance Company

 

AA-

193

 

$

325,000

 

Male

 

84

 

55.8

 

Genworth Life and Annuity Insurance Company

 

BB

194

 

$

175,000

 

Male

 

84

 

55.8

 

Genworth Life and Annuity Insurance Company

 

BB

195

 

$

850,000

 

Male

 

84

 

50.9

 

American General Life Insurance Company

 

A+

196

 

$

1,900,000

 

Male

 

84

 

55.9

 

American National Insurance Company

 

A

197

 

$

500,000

 

Male

 

84

 

36.9

 

New York Life Insurance Company

 

AA+

198

 

$

500,000

 

Male

 

84

 

36.9

 

New York Life Insurance Company

 

AA+

199

 

$

5,000,000

 

Male

 

84

 

48.4

 

AXA Equitable Life Insurance Company

 

A+

200

 

$

385,000

 

Male

 

84

 

64.1

 

Metropolitan Life Insurance Company

 

A+

201

 

$

500,000

 

Male

 

84

 

64.1

 

Metropolitan Life Insurance Company

 

A+

202

 

$

75,000

 

Male

 

84

 

40.5

 

Fidelity and Guaranty Insurance Company

 

AA

203

 

$

250,000

 

Male

 

84

 

24.5

 

Jackson National Life Insurance Company

 

AA

204

 

$

1,500,000

 

Male

 

84

 

69.0

 

Jefferson-Pilot Life Insurance Company

 

AA-

205

 

$

3,500,000

 

Female

 

84

 

79.0

 

AXA Equitable Life Insurance Company

 

A+

206

 

$

1,000,000

 

Female

 

84

 

91.8

 

West Coast Life Insurance Company

 

AA-

207

 

$

8,500,000

 

Male

 

84

 

96.0

 

John Hancock Life Insurance Company

 

AA-

208

 

$

3,000,000

 

Female

 

84

 

59.0

 

MetLife Investors USA Insurance Company

 

A+

209

 

$

750,000

 

Male

 

84

 

69.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

210

 

$

4,500,000

 

Male

 

84

 

63.5

 

AXA Equitable Life Insurance Company

 

A+

211

 

$

250,000

 

Male

 

84

 

43.1

 

Transamerica Life Insurance Company

 

AA-

212

 

$

2,275,000

 

Male

 

84

 

82.8

 

Voya Retirement Insurance and Annuity Company

 

A

213

 

$

10,000,000

 

Male

 

84

 

74.1

 

AXA Equitable Life Insurance Company

 

A+

214

 

$

340,000

 

Female

 

84

 

77.4

 

Jackson National Life Insurance Company

 

AA

215

 

$

2,300,000

 

Male

 

84

 

14.3

 

American General Life Insurance Company

 

A+

216

 

$

2,000,000

 

Male

 

84

 

74.9

 

Pacific Life Insurance Company

 

A+

217

 

$

3,500,000

 

Male

 

84

 

62.0

 

AXA Equitable Life Insurance Company

 

A+

218

 

$

6,217,200

 

Female

 

84

 

96.0

 

Phoenix Life Insurance Company

 

B+

219

 

$

7,600,000

 

Male

 

84

 

92.0

 

Transamerica Life Insurance Company

 

AA-

220

 

$

3,000,000

 

Male

 

84

 

51.2

 

Metropolitan Life Insurance Company

 

A+

221

 

$

1,275,000

 

Male

 

84

 

46.7

 

General American Life Insurance Company

 

A+

222

 

$

2,000,000

 

Female

 

84

 

88.1

 

Jefferson-Pilot Life Insurance Company

 

AA-

223

 

$

2,247,450

 

Female

 

84

 

51.5

 

Transamerica Life Insurance Company

 

AA-

224

 

$

1,000,000

 

Male

 

84

 

43.9

 

American General Life Insurance Company

 

A+

225

 

$

750,000

 

Male

 

84

 

80.2

 

AXA Equitable Life Insurance Company

 

A+

226

 

$

400,000

 

Male

 

84

 

40.8

 

Transamerica Life Insurance Company

 

AA-

227

 

$

5,000,000

 

Male

 

84

 

73.3

 

Jefferson-Pilot Life Insurance Company

 

AA-

228

 

$

3,500,000

 

Male

 

84

 

56.2

 

Pacific Life Insurance Company

 

A+

229

 

$

2,500,000

 

Male

 

84

 

56.2

 

AXA Equitable Life Insurance Company

 

A+

230

 

$

3,000,000

 

Male

 

83

 

58.4

 

Protective Life Insurance Company

 

AA-

231

 

$

1,500,000

 

Male

 

83

 

58.4

 

American General Life Insurance Company

 

A+

232

 

$

2,000,000

 

Female

 

83

 

96.4

 

Transamerica Life Insurance Company

 

AA-

233

 

$

3,500,000

 

Female

 

83

 

80.5

 

Jefferson-Pilot Life Insurance Company

 

AA-

234

 

$

1,000,000

 

Male

 

83

 

58.7

 

Lincoln National Life Insurance Company

 

AA-

235

 

$

1,500,000

 

Male

 

83

 

61.1

 

Pacific Life Insurance Company

 

A+

236

 

$

5,000,000

 

Male

 

83

 

99.3

 

American General Life Insurance Company

 

A+

237

 

$

250,000

 

Male

 

83

 

135.0

 

Voya Retirement Insurance and Annuity Company

 

A

238

 

$

10,000,000

 

Male

 

83

 

64.9

 

Lincoln National Life Insurance Company

 

AA-

239

 

$

1,000,000

 

Female

 

83

 

68.5

 

American General Life Insurance Company

 

A+

240

 

$

5,000,000

 

Female

 

83

 

66.9

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

22

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

241

 

$

1,995,000

 

Female

 

83

 

71.6

 

Transamerica Life Insurance Company

 

AA-

242

 

$

4,000,000

 

Male

 

83

 

51.8

 

Jefferson-Pilot Life Insurance Company

 

AA-

243

 

$

1,250,000

 

Female

 

83

 

53.3

 

Columbus Life Insurance Company

 

AA

244

 

$

10,000,000

 

Male

 

83

 

70.8

 

New York Life Insurance Company

 

AA+

245

 

$

1,000,000

 

Male

 

83

 

61.0

 

Hartford Life and Annuity Insurance Company

 

BBB+

246

 

$

1,000,000

 

Male

 

83

 

61.0

 

Jackson National Life Insurance Company

 

AA

247

 

$

417,300

 

Male

 

83

 

92.8

 

Jackson National Life Insurance Company

 

AA

248

 

$

2,500,000

 

Female

 

83

 

63.7

 

Voya Retirement Insurance and Annuity Company

 

A

249

 

$

5,000,000

 

Female

 

83

 

49.7

 

Massachusetts Mutual Life Insurance Company

 

AA+

250

 

$

5,000,000

 

Male

 

83

 

68.0

 

Transamerica Life Insurance Company

 

AA-

251

 

$

2,000,000

 

Male

 

83

 

61.3

 

Ohio National Life Assurance Corporation

 

AA-

252

 

$

1,000,000

 

Male

 

83

 

61.3

 

Ohio National Life Assurance Corporation

 

AA-

253

 

$

500,000

 

Female

 

83

 

94.9

 

AXA Equitable Life Insurance Company

 

A+

254

 

$

350,000

 

Male

 

83

 

28.0

 

Reassure America Life Insurance Company

 

AA

255

 

$

5,000,000

 

Male

 

82

 

82.6

 

AXA Equitable Life Insurance Company

 

A+

256

 

$

6,000,000

 

Male

 

82

 

98.8

 

Transamerica Life Insurance Company

 

AA-

257

 

$

8,000,000

 

Male

 

82

 

75.1

 

AXA Equitable Life Insurance Company

 

A+

258

 

$

850,000

 

Female

 

82

 

91.3

 

Zurich Life Insurance

 

AA-

259

 

$

550,000

 

Male

 

82

 

108.8

 

Genworth Life Insurance Company

 

BB

260

 

$

500,000

 

Male

 

82

 

56.6

 

West Coast Life Insurance Company

 

AA-

261

 

$

1,680,000

 

Female

 

82

 

60.8

 

AXA Equitable Life Insurance Company

 

A+

262

 

$

1,000,000

 

Female

 

82

 

88.8

 

Jefferson-Pilot Life Insurance Company

 

AA-

263

 

$

2,000,000

 

Male

 

82

 

77.4

 

New York Life Insurance Company

 

AA+

264

 

$

1,250,000

 

Male

 

82

 

91.7

 

Metropolitan Life Insurance Company

 

A+

265

 

$

1,000,000

 

Male

 

82

 

57.5

 

AXA Equitable Life Insurance Company

 

A+

266

 

$

1,250,000

 

Female

 

82

 

80.7

 

Principal Life Insurance Company

 

A+

267

 

$

1,000,000

 

Male

 

82

 

48.9

 

AXA Equitable Life Insurance Company

 

A+

268

 

$

3,000,000

 

Male

 

82

 

90.0

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

269

 

$

10,000,000

 

Male

 

82

 

62.3

 

Hartford Life and Annuity Insurance Company

 

BBB+

270

 

$

1,750,000

 

Male

 

82

 

74.6

 

AXA Equitable Life Insurance Company

 

A+

271

 

$

5,000,000

 

Male

 

82

 

64.3

 

AXA Equitable Life Insurance Company

 

A+

272

 

$

300,000

 

Female

 

82

 

66.7

 

Hartford Life and Annuity Insurance Company

 

BBB+

273

 

$

250,000

 

Male

 

82

 

71.7

 

American General Life Insurance Company

 

A+

274

 

$

2,502,000

 

Male

 

82

 

139.4

 

Transamerica Life Insurance Company

 

AA-

275

 

$

10,000,000

 

Male

 

82

 

104.8

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

276

 

$

1,210,000

 

Male

 

82

 

58.2

 

Lincoln National Life Insurance Company

 

AA-

277

 

$

3,000,000

 

Female

 

82

 

98.6

 

West Coast Life Insurance Company

 

AA-

278

 

$

7,000,000

 

Male

 

82

 

78.3

 

Genworth Life Insurance Company

 

BB

279

 

$

8,000,000

 

Male

 

81

 

120.4

 

Metropolitan Life Insurance Company

 

A+

280

 

$

3,000,000

 

Male

 

81

 

139.2

 

Metropolitan Life Insurance Company

 

A+

281

 

$

300,000

 

Female

 

81

 

93.0

 

Metropolitan Life Insurance Company

 

A+

282

 

$

800,000

 

Male

 

81

 

72.6

 

North American Company for Life And Health Insurance

 

A+

283

 

$

2,000,000

 

Male

 

81

 

21.7

 

Metropolitan Life Insurance Company

 

A+

284

 

$

3,000,000

 

Female

 

81

 

63.6

 

AXA Equitable Life Insurance Company

 

A+

285

 

$

1,000,000

 

Female

 

81

 

82.4

 

Lincoln Benefit Life Company

 

BBB+

286

 

$

6,000,000

 

Male

 

81

 

115.6

 

AXA Equitable Life Insurance Company

 

A+

287

 

$

320,987

 

Female

 

81

 

98.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

288

 

$

130,000

 

Male

 

81

 

44.6

 

Genworth Life Insurance Company

 

BB

289

 

$

700,000

 

Male

 

81

 

94.0

 

Banner Life Insurance Company

 

AA-

23

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

290

 

$

1,000,000

 

Male

 

81

 

116.5

 

Empire General Life Assurance Corporation

 

AA-

291

 

$

2,000,000

 

Female

 

81

 

82.5

 

Pacific Life Insurance Company

 

A+

292

 

$

2,000,000

 

Female

 

81

 

84.2

 

Transamerica Life Insurance Company

 

AA-

293

 

$

1,500,000

 

Female

 

81

 

70.4

 

Protective Life Insurance Company

 

AA-

294

 

$

3,500,000

 

Male

 

81

 

78.5

 

Metropolitan Life Insurance Company

 

A+

295

 

$

250,000

 

Female

 

81

 

96.1

 

Aviva Life and Annuity Company

 

A-

296

 

$

1,000,000

 

Male

 

81

 

51.1

 

Pacific Life Insurance Company

 

A+

297

 

$

3,000,000

 

Male

 

81

 

103.1

 

Principal Life Insurance Company

 

A+

298

 

$

200,000

 

Male

 

81

 

41.6

 

Prudential Life Insurance Company

 

AA-

299

 

$

500,000

 

Male

 

81

 

41.5

 

Transamerica Life Insurance Company

 

AA-

300

 

$

3,000,000

 

Male

 

80

 

36.4

 

Pacific Life Insurance Company

 

A+

301

 

$

3,000,000

 

Male

 

80

 

36.4

 

Minnesota Life Insurance Company

 

A+

302

 

$

3,000,000

 

Male

 

80

 

36.4

 

Prudential Life Insurance Company

 

AA-

303

 

$

3,000,000

 

Male

 

80

 

83.4

 

Voya Retirement Insurance and Annuity Company

 

A

304

 

$

5,000,000

 

Male

 

80

 

91.7

 

Pacific Life Insurance Company

 

A+

305

 

$

5,000,000

 

Male

 

80

 

91.7

 

Pacific Life Insurance Company

 

A+

306

 

$

4,000,000

 

Male

 

80

 

73.6

 

Jefferson-Pilot Life Insurance Company

 

AA-

307

 

$

3,601,500

 

Male

 

80

 

87.2

 

Transamerica Life Insurance Company

 

AA-

308

 

$

1,000,000

 

Male

 

80

 

89.8

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

309

 

$

200,000

 

Male

 

80

 

66.4

 

Protective Life Insurance Company

 

AA-

310

 

$

150,000

 

Male

 

80

 

66.4

 

Protective Life Insurance Company

 

AA-

311

 

$

150,000

 

Male

 

80

 

66.4

 

Protective Life Insurance Company

 

AA-

312

 

$

350,000

 

Male

 

80

 

66.4

 

Lincoln National Life Insurance Company

 

AA-

313

 

$

1,187,327

 

Male

 

80

 

90.9

 

Transamerica Life Insurance Company

 

AA-

314

 

$

5,000,000

 

Male

 

80

 

122.7

 

Principal Life Insurance Company

 

A+

315

 

$

150,000

 

Male

 

80

 

87.4

 

Metropolitan Life Insurance Company

 

A+

316

 

$

5,000,000

 

Male

 

80

 

83.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

317

 

$

7,000,000

 

Male

 

80

 

79.4

 

Lincoln Benefit Life Company

 

BBB+

318

 

$

100,000

 

Male

 

80

 

59.2

 

North American Company for Life And Health Insurance

 

A+

319

 

$

6,799,139

 

Male

 

80

 

117.1

 

AXA Equitable Life Insurance Company

 

A+

320

 

$

476,574

 

Male

 

80

 

65.8

 

Transamerica Life Insurance Company

 

AA-

321

 

$

5,500,000

 

Male

 

80

 

116.0

 

Metropolitan Life Insurance Company

 

A+

322

 

$

2,250,000

 

Male

 

80

 

87.9

 

Massachusetts Mutual Life Insurance Company

 

AA+

323

 

$

4,000,000

 

Male

 

80

 

89.5

 

Lincoln National Life Insurance Company

 

AA-

324

 

$

4,300,000

 

Female

 

80

 

103.6

 

American National Insurance Company

 

A

325

 

$

1,000,000

 

Female

 

80

 

117.8

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

326

 

$

6,000,000

 

Male

 

80

 

113.6

 

AXA Equitable Life Insurance Company

 

A+

327

 

$

200,000

 

Male

 

80

 

60.9

 

Kansas City Life Insurance Company

 

N/A

328

 

$

200,000

 

Male

 

80

 

52.0

 

Lincoln National Life Insurance Company

 

AA-

329

 

$

6,000,000

 

Male

 

80

 

100.3

 

AXA Equitable Life Insurance Company

 

A+

330

 

$

5,000,000

 

Female

 

80

 

110.3

 

Voya Retirement Insurance and Annuity Company

 

A

331

 

$

750,000

 

Male

 

80

 

63.5

 

Lincoln National Life Insurance Company

 

AA-

332

 

$

3,000,000

 

Male

 

80

 

89.3

 

Principal Life Insurance Company

 

A+

333

 

$

5,000,000

 

Male

 

79

 

125.5

 

Jefferson-Pilot Life Insurance Company

 

AA-

334

 

$

3,000,000

 

Male

 

79

 

80.4

 

American General Life Insurance Company

 

A+

335

 

$

5,000,000

 

Male

 

79

 

72.9

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

336

 

$

500,000

 

Male

 

79

 

61.5

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

337

 

$

5,000,000

 

Male

 

79

 

82.5

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

338

 

$

1,250,000

 

Male

 

79

 

93.6

 

AXA Equitable Life Insurance Company

 

A+

24

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

339

 

$

3,000,000

 

Female

 

79

 

83.5

 

New York Life Insurance Company

 

AA+

340

 

$

1,009,467

 

Male

 

79

 

53.3

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

341

 

$

4,000,000

 

Male

 

79

 

44.4

 

MetLife Investors USA Insurance Company

 

A+

342

 

$

2,500,000

 

Male

 

79

 

81.6

 

Massachusetts Mutual Life Insurance Company

 

AA+

343

 

$

2,500,000

 

Male

 

79

 

81.6

 

Massachusetts Mutual Life Insurance Company

 

AA+

344

 

$

5,000,000

 

Male

 

79

 

50.9

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

345

 

$

500,000

 

Female

 

79

 

110.3

 

Columbus Life Insurance Company

 

AA

346

 

$

775,000

 

Male

 

79

 

118.2

 

Lincoln National Life Insurance Company

 

AA-

347

 

$

1,445,000

 

Female

 

79

 

99.2

 

AXA Equitable Life Insurance Company

 

A+

348

 

$

1,500,000

 

Female

 

79

 

99.2

 

AXA Equitable Life Insurance Company

 

A+

349

 

$

1,000,000

 

Male

 

79

 

80.9

 

Lincoln National Life Insurance Company

 

AA-

350

 

$

325,000

 

Male

 

79

 

38.7

 

American General Life Insurance Company

 

A+

351

 

$

3,750,000

 

Male

 

79

 

53.9

 

AXA Equitable Life Insurance Company

 

A+

352

 

$

1,000,000

 

Male

 

79

 

104.0

 

Metropolitan Life Insurance Company

 

A+

353

 

$

550,000

 

Male

 

79

 

75.0

 

Prudential Life Insurance Company

 

AA-

354

 

$

300,000

 

Male

 

79

 

75.0

 

Prudential Life Insurance Company

 

AA-

355

 

$

5,000,000

 

Male

 

79

 

173.2

 

West Coast Life Insurance Company

 

AA-

356

 

$

2,000,000

 

Female

 

79

 

51.8

 

Transamerica Life Insurance Company

 

AA-

357

 

$

1,000,000

 

Male

 

78

 

108.8

 

Metropolitan Life Insurance Company

 

A+

358

 

$

2,840,000

 

Male

 

78

 

93.1

 

Transamerica Life Insurance Company

 

AA-

359

 

$

750,000

 

Male

 

78

 

84.7

 

North American Company for Life and Health Insurance

 

A+

360

 

$

1,000,000

 

Male

 

78

 

84.7

 

John Hancock Life Insurance Company

 

AA-

361

 

$

500,000

 

Male

 

78

 

84.7

 

North American Company for Life and Health Insurance

 

A+

362

 

$

4,000,000

 

Female

 

78

 

88.8

 

Transamerica Life Insurance Company

 

AA-

363

 

$

1,000,000

 

Female

 

78

 

70.3

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

364

 

$

2,000,000

 

Male

 

78

 

96.7

 

Lincoln National Life Insurance Company

 

AA-

365

 

$

2,000,000

 

Male

 

78

 

96.7

 

Lincoln National Life Insurance Company

 

AA-

366

 

$

4,000,000

 

Male

 

78

 

142.8

 

John Hancock Life Insurance Company

 

AA-

367

 

$

1,750,000

 

Male

 

78

 

57.7

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

368

 

$

5,000,000

 

Male

 

78

 

98.0

 

Transamerica Life Insurance Company

 

AA-

369

 

$

1,000,000

 

Male

 

78

 

117.9

 

Principal Life Insurance Company

 

A+

370

 

$

6,250,000

 

Male

 

78

 

187.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

371

 

$

600,000

 

Male

 

78

 

79.7

 

Protective Life Insurance Company

 

AA-

372

 

$

5,000,000

 

Male

 

77

 

133.6

 

AXA Equitable Life Insurance Company

 

A+

373

 

$

1,000,000

 

Male

 

77

 

100.4

 

Aviva Life and Annuity Company

 

A-

374

 

$

3,000,000

 

Male

 

77

 

93.3

 

Prudential Life Insurance Company

 

AA-

375

 

$

3,000,000

 

Female

 

77

 

103.7

 

John Hancock Life Insurance Company

 

AA-

376

 

$

1,100,000

 

Male

 

77

 

135.1

 

Aviva Life and Annuity Company

 

A-

377

 

$

3,000,000

 

Male

 

77

 

99.6

 

Protective Life Insurance Company

 

AA-

378

 

$

2,000,000

 

Female

 

77

 

114.9

 

Aviva Life Insurance Company

 

A-

379

 

$

4,000,000

 

Male

 

77

 

63.4

 

Massachusetts Mutual Life Insurance Company

 

AA+

380

 

$

2,500,000

 

Male

 

77

 

136.1

 

John Hancock Life Insurance Company

 

AA-

381

 

$

2,500,000

 

Male

 

77

 

136.1

 

John Hancock Life Insurance Company

 

AA-

382

 

$

1,000,000

 

Female

 

77

 

125.7

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

383

 

$

7,000,000

 

Female

 

77

 

118.1

 

Pacific Life Insurance Company

 

A+

384

 

$

100,946

 

Female

 

77

 

157.3

 

Genworth Life and Annuity Insurance Company

 

BB

385

 

$

2,000,000

 

Male

 

77

 

102.1

 

Genworth Life Insurance Company

 

BB

386

 

$

350,000

 

Male

 

77

 

108.4

 

AXA Equitable Life Insurance Company

 

A+

387

 

$

600,000

 

Male

 

77

 

108.4

 

AXA Equitable Life Insurance Company

 

A+

25

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

388

 

$

1,000,000

 

Male

 

77

 

79.3

 

Pacific Life Insurance Company

 

A+

389

 

$

2,000,000

 

Male

 

77

 

115.3

 

Transamerica Life Insurance Company

 

AA-

390

 

$

200,000

 

Male

 

77

 

113.4

 

Prudential Insurance Company of America

 

AA-

391

 

$

2,000,000

 

Female

 

77

 

164.6

 

Lincoln Financial Group

 

AA-

392

 

$

150,000

 

Male

 

77

 

101.8

 

Genworth Life Insurance Company

 

BB

393

 

$

490,620

 

Male

 

77

 

82.3

 

Ameritas Life Insurance Corporation

 

A+

394

 

$

2,000,000

 

Male

 

77

 

60.4

 

Athene Annuity & Life Assurance Company

 

A-

395

 

$

5,000,000

 

Male

 

77

 

56.0

 

West Coast Life Insurance Company

 

AA-

396

 

$

5,000,000

 

Male

 

76

 

144.8

 

Prudential Life Insurance Company

 

AA-

397

 

$

1,000,000

 

Male

 

76

 

124.5

 

Transamerica Life Insurance Company

 

AA-

398

 

$

750,000

 

Male

 

76

 

109.8

 

Protective Life Insurance Company

 

AA-

399

 

$

250,000

 

Male

 

76

 

100.5

 

Midland National Life Insurance Company

 

A+

400

 

$

3,000,000

 

Male

 

76

 

52.5

 

Aviva Life Insurance Company

 

A-

401

 

$

200,000

 

Male

 

76

 

67.3

 

Voya Retirement Insurance and Annuity Company

 

A

402

 

$

500,000

 

Male

 

76

 

99.1

 

AXA Equitable Life Insurance Company

 

A+

403

 

$

3,000,000

 

Male

 

76

 

110.2

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

404

 

$

5,000,000

 

Male

 

76

 

110.2

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

405

 

$

5,000,000

 

Male

 

76

 

138.6

 

Massachusetts Mutual Life Insurance Company

 

AA+

406

 

$

5,000,000

 

Male

 

76

 

138.6

 

Massachusetts Mutual Life Insurance Company

 

AA+

407

 

$

8,000,000

 

Male

 

76

 

96.3

 

Metropolitan Life Insurance Company

 

A+

408

 

$

1,000,000

 

Male

 

76

 

157.4

 

Security Mutual Life Insurance Company of NY

 

N/A

409

 

$

1,000,000

 

Male

 

76

 

100.8

 

Athene Life Insurance Company of New York

 

A-

410

 

$

355,700

 

Male

 

76

 

106.0

 

Voya Retirement Insurance and Annuity Company

 

A

411

 

$

5,000,000

 

Male

 

76

 

30.5

 

Lincoln Benefit Life Company

 

BBB+

412

 

$

250,000

 

Male

 

76

 

138.2

 

West Coast Life Insurance Company

 

AA-

413

 

$

850,000

 

Male

 

76

 

64.4

 

New York Life Insurance Company

 

AA+

414

 

$

1,000,000

 

Male

 

76

 

114.6

 

Transamerica Life Insurance Company

 

AA-

415

 

$

2,000,000

 

Male

 

76

 

148.8

 

John Hancock Life Insurance Company

 

AA-

416

 

$

100,000

 

Male

 

76

 

69.8

 

Transamerica Life Insurance Company

 

AA-

417

 

$

500,000

 

Male

 

75

 

92.0

 

AXA Equitable Life Insurance Company

 

A+

418

 

$

500,000

 

Male

 

75

 

105.9

 

United of Omaha Life Insurance Company

 

AA-

419

 

$

750,000

 

Male

 

75

 

29.1

 

North American Company for Life And Health Insurance

 

A+

420

 

$

4,000,000

 

Female

 

75

 

140.1

 

American General Life Insurance Company

 

A+

421

 

$

300,000

 

Male

 

75

 

35.4

 

Lincoln National Life Insurance Company

 

AA-

422

 

$

172,245

 

Female

 

75

 

56.6

 

Symetra Life Insurance Company

 

A

423

 

$

2,000,000

 

Male

 

75

 

121.6

 

Prudential Life Insurance Company

 

AA-

424

 

$

5,000,000

 

Male

 

75

 

131.5

 

American General Life Insurance Company

 

A+

425

 

$

2,000,000

 

Male

 

75

 

96.4

 

American General Life Insurance Company

 

A+

426

 

$

10,000,000

 

Female

 

75

 

136.8

 

Voya Retirement Insurance and Annuity Company

 

A

427

 

$

1,000,000

 

Female

 

75

 

152.5

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

428

 

$

7,500,000

 

Female

 

75

 

175.7

 

Voya Retirement Insurance and Annuity Company

 

A

429

 

$

500,000

 

Male

 

75

 

74.4

 

American General Life Insurance Company

 

A+

430

 

$

3,000,000

 

Female

 

75

 

112.2

 

General American Life Insurance Company

 

A+

431

 

$

300,000

 

Female

 

75

 

135.3

 

Minnesota Life Insurance Company

 

A+

432

 

$

250,000

 

Male

 

75

 

90.7

 

United of Omaha Life Insurance Company

 

AA-

433

 

$

370,000

 

Female

 

75

 

127.7

 

Minnesota Life Insurance Company

 

A+

434

 

$

500,000

 

Male

 

74

 

89.5

 

Protective Life Insurance Company

 

AA-

435

 

$

1,000,000

 

Male

 

74

 

95.2

 

Voya Financial

 

A

436

 

$

500,000

 

Male

 

74

 

34.3

 

Midland National Life Insurance Company

 

A+

26

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

437

 

$

1,000,000

 

Male

 

74

 

98.5

 

Transamerica Life Insurance Company

 

AA-

438

 

$

3,000,000

 

Male

 

74

 

73.1

 

AXA Equitable Life Insurance Company

 

A+

439

 

$

500,000

 

Male

 

74

 

63.0

 

William Penn Life Insurance Company of New York

 

AA-

440

 

$

3,000,000

 

Male

 

74

 

105.5

 

Transamerica Life Insurance Company

 

AA-

441

 

$

800,000

 

Male

 

74

 

124.5

 

John Hancock Life Insurance Company

 

AA-

442

 

$

190,000

 

Male

 

74

 

105.4

 

Protective Life Insurance Company

 

AA-

443

 

$

100,000

 

Male

 

74

 

153.3

 

Protective Life Insurance Company

 

AA-

444

 

$

400,000

 

Male

 

74

 

82.5

 

Protective Life Insurance Company

 

AA-

445

 

$

250,000

 

Female

 

74

 

174.2

 

Protective Life Insurance Company

 

AA-

446

 

$

500,000

 

Male

 

73

 

124.6

 

Ameritas Life Insurance Corporation

 

A+

447

 

$

370,000

 

Male

 

73

 

124.6

 

Ameritas Life Insurance Corporation

 

A+

448

 

$

1,000,000

 

Female

 

73

 

122.3

 

United of Omaha Life Insurance Company

 

AA-

449

 

$

500,000

 

Male

 

73

 

108.6

 

William Penn Life Insurance Company of New York

 

AA-

450

 

$

100,000

 

Male

 

73

 

112.5

 

Protective Life Insurance Company

 

AA-

451

 

$

500,000

 

Male

 

73

 

130.5

 

Metropolitan Life Insurance Company

 

A+

452

 

$

2,500,000

 

Male

 

73

 

105.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

453

 

$

500,000

 

Male

 

73

 

137.0

 

Prudential Life Insurance Company

 

AA-

454

 

$

8,600,000

 

Male

 

73

 

154.3

 

AXA Equitable Life Insurance Company

 

A+

455

 

$

2,500,000

 

Male

 

73

 

106.9

 

American General Life Insurance Company

 

A+

456

 

$

1,500,000

 

Male

 

73

 

128.3

 

Lincoln National Life Insurance Company

 

AA-

457

 

$

1,500,000

 

Male

 

73

 

128.3

 

Lincoln National Life Insurance Company

 

AA-

458

 

$

1,500,000

 

Male

 

73

 

128.3

 

Lincoln National Life Insurance Company

 

AA-

459

 

$

2,000,000

 

Male

 

73

 

133.5

 

John Hancock Life Insurance Company

 

AA-

460

 

$

2,500,000

 

Male

 

73

 

138.4

 

Banner Life Insurance Company

 

AA-

461

 

$

300,000

 

Male

 

73

 

113.4

 

New England Life Insurance Company

 

AA-

462

 

$

1,167,000

 

Male

 

73

 

51.9

 

Transamerica Life Insurance Company

 

AA-

463

 

$

1,500,000

 

Male

 

73

 

110.8

 

Metropolitan Life Insurance Company

 

A+

464

 

$

10,000,000

 

Male

 

73

 

120.6

 

AXA Equitable Life Insurance Company

 

A+

465

 

$

2,500,000

 

Male

 

72

 

53.2

 

Transamerica Life Insurance Company

 

AA-

466

 

$

750,000

 

Male

 

72

 

133.2

 

Voya Financial

 

A

467

 

$

3,000,000

 

Male

 

72

 

76.7

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

468

 

$

2,000,000

 

Male

 

72

 

101.9

 

New York Life Insurance Company

 

AA+

469

 

$

2,000,000

 

Male

 

72

 

101.9

 

New York Life Insurance Company

 

AA+

470

 

$

5,000,000

 

Male

 

72

 

130.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

471

 

$

2,500,000

 

Male

 

72

 

116.6

 

Lincoln National Life Insurance Company

 

AA-

472

 

$

2,500,000

 

Male

 

72

 

116.6

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

473

 

$

2,000,000

 

Male

 

72

 

123.1

 

Voya Retirement Insurance and Annuity Company

 

A

474

 

$

1,500,000

 

Male

 

72

 

123.1

 

Voya Retirement Insurance and Annuity Company

 

A

475

 

$

230,000

 

Male

 

72

 

119.3

 

Transamerica Life Insurance Company

 

AA-

476

 

$

139,398

 

Female

 

72

 

24.5

 

Lincoln National Life Insurance Company

 

AA-

477

 

$

300,000

 

Male

 

72

 

115.8

 

Protective Life Insurance Company

 

AA-

478

 

$

190,000

 

Female

 

72

 

194.1

 

Protective Life Insurance Company

 

AA-

479

 

$

250,000

 

Male

 

72

 

70.1

 

American General Life Insurance Company

 

A+

480

 

$

600,000

 

Male

 

72

 

85.8

 

AXA Equitable Life Insurance Company

 

A+

481

 

$

4,000,000

 

Male

 

72

 

143.6

 

AXA Equitable Life Insurance Company

 

A+

482

 

$

420,000

 

Male

 

72

 

124.5

 

RiverSource Life Insurance Company

 

A+

483

 

$

250,000

 

Male

 

71

 

52.5

 

Protective Life Insurance Company

 

AA-

484

 

$

650,000

 

Female

 

71

 

73.8

 

Voya Retirement Insurance and Annuity Company

 

A

485

 

$

500,000

 

Male

 

71

 

122.7

 

Ohio National Life Assurance Corporation

 

AA-

27

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

486

 

$

400,000

 

Male

 

71

 

198.3

 

Protective Life Insurance Company

 

AA-

487

 

$

232,000

 

Male

 

71

 

182.2

 

Protective Life Insurance Company

 

AA-

488

 

$

750,000

 

Male

 

71

 

127.3

 

Transamerica Life Insurance Company

 

AA-

489

 

$

1,250,000

 

Male

 

71

 

101.8

 

West Coast Life Insurance Company

 

AA-

490

 

$

1,500,000

 

Female

 

71

 

155.6

 

Prudential Life Insurance Company

 

AA-

491

 

$

5,000,000

 

Male

 

71

 

93.4

 

Transamerica Life Insurance Company

 

AA-

492

 

$

500,000

 

Male

 

71

 

93.7

 

Transamerica Life Insurance Company

 

AA-

493

 

$

500,000

 

Male

 

71

 

93.7

 

North American Company for Life And Health Insurance

 

A+

494

 

$

420,000

 

Male

 

71

 

133.9

 

Protective Life Insurance Company

 

AA-

495

 

$

100,000

 

Male

 

71

 

46.0

 

Genworth Life and Annuity Insurance Company

 

BB

496

 

$

150,000

 

Male

 

71

 

35.7

 

Protective Life Insurance Company

 

AA-

497

 

$

150,000

 

Male

 

71

 

35.7

 

AXA Equitable Life Insurance Company

 

A+

498

 

$

1,000,000

 

Male

 

71

 

56.1

 

John Hancock Life Insurance Company

 

AA-

499

 

$

100,000

 

Male

 

71

 

139.5

 

Protective Life Insurance Company

 

AA-

500

 

$

5,000,000

 

Male

 

71

 

153.9

 

Metropolitan Life Insurance Company

 

A+

501

 

$

250,000

 

Female

 

70

 

123.0

 

Ohio National Life Assurance Corporation

 

AA-

502

 

$

40,000

 

Male

 

70

 

33.2

 

Banner Life Insurance Company

 

AA-

503

 

$

400,000

 

Male

 

70

 

163.4

 

Lincoln National Life Insurance Company

 

AA-

504

 

$

92,000

 

Female

 

70

 

202.1

 

Protective Life Insurance Company

 

AA-

505

 

$

1,500,000

 

Male

 

70

 

73.3

 

Lincoln National Life Insurance Company

 

AA-

506

 

$

1,500,000

 

Male

 

70

 

107.9

 

Midland National Life Insurance Company

 

A+

507

 

$

202,700

 

Male

 

70

 

119.3

 

Farmers New World Life Insurance Company

 

N/A

508

 

$

500,000

 

Male

 

70

 

113.4

 

Lincoln Benefit Life Company

 

BBB+

509

 

$

750,000

 

Male

 

69

 

137.0

 

North American Company for Life And Health Insurance

 

A+

510

 

$

1,000,000

 

Male

 

69

 

89.1

 

Protective Life Insurance Company

 

AA-

511

 

$

2,000,000

 

Male

 

69

 

174.4

 

John Hancock Life Insurance Company

 

AA-

512

 

$

2,000,000

 

Male

 

69

 

114.9

 

Transamerica Life Insurance Company

 

AA-

513

 

$

1,000,000

 

Male

 

69

 

114.9

 

Genworth Life Insurance Company

 

BB

514

 

$

175,000

 

Female

 

69

 

113.6

 

Lincoln National Life Insurance Company

 

AA-

515

 

$

1,000,000

 

Male

 

69

 

63.1

 

Protective Life Insurance Company

 

AA-

516

 

$

2,000,000

 

Male

 

69

 

52.2

 

MetLife Investors USA Insurance Company

 

A+

517

 

$

2,000,000

 

Male

 

69

 

52.2

 

MetLife Investors USA Insurance Company

 

A+

518

 

$

1,200,000

 

Male

 

68

 

128.5

 

Massachusetts Mutual Life Insurance Company

 

AA+

519

 

$

1,000,000

 

Male

 

68

 

140.5

 

Transamerica Life Insurance Company

 

AA-

520

 

$

2,500,000

 

Male

 

68

 

163.3

 

Prudential Life Insurance Company

 

AA-

521

 

$

2,500,000

 

Male

 

68

 

163.3

 

Prudential Life Insurance Company

 

AA-

522

 

$

500,000

 

Male

 

68

 

44.0

 

Voya Retirement Insurance and Annuity Company

 

A

523

 

$

750,000

 

Male

 

68

 

163.8

 

Northwestern Mutual Life Insurance Company

 

AA+

524

 

$

250,000

 

Female

 

68

 

160.4

 

Protective Life Insurance Company

 

AA-

525

 

$

150,000

 

Male

 

68

 

119.9

 

Protective Life Insurance Company

 

AA-

526

 

$

156,538

 

Female

 

68

 

108.7

 

New York Life Insurance Company

 

AA+

527

 

$

3,000,000

 

Male

 

68

 

195.6

 

John Hancock Life Insurance Company

 

AA-

528

 

$

300,000

 

Male

 

68

 

92.0

 

Protective Life Insurance Company

 

AA-

529

 

$

400,000

 

Male

 

67

 

193.6

 

Lincoln National Life Insurance Company

 

AA-

530

 

$

3,000,000

 

Male

 

67

 

102.5

 

Voya Retirement Insurance and Annuity Company

 

A

531

 

$

2,000,000

 

Male

 

67

 

102.5

 

AXA Equitable Life Insurance Company

 

A+

532

 

$

2,000,000

 

Male

 

67

 

102.5

 

AXA Equitable Life Insurance Company

 

A+

533

 

$

1,000,000

 

Male

 

67

 

49.4

 

Lincoln National Life Insurance Company

 

AA-

534

 

$

1,000,000

 

Male

 

67

 

80.3

 

Transamerica Life Insurance Company

 

AA-

28

 

 

Face
Amount

 

Gender

 

Age
(ALB)(1)

 

LE
(mo.)(2)

 

Insurance Company

 

S&P
Rating

535

 

$

5,000,000

 

Male

 

67

 

107.2

 

Athene Annuity & Life Assurance Company

 

A-

536

 

$

1,000,000

 

Male

 

67

 

151.4

 

Sun Life Assurance Company of Canada (U.S.)

 

AA-

537

 

$

1,000,000

 

Male

 

67

 

111.5

 

Centrian Life Insurance

 

A-

538

 

$

5,616,468

 

Male

 

67

 

182.9

 

John Hancock Life Insurance Company (U.S.A)

 

AA-

539

 

$

320,000

 

Male

 

67

 

164.6

 

Transamerica Life Insurance Company

 

AA-

540

 

$

250,000

 

Male

 

67

 

165.5

 

Prudential Life Insurance Company

 

AA-

541

 

$

250,000

 

Male

 

67

 

201.4

 

Zurich Life Insurance

 

AA-

542

 

$

350,000

 

Female

 

66

 

87.6

 

Assurity Life Insurance Company

 

N/A

543

 

$

500,000

 

Female

 

66

 

173.7

 

Banner Life Insurance Company

 

AA-

544

 

$

350,000

 

Male

 

66

 

99.7

 

RiverSource Life Insurance Company

 

A+

545

 

$

750,000

 

Male

 

66

 

130.8

 

Pacific Life Insurance Company

 

A+

546

 

$

500,000

 

Male

 

66

 

138.4

 

Transamerica Life Insurance Company

 

AA-

547

 

$

650,000

 

Male

 

66

 

188.2

 

Lincoln National Life Insurance Company

 

AA-

 

 

$

1,154,797,546

 

 

 

 

 

 

 

 

 

 

____________

(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.

29

FINANCIAL INFORMATION

GWG HOLDINGS, INC.

Table of Contents

 

 

Page

Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

 

F-2

Condensed Consolidated Statements of Operations for the six months ended June 30, 2016 and
2015 (unaudited)

 

F-3

Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2016 and
2015 (unaudited)

 

F-4

Notes to Condensed Consolidated Financial Statements

 

F-7

F-1

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

June 30,
2016
(unaudited)

 

December 31,
2015

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,379,350

 

 

$

34,425,105

 

Restricted cash

 

 

11,160,793

 

 

 

2,341,900

 

Investment in life insurance contracts, at fair value

 

 

431,820,437

 

 

 

356,649,715

 

Secured MCA advances

 

 

4,328,317

 

 

 

—

 

Life insurance contract benefits receivable

 

 

6,829,022

 

 

 

—

 

Other assets

 

 

3,510,443

 

 

 

2,461,045

 

TOTAL ASSETS

 

$

475,028,362

 

 

$

395,877,765

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Revolving Senior Credit Facility

 

$

77,475,992

 

 

$

63,279,596

 

Series I Secured Notes

 

 

17,965,653

 

 

 

23,287,704

 

L Bonds

 

 

327,322,906

 

 

 

276,482,796

 

Accounts payable

 

 

2,529,206

 

 

 

1,517,440

 

Interest payable

 

 

13,323,746

 

 

 

12,340,061

 

Other accrued expenses

 

 

1,355,266

 

 

 

1,060,786

 

Deferred taxes, net

 

 

4,670,715

 

 

 

1,763,968

 

TOTAL LIABILITIES

 

$

444,643,484

 

 

$

379,732,351

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONVERTIBLE PREFERRED STOCK

 

 

 

 

 

 

 

 

(par value $0.001; shares authorized 40,000,000; shares outstanding 2,737,698 and 2,781,735; liquidation preference of $20,533,000 and $20,863,000 on June 30, 2016 and December 31, 2015, respectively)

 

 

20,445,320

 

 

 

20,784,841

 

 

 

 

 

 

 

 

 

 

REDEEMABLE PREFERRED STOCK

 

 

 

 

 

 

 

 

(par value $0.001; shares authorized 100,000; shares outstanding 12,222 on June 30, 2016)

 

 

12,212,767

 

 

 

—

 

 

 

 

 

 

 

 

 

 

MCA PREFERRED STOCK

 

 

 

 

 

 

 

 

(par value $0.001; shares authorized 2,000,000; shares outstanding 7,155 on June 30, 2016)

 

 

71,555

 

 

 

—

 

 

 

 

 

 

 

 

 

 

COMMON STOCK

 

 

 

 

 

 

 

 

(par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,974,790 and 5,941,790 on June 30, 2016 and December 31, 2015)

 

 

5,975

 

 

 

5,942

 

Additional paid-in capital

 

 

16,488,390

 

 

 

17,149,391

 

Accumulated deficit

 

 

(18,839,129

)

 

 

(21,794,760

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

30,384,878

 

 

 

16,145,414

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES & EQUITY

 

$

475,028,362

 

 

$

395,877,765

 

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

F-2

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,
2016

 

June 30,
2015

 

June 30,
2016

 

June 30,
2015

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on life insurance contracts, net

 

$

20,383,347

 

$

8,473,886

 

 

$

38,097,059

 

$

25,257,295

MCA income

 

 

223,255

 

 

—

 

 

 

368,216

 

 

—

Interest and other income

 

 

170,880

 

 

90,380

 

 

 

216,100

 

 

139,676

TOTAL REVENUE

 

 

20,777,482

 

 

8,564,266

 

 

 

38,681,375

 

 

25,396,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

10,365,581

 

 

7,322,347

 

 

 

20,025,966

 

 

14,498,881

Employee compensation and benefits

 

 

3,071,507

 

 

2,144,725

 

 

 

5,537,705

 

 

3,872,642

Legal and professional fees

 

 

1,304,353

 

 

642,931

 

 

 

2,510,481

 

 

1,166,184

Other expenses

 

 

2,332,685

 

 

1,881,321

 

 

 

4,744,845

 

 

3,415,060

TOTAL EXPENSES

 

 

17,074,126

 

 

11,991,324

 

 

 

32,818,997

 

 

22,952,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

3,703,356

 

 

(3,427,058

)

 

 

5,862,378

 

 

2,444,204

INCOME TAX EXPENSE (BENEFIT)

 

 

1,822,030

 

 

(1,176,643

)

 

 

2,906,747

 

 

1,432,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

1,881,326

 

$

(2,250,415

)

 

$

2,955,631

 

$

1,011,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss attributable to preferred shareholders

 

 

429,760

 

 

344,847

 

 

 

772,722

 

 

698,003

INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$

2,311,086

 

$

(1,905,568

)

 

$

3,728,353

 

$

1,709,479

NET INCOME (LOSS) PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

$

(0.38

)

 

$

0.50

 

$

0.17

Diluted

 

$

0.29

 

$

(0.38

)

 

$

0.46

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,967,098

 

 

5,876,618

 

 

 

5,954,944

 

 

5,873,423

Diluted

 

 

8,081,895

 

 

5,876,618

 

 

 

8,036,501

 

 

7,987,923

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

F-3

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2016

 

June 30, 2015

 

June 30, 2016

 

June 30, 2015

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,881,326

 

 

$

(2,250,415

)

 

$

2,955,631

 

 

$

1,011,476

 

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on life insurance contracts

 

 

(21,241,376

)

 

 

(14,028,327

)

 

 

(32,772,929

)

 

 

(12,134,482

)

Amortization of deferred financing and issuance costs

 

 

2,527,974

 

 

 

507,026

 

 

 

3,312,162

 

 

 

(42,004

)

Deferred income taxes

 

 

1,851,018

 

 

 

(930,470

)

 

 

2,906,747

 

 

 

1,251,781

 

Preferred stock dividends payable

 

 

166,472

 

 

 

146,420

 

 

 

330,049

 

 

 

335,232

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life insurance contract benefits receivable

 

 

9,083,817

 

 

 

17,140,000

 

 

 

(6,829,022

)

 

 

(750,000

)

Other assets

 

 

(1,210,892

)

 

 

(225,376

)

 

 

(1,037,466

)

 

 

(356,549

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to related party

 

 

(1,814,173

)

 

 

—

 

 

 

(101,781

)

 

 

—

 

Accounts payable and other accrued expenses

 

 

(775,213

)

 

 

(1,333,241

)

 

 

1,192,756

 

 

 

1,302,446

 

NET CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(9,531,047

)

 

 

(974,383

)

 

 

(30,043,853

)

 

 

(9,382,100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in life insurance contracts

 

 

(24,373,714

)

 

 

(7,777,541

)

 

 

(48,700,036

)

 

 

(10,224,018

)

Carrying value of matured life insurance contracts

 

 

1,691,764

 

 

 

132,388

 

 

 

6,302,243

 

 

 

3,742,983

 

Investment in Secured MCA advances

 

 

(1,293,829

)

 

 

—

 

 

 

(5,647,414

)

 

 

—

 

Proceeds from Secured MCA advances

 

 

907,649

 

 

 

—

 

 

 

1,025,792

 

 

 

—

 

NET CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

(23,068130

)

 

 

(7,645,153

)

 

 

(47,019,415

)

 

 

(6,481,035

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings on (repayments of) Senior Revolving Credit Facility

 

 

(3,000,000

)

 

 

(7,150,000

)

 

 

17,000,000

 

 

 

(7,150,000

)

Payments for redemption of Series I Secured Notes

 

 

(485,350

)

 

 

(2,344,355

)

 

 

(5,722,743

)

 

 

(3,617,544

)

Proceeds from issuance of L Bonds

 

 

36,757,771

 

 

 

22,538,059

 

 

 

71,126,660

 

 

 

50,498,356

 

Payments for issuance and redemption of L Bonds

 

 

(11,753,782

)

 

 

(6,134,935

)

 

 

(22,663,475

)

 

 

(13,013,057

)

Proceeds from (increase in) restricted cash

 

 

8,667,826

 

 

 

3,410,427

 

 

 

(8,818,894

)

 

 

(3,627,137

)

Issuance of common stock

 

 

166,125

 

 

 

582,000

 

 

 

212,670

 

 

 

582,000

 

Proceeds from issuance of preferred stock

 

 

9,472,673

 

 

 

—

 

 

 

10,501,209

 

 

 

—

 

Payments for issuance and redemption of preferred stock

 

 

(845,361

)

 

 

(273,998

)

 

 

(1,617,914

)

 

 

(273,998

)

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

38,979,902

 

 

 

10,627,198

 

 

 

60,017,513

 

 

 

23,398,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

6,380,725

 

 

 

2,007,662

 

 

 

(17,045,755

)

 

 

7,535,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF PERIOD

 

 

10,998,625

 

 

 

36,190,527

 

 

 

34,425,105

 

 

 

30,662,704

 

END OF PERIOD

 

$

17,379,350

 

 

$

38,198,189

 

 

$

17,379,350

 

 

$

38,198,189

 

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

F-4

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS – CONTINUED
(unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,
2016

 

June 30,
2015

 

June 30,
2016

 

June 30,
2015

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

Interest and preferred dividends paid

 

$

10,714,000

 

$

7,041,000

 

$

17,168,000

 

$

13,143,000

Premiums paid

 

$

8,995,000

 

$

6,141,000

 

$

17,441,000

 

$

12,466,000

Stock-based compensation

 

$

41,000

 

$

—

 

$

50,000

 

$

32,000

NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Series I Secured Notes:

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of accrued interest and commissions payable to principal

 

$

142,000

 

$

86,000

 

$

187,000

 

$

127,000

L Bonds:

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of accrued interest and commissions payable to principal

 

$

370,000

 

$

219,000

 

$

661,000

 

$

438,000

Issuance of Series A Preferred Stock in lieu of cash dividends

 

$

171,000

 

$

150,000

 

$

339,000

 

$

334,000

Investment in life insurance contracts included in accounts payable

 

$

780,000

 

$

61,000

 

$

780,000

 

$

61,000

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

F-5

GWG HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)

 

 

Preferred Stock
Shares

 

Preferred
Stock

 

Common
Shares

 

Common Stock
(par)

 

Additional Paid-in
Capital

 

Accumulated
Deficit

 

Total
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

 

 

 

387,948

 

 

—

 

 

—

 

 

—

 

 

 

—

 

 

 

387,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock options

 

—

 

 

 

—

 

 

—

 

 

—

 

 

193,804

 

 

 

—

 

 

 

193,804

 

Balance, December 31, 2015

 

2,781,735

 

 

$

20,799,841

 

 

5,941,790

 

$

5,942

 

$

17,149,391

 

 

$

(21,794,760

)

 

$

16,160,414

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

—

 

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

2,955,631

 

 

 

2,955,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

—

 

 

 

—

 

 

33,000

 

 

33

 

 

212,637

 

 

 

—

 

 

 

212,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of Series A Preferred Stock

 

(92,527

)

 

 

(693,955

)

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

(693,955

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series A Preferred Stock

 

48,490

 

 

 

339,433

 

 

—

 

 

—

 

 

 

 

 

 

—

 

 

 

339,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of redeemable preferred stock

 

12,222

 

 

 

12,212,767

 

 

—

 

 

—

 

 

(916,618

)

 

 

—

 

 

 

11,296,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of MCA preferred stock

 

7,155

 

 

 

71,556

 

 

 

 

 

 

 

 

(7,340

)

 

 

 

 

 

 

64,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock options

 

—

 

 

 

—

 

 

—

 

 

—

 

 

50,320

 

 

 

—

 

 

 

50,320

 

Balance, June 30, 2016

 

2,757,075

 

 

$

32,729,642

 

 

5,974,790

 

$

5,975

 

$

16,488,390

 

 

$

(18,839,129

)

 

$

30,384,878

 

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

F-6

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 prospectus supplement, our portfolio had an aggregate fair value of $431.8 million. We earn income from changes in the fair value of our portfolio and through the benefits we receive upon the mortality of insureds. 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 six-month periods included in this prospectus supplement 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 relates 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 income in the current period income 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 determine that collection of the contract benefits is realizable and reasonably assured. 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 June 30, 2016 and December 31, 2015, a total of $16,000 and $31,000, respectively, of our “other assets” comprised direct costs and deposits that we advanced for contract acquisitions.

Deferred Financing and Issuance Costs — Loans advanced to us under our revolving senior credit facility, as described in Note 5, are reported net of financing costs, which are amortized using the straight-line method over the

F-7

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

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

term of the facility. The Series I Secured Notes and L Bonds, as respectively described in Notes 6 and 7, 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, 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.

Reclassification — Certain 2015 amounts have been reclassified to conform to ASU 2015-03, as described above. 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 revolving senior credit facility (discussed in Note 5), 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 June 30, 2016 and December 31, 2015, there was a balance of $11,161,000, 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, and assumptions relating to cost-of-insurance (premium) rates. 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, the credit exposure to the insurance company that issued the life insurance contract 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 11.05% and 11.09% were applied to our portfolio as of June 30, 2016 and December 31, 2015, respectively.

F-8

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(3) Investment in Life Insurance Contracts (cont.)

A summary of our contracts, organized according to their estimated life expectancy dates as of the date of this prospectus supplement, is as follows:

 

 

As of June 30, 2016

 

As of December 31, 2015

Years Ending December 31,

 

Number of Contracts

 

Estimated
Fair Value

 

Face
Value

 

Number of Contracts

 

Estimated Fair Value

 

Face
Value

2016

 

2

 

$

4,535,000

 

$

5,000,000

 

5

 

$

7,503,000

 

$

8,500,000

2017

 

13

 

 

13,967,000

 

 

17,339,000

 

12

 

 

12,875,000

 

 

17,418,000

2018

 

32

 

 

38,125,000

 

 

54,499,000

 

27

 

 

37,109,000

 

 

58,428,000

2019

 

52

 

 

55,547,000

 

 

95,808,000

 

51

 

 

54,242,000

 

 

100,967,000

2020

 

79

 

 

75,764,000

 

 

150,740,000

 

59

 

 

64,750,000

 

 

137,868,000

2021

 

66

 

 

58,619,000

 

 

138,718,000

 

48

 

 

45,724,000

 

 

116,805,000

2022

 

51

 

 

40,488,000

 

 

118,010,000

 

44

 

 

38,394,000

 

 

116,998,000

Thereafter

 

252

 

 

144,775,000

 

 

574,684,000

 

150

 

 

96,053,000

 

 

387,860,000

Totals

 

547

 

$

431,820,000

 

$

1,154,798,000

 

396

 

$

356,650,000

 

 

944,844,000

We recognized life insurance benefits of $9,829,000 and $750,000 during the three months ended June 30, 2016 and 2015, respectively, related to contracts with a carrying value of $1,692,000 and $132,000, respectively, and as a result recorded realized gains of $8,137,000 and $618,000. We recognized life insurance benefits of $29,067,000 and $29,375,000 during the six months ended June 30, 2016 and 2015, respectively, related to contracts with a carrying value of $6,302,000 and $3,743,000, respectively, and as a result recorded realized gains of $22,765,000 and $25,632,000.

Reconciliation of gain on life insurance contracts:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

2016

 

2015

 

2016

 

2015

Change in fair value

 

$

21,241,000

 

 

$

14,028,000

 

 

$

32,773,000

 

 

$

12,134,000

 

Premiums and other fees

 

 

(8,995,000

)

 

 

(6,172,000

)

 

 

(17,441,000

)

 

 

(12,509,000

)

Contract maturities

 

 

8,137,000

 

 

 

618,000

 

 

 

22,765,000

 

 

 

25,632,000

 

Gain on life insurance contracts, net

 

$

20,383,000

 

 

$

8,474,000

 

 

$

38,097,000

 

 

$

25,257,000

 

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

Six months ending December 31, 2016

 

$

18,708,000

 

$

656,000

 

$

19,364,000

2017

 

 

39,266,000

 

 

656,000

 

 

39,922,000

2018

 

 

43,010,000

 

 

656,000

 

 

43,666,000

2019

 

 

48,131,000

 

 

656,000

 

 

48,787,000

2020

 

 

53,558,000

 

 

656,000

 

 

54,214,000

2021

 

 

59,829,000

 

 

656,000

 

 

60,485,000

 

 

$

262,502,000

 

$

3,936,000

 

$

266,438,000

Management anticipates funding the premium payments estimated above with proceeds from our revolving senior credit facility, 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.

F-9

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 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, the credit exposure to the insurance company that issued the life insurance contract and management’s estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio as a whole.

These inputs are then used to estimate the discounted cash flows from the portfolio using the Model Actuarial Pricing System probabilistic portfolio price model, which estimates the cash flows using various mortality probabilities and scenarios. The valuation process includes a review by senior management as of each valuation date. We also engage a third-party expert to independently test the accuracy of the valuations using the inputs we provide on a quarterly basis. See Exhibit 99.1 filed herewith.

F-10

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(4) Fair Value Definition and Hierarchy (cont.)

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 June 30, as follows:

 

 

Three month ended
June 30,

 

Six months ended
June 30,

 

 

2016

 

2015

 

2016

 

2015

Beginning balance

 

$

387,402,000

 

 

$

278,395,000

 

 

$

356,650,000

 

 

$

282,883,000

 

Purchases

 

 

24,869,000

 

 

 

9,208,000

 

 

 

48,700,000

 

 

 

10,225,000

 

Maturities (cash in excess of carrying value)

 

 

(1,692,000

)

 

 

(132,000

)

 

 

(6,303,000

)

 

 

(3,743,000

)

Net change in fair value

 

 

21,241,000

 

 

 

14,028,000

 

 

 

32,773,000

 

 

 

12,134,000

 

Ending balance (June 30)

 

$

431,820,000

 

 

$

301,499,000

 

 

$

431,820,000

 

 

$

301,499,000

 

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., under $1 million in face amount), 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
June 30,
2016

 

As of December 31,
2015

Weighted-average age of insured, years

 

 

82.1

 

 

 

82.6

 

Weighted-average life expectancy, months

 

 

81.3

 

 

 

79.3

 

Average face amount per contract

 

$

2,111,000

 

 

$

2,386,000

 

Discount rate

 

 

11.05

%

 

 

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

June 30, 2016

 

$

58,540,000

 

$

29,087,000

 

$

(28,537,000

)

 

$

(56,562,000

)

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%

June 30, 2016

 

$

45,656,000

 

$

21,871,000

 

$

(20,155,000

)

 

$

(38,770,000

)

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 payable and L Bonds, having a combined aggregate face value of $352,997,000

F-11

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(4) Fair Value Definition and Hierarchy (cont.)

as of June 30, 2016, is approximately $354,557,000 based on a weighted-average market interest rate of 7.10%. The carrying value of the revolving senior credit facility reflects interest charged at the commercial paper rate 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 June 30, 2016 we determined that one of our secured loans was potentially impaired. The secured loan to Nulook Capital LLC had an outstanding balance of $3,304,000 and a loan loss reserve of $400,000 at June 30, 2016. We deem fair value to be the estimated collectible value on each loan made from GWG MCA. Where we estimate the collectible amount to be less than the outstanding balance, we record a reserve for the difference.

The following table summarizes outstanding warrants as of June 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”), providing us with a $105 million maximum borrowing amount. 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. The Agreement was amended and restated for the second time on May 11, 2015, primarily to add DLP III as a party, increase the total borrowing limit from $100 million to $105 million, and extend the maturity date for borrowings under the facility to June 30, 2018.

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%, which is 1.75% less than interest charged under the facility prior to May 11, 2015 amendment. We make interest payments on a monthly basis. The effective rate of interest was 5.48% at June 30, 2016 and 5.58% at December 31, 2015. The weighted-average effective interest rate, after excluding an unused line fee, was 5.47% and 5.37% for the three months ended June 30, 2016 and 2015, respectively, and 5.57% and 6.00% for the six months ended June 30, 2016 and 2015, respectively.

The amount outstanding under this facility was $82,011,000 and $65,011,000 at June 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.

F-12

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(5) Credit Facility — Autobahn Funding Company LLC (cont.)

The Agreement has certain financial (as described below) and nonfinancial covenants, and we were in compliance with these covenants at June 30, 2016 and December 31, 2015.

The Company has 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 June 30, 2016, as calculated under the Agreement, was $30,628,000 and $128,454,000, respectively.

Total funds available for additional borrowings under the facility at June 30, 2016 and December 31, 2015, were $22,989,000 and $39,989,000 respectively.

(6) Series I Secured Notes

Series I Secured Notes (“Notes”) are legal obligations of our subsidiary 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 revolving senior credit facility (see Note 5). 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 June 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 June 30, 2016 and December 31, 2015, the weighted-average interest rate of our Notes was 8.62% and 8.47%, respectively. The principal amount of Notes outstanding was $18,283,000 and $23,578,000 at June 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 $193,000 for the three and six months ended June 30, 2016 and $81,000 and $211,000 for the three and six months ended June 30, 2015. Future expected amortization of deferred financing costs is $317,000 in total over the next six years.

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

Years Ending December 31,

 

Contractual Maturities

 

Amortization of Deferred Financing Costs

Six months ending December 31, 2016

 

$

3,574,000

 

$

14,000

2017

 

 

8,758,000

 

 

113,000

2018

 

 

2,401,000

 

 

56,000

2019

 

 

869,000

 

 

16,000

2020

 

 

1,766,000

 

 

59,000

Thereafter

 

 

915,000

 

 

59,000

 

 

$

18,283,000

 

$

317,000

F-13

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(7) 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 revolving senior credit facility (see Note 5). 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 presently being 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 and 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 June 30, 2016 and December 31, 2015.

L Bonds have maturity dates ranging from six months to seven years, and fixed interest rates varying from 4.25% to 9.50% depending on the term of the bond. 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 June 30, 2016 and December 31, 2015, the weighted-average interest rate of our L Bonds was 7.17% and 7.18%, respectively. The principal amount of L Bonds outstanding was $334,714,000 and $282,171,000 at June 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 $1,721,000 and $3,289,000 for the three and six months ended June 30, 2016 and $1,366,000 and $2,340,000 for the three and six months ended June 30, 2015. Future expected amortization of deferred financing costs as of June 30, 2016 is $9,960,000 in total over the next eight years.

Effective September 1, 2016, we will cease selling 6-month and 1-year L Bonds until further notice. In addition, effective September 1, 2016, the L Bond interest rates will change to 5.50%, 6.25%, 7.50% and 8.50% for the 2-, 3-, 5- and 7-year L Bonds, respectively.

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

Years Ending December 31,

 

Contractual Maturities

 

Amortization of Deferred Financing Costs

Six months ending December 31, 2016

 

$

58,270,000

 

$

364,000

2017

 

 

85,052,000

 

 

1,764,000

2018

 

 

87,168,000

 

 

2,986,000

2019

 

 

50,526,000

 

 

2,148,000

2020

 

 

19,457,000

 

 

845,000

Thereafter

 

 

34,241,000

 

 

1,853,000

 

 

$

334,714,000

 

$

9,960,000

 (8) Note Payable to Related Party

In February 2016, GWG MCA acquired certain assets relating to our merchant cash advance business. To finance this acquisition, GWG MCA borrowed $1,760,000 from Insurance Strategies Fund, LLC, as evidenced by an unsecured promissory note dated February 16, 2016. GWG MCA paid off the promissory note in its entirety in June 2016.

F-14

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(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.

As of June 30, 2016, we issued an aggregate of 423,000 shares of Series A in satisfaction of $2,959,000 in dividends on the Series A, and an aggregate of 693,000 shares of Series A were converted into 520,000 shares of our common stock. As of June 30, 2016, we had 2,738,000 Series A shares outstanding with respect to which we incurred aggregate issuance costs of $2,838,000, all of which is included as a component of additional paid-in capital.

Purchasers of Series A in our offering received three-year 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 June 30, 2016 and December 31, 2015, none of these warrants were exercised, and the weighted-average remaining life of these warrants was 0.93 and 1.43, 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 at a price equal to 110% of their liquidation preference ($7.50 per share) at any time. As of June 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, 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 June 30, 2016, we had sold 12,222 shares of RPS for aggregate gross consideration of $12,213,000, and incurred approximately $917,000 of selling costs related to the sale of those shares.

F-15

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(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. Under certain circumstances described in the Certificate of Designation for the MCA Preferred, additional shares of MCA Preferred may be issued in lieu of cash dividends. The MCA Preferred ranks senior to the common stock of MCA (all of which common stock is held by GWG Holdings) and entitles its holders to a liquidation preference equal to the stated value per share (i.e., $10.00) plus accrued but unpaid dividends.

Holders of MCA Preferred may request that GWG MCA redeem their MCA Preferred at a price equal to their liquidation preference, less an applicable redemption fee, if any. Nevertheless, the Certificate of Designation for MCA Preferred permits GWG MCA to decline requests for redemption in certain circumstances. In addition, after one year from the date of original issuance, GWG MCA may, at its option, call and redeem shares of MCA Preferred at a price equal to the stated value per share. As of June 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.

(12) Income Taxes

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

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,
2016

 

June 30,
2015

 

June 30,
2016

 

June 30,
2015

Income tax provision (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(23,000

)

 

$

(182,000

)

 

$

—

 

$

141,000

State

 

$

(6,000

)

 

$

(64,000

)

 

$

—

 

$

40,000

Total current tax expense (benefit)

 

 

(29,000

)

 

 

(246,000

)

 

 

—

 

 

181,000

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

1,397,000

 

 

$

(670,000

)

 

$

2,203,000

 

$

984,000

State

 

$

454,000

 

 

$

(261,000

)

 

$

704,000

 

$

268,000

Total deferred tax expense (benefit)

 

 

1,851,000

 

 

 

(931,000

)

 

 

2,907,000

 

 

1,252,000

Total income tax expense (benefit)

 

 

1,822,000

 

 

 

(1,177,000

)

 

 

2,907,000

 

 

1,433,000

The primary differences between the June 30, 2016 effective tax rate and the statutory federal rate are the accrual of non-deductible preferred stock dividend expense of $1,112,000, 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.

F-16

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(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.

(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.

Through June 30, 2016, we issued stock options for 1,110,865 shares of common stock to employees, officers, and directors under the plan. Options for 577,196 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 26.6%. 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 June 30, 2016, stock options for 360,685 shares were forfeited and stock options for 28,001 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

 

15,000

 

 

67,750

 

 

82,750

 

Vested during the year

 

84,917

 

 

(84,917

)

 

—

 

Forfeited during the year

 

(6,424

)

 

(19,076

)

 

(25,500

)

Balance as of June 30, 2016

 

577,196

 

 

533,669

 

 

1,110,865

 

Compensation expense related to un-vested options not yet recognized is $475,000. We expect to recognize this compensation expense over the next three years ($173,000 in 2016, $208,000 in 2017, $72,000 in 2018, and $22,000 in 2019).

F-17

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(15) Net Income per Common Share

We have outstanding Series A shares, as described in Note 9. The Series A is dilutive to our net income per common share calculation at both June 30, 2016 and 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 as of both June 30, 2016 and 2015 and have not been included in the fully diluted net loss per common share calculation. We issued Redeemable Preferred Stock (see Note 10) that is non-dilutive, as the minimum conversion price of $15 per common share is above market price.

(16) Commitments

We are party to an office lease with U.S. Bank National Association as the landlord. The lease was originally for 11,695 square feet of office space located at 220 South Sixth Street, Minneapolis, Minnesota, began in April 2012 and had an original term expiring August 31, 2015. On September 1, 2015, we entered into an amendment to this 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 $123,000 and $55,000 for the three months ended June 30, 2016 and 2015, respectively, and $232,000 and $122,000 for the six months ended June 30, 2016 and 2015, respectively.

Minimum lease payments under the amended lease are as follows:

Six months ending December 31, 2016

 

$

87,000

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

 

 

$

1,961,000

 (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 7. Our obligations under the L Bonds are secured by substantially all the assets of GWG Holdings, a pledge of all the common stock held by our largest individual 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 DLP III and the Trust. The contracts held by DLP III are not collateral for the L Bond obligations as such contracts serve as collateral for the senior credit facility.

F-18

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

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. DLP II and DLP III are borrowers under a revolving senior credit facility with Autobahn, under which DZ Bank serves as agent, as described in Note 5. The significant majority of insurance contracts we own are subject to a collateral arrangement with DZ Bank described in Notes 2 and 5. 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 revolving senior credit facility. DZ Bank and Autobahn must authorize all disbursements from these accounts, including any distributions to GWG Life. Distributions are limited to an amount that would result in the borrowers (i.e., DLP II, DLP III, GWG Life and GWG Holdings) realizing an annualized rate of return on mortality benefits for such assets of not more than 18%, as determined by DZ Bank. After such amount is reached, the agreement governing the senior revolving credit facility requires that excess funds be used for repayments of borrowings before any additional distributions may be made.

The following represents consolidating financial information as of June 30, 2016 and December 31, 2015, with respect to the financial position, and for the three and six months ended June 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 II, DLP III and the Trust under the equity method. The non-guarantor subsidiaries column presents the financial information of all non-guarantor subsidiaries, including DLP II, DLP III and the Trust.

F-19

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Condensed Consolidating Balance Sheets

June 30, 2016

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,051,621

 

 

$

6,822,484

 

 

$

505,245

 

 

$

—

 

 

$

17,379,350

 

Restricted cash

 

 

—

 

 

 

4,924,308

 

 

 

6,236,485

 

 

 

—

 

 

 

11,160,793

 

Investment in life insurance contracts, at fair value

 

 

—

 

 

 

—

 

 

 

431,820,437

 

 

 

—

 

 

 

431,820,437

 

Secured MCA advances

 

 

—

 

 

 

—

 

 

 

4,328,317

 

 

 

—

 

 

 

4,328,317

 

Life insurance contract benefits receivable

 

 

—

 

 

 

—

 

 

 

6,829,022

 

 

 

—

 

 

 

6,829,022

 

Other assets

 

 

4,901,911

 

 

 

1,367,483

 

 

 

30,926

 

 

 

(2,789,877

)

 

 

3,510,443

 

Investment in subsidiaries

 

 

358,804,767

 

 

 

363,647,320

 

 

 

—

 

 

 

(722,452,087

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

373,758,299

 

 

$

376,761,595

 

 

$

449,750,432

 

 

$

(725,241,964

)

 

$

475,028,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving senior credit facility

 

$

—

 

 

$

(2,639,306

)

 

$

80,115,298

 

 

$

—

 

 

$

77,475,992

 

Series I Secured Notes

 

 

—

 

 

 

17,965,653

 

 

 

—

 

 

 

—

 

 

 

17,965,653

 

L Bonds

 

 

327,322,906

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

327,322,906

 

Notes payable to related parties

 

 

—

 

 

 

—

 

 

 

2,700,000

 

 

 

(2,700,000

)

 

 

—

 

Accounts payable

 

 

1,270,216

 

 

 

462,220

 

 

 

796,770

 

 

 

—

 

 

 

2,529,206

 

Interest payable

 

 

9,493,254

 

 

 

3,502,812

 

 

 

417,557

 

 

 

(89,877

)

 

 

13,323,746

 

Other accrued expenses

 

 

680,545

 

 

 

589,682

 

 

 

85,039

 

 

 

—

 

 

 

1,355,266

 

Deferred taxes, net

 

 

4,670,715

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,670,715

 

TOTAL LIABILITIES

 

 

343,437,636

 

 

 

19,881,061

 

 

 

84,114,664

 

 

 

(2,789,877

)

 

 

444,643,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Member capital

 

 

—

 

 

 

356,880,534

 

 

 

365,571,553

 

 

 

(722,452,087

)

 

 

—

 

Convertible preferred stock

 

 

20,445,320

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,445,320

 

Redeemable preferred stock

 

 

12,212,767

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12,212,767

 

MCA preferred stock

 

 

—

 

 

 

—

 

 

 

71,555

 

 

 

—

 

 

 

71,555

 

Common stock

 

 

5,975

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5,975

 

Additional paid-in capital

 

 

16,495,730

 

 

 

—

 

 

 

(7,340

)

 

 

—

 

 

 

16,488,390

 

Accumulated deficit

 

 

(18,839,129

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(18,839,129

)

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

30,320,663

 

 

 

356,880,534

 

 

 

365,635,768

 

 

 

(722,452,087

)

 

 

30,384,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$

373,758,299

 

 

$

376,761,595

 

 

$

449,750,432

 

 

$

(725,241,964

)

 

$

475,028,362

 

F-20

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Condensed Consolidating Balance Sheets (continued)

December 31, 2015

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving senior credit facility

 

$

—

 

 

$

(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

 

F-21

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Condensed Consolidating Statements of Operations

For the six months ended June 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

 

 

—

 

 

 

—

 

 

 

38,097,059

 

 

—

 

 

 

38,097,059

MCA income

 

 

—

 

 

 

—

 

 

 

368,216

 

 

—

 

 

 

368,216

Interest and other income

 

 

106,019

 

 

 

1,012

 

 

 

198,946

 

 

(89,877

)

 

 

216,100

TOTAL REVENUE

 

 

106,019

 

 

 

14,429

 

 

 

38,664,221

 

 

(103,294

)

 

 

38,681,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing fees

 

 

—

 

 

 

—

 

 

 

13,417

 

 

(13,417

)

 

 

—

Interest expense

 

 

15,730,192

 

 

 

1,301,971

 

 

 

3,083,680

 

 

(89,877

)

 

 

20,025,966

Employee compensation and benefits

 

 

3,175,323

 

 

 

2,113,049

 

 

 

249,333

 

 

—

 

 

 

5,537,705

Legal and professional fees

 

 

1,378,335

 

 

 

1,011,155

 

 

 

120,991

 

 

—

 

 

 

2,510,481

Other expenses

 

 

2,777,326

 

 

 

1,394,028

 

 

 

573,491

 

 

—

 

 

 

4,744,845

TOTAL EXPENSES

 

 

23,061,176

 

 

 

5,820,203

 

 

 

4,040,912

 

 

(103,294

)

 

 

32,818,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES

 

 

(22,955,157

)

 

 

(5,805,774

)

 

 

34,623,309

 

 

—

 

 

 

5,862,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY IN INCOME OF SUBSIDIARY

 

 

28,817,535

 

 

 

35,136,402

 

 

 

—

 

 

(63,953,937

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

5,862,378

 

 

 

29,330,628

 

 

 

34,623,309

 

 

(63,953,937

)

 

 

5,862,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

2,906,747

 

 

 

—

 

 

 

—

 

 

—

 

 

 

2,906,747

NET INCOME

 

$

2,955,631

 

 

$

29,330,628

 

 

$

34,623,309

 

$

(63,953,937

)

 

$

2,955,631

F-22

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

For the six months ended June 30, 2015

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing income

 

$

—

 

 

$

1,018,750

 

 

$

—

 

$

(1,018,750

)

 

$

—

Gain on life insurance contracts, net

 

 

—

 

 

 

—

 

 

 

25,257,295

 

 

—

 

 

 

25,257,295

Interest and other income

 

 

25,023

 

 

 

6,880

 

 

 

107,773

 

 

—

 

 

 

139,676

TOTAL REVENUE

 

 

25,023

 

 

 

1,025,630

 

 

 

25,365,068

 

 

(1,018,750

)

 

 

25,396,971

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing fees

 

 

—

 

 

 

—

 

 

 

1,018,750

 

 

(1,018,750

)

 

 

—

Interest expense

 

 

11,031,758

 

 

 

1,458,965

 

 

 

2,008,158

 

 

—

 

 

 

14,498,881

Employee compensation and benefits

 

 

2,911,596

 

 

 

961,046

 

 

 

—

 

 

—

 

 

 

3,872,642

Legal and professional fees

 

 

828,858

 

 

 

337,326

 

 

 

—

 

 

—

 

 

 

1,166,184

Other expenses

 

 

2,056,188

 

 

 

1,302,036

 

 

 

56,836

 

 

—

 

 

 

3,415,060

TOTAL EXPENSES

 

 

16,828,400

 

 

 

4,059,373

 

 

 

3,083,744

 

 

(1,018,750

)

 

 

22,952,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES

 

 

(16,803,377

)

 

 

(3,033,743

)

 

 

22,281,324

 

 

—

 

 

 

2,444,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY IN INCOME OF SUBSIDIARY

 

 

19,247,581

 

 

 

22,281,217

 

 

 

—

 

 

(41,528,798

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

2,444,204

 

 

 

19,247,474

 

 

 

22,281,324

 

 

(41,528,798

)

 

 

2,444,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

1,432,728

 

 

 

—

 

 

 

—

 

 

—

 

 

 

1,432,728

NET INCOME

 

$

1,011,476

 

 

$

19,247,474

 

 

$

22,281,324

 

$

(41,528,798

)

 

$

1,011,476

F-23

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Condensed Consolidating Statements of Operations (continued)

For the three months ended June 30, 2016

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on life insurance contracts, net

 

 

—

 

 

 

—

 

 

 

20,383,347

 

 

—

 

 

 

20,383,347

MCA income

 

 

—

 

 

 

—

 

 

 

223,255

 

 

—

 

 

 

223,255

Interest and other income

 

 

71,222

 

 

 

706

 

 

 

157,927

 

 

(58,975

)

 

 

170,880

TOTAL REVENUE

 

 

71,222

 

 

 

706

 

 

 

20,764,529

 

 

(58,975

)

 

 

20,777,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

8,131,369

 

 

 

644,735

 

 

 

1,648,452

 

 

(58,975

)

 

 

10,365,581

Employee compensation and benefits

 

 

1,638,893

 

 

 

1,283,968

 

 

 

148,646

 

 

—

 

 

 

3,071,507

Legal and professional fees

 

 

783,596

 

 

 

476,505

 

 

 

44,252

 

 

—

 

 

 

1,304,353

Other expenses

 

 

1,519,349

 

 

 

425,354

 

 

 

387,982

 

 

—

 

 

 

2,332,685

TOTAL EXPENSES

 

 

12,073,207

 

 

 

2,830,562

 

 

 

2,229,332

 

 

(58,975

)

 

 

17,074,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES

 

 

(12,001,985

)

 

 

(2,829,856

)

 

 

18,535,197

 

 

—

 

 

 

3,703,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY IN INCOME OF SUBSIDIARY

 

 

15,705,341

 

 

 

18,835,036

 

 

 

—

 

 

(34,540,377

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

3,703,356

 

 

 

16,005,180

 

 

 

18,535,197

 

 

(34,540,377

)

 

 

3,703,356

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX BENEFIT

 

 

1,822,030

 

 

 

—

 

 

 

—

 

 

—

 

 

 

1,822,030

NET INCOME

 

$

1,881,326

 

 

$

16,005,180

 

 

$

18,535,197

 

$

(34,540,377

)

 

$

1,881,326

F-24

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

For the three months ended June 30, 2015

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing income

 

$

—

 

 

$

661,264

 

 

$

—

 

$

(661,264

)

 

$

—

 

Gain on life insurance contracts, net

 

 

—

 

 

 

—

 

 

 

8,473,886

 

 

—

 

 

 

8,473,886

 

Interest and other income

 

 

17,480

 

 

 

430

 

 

 

72,470

 

 

—

 

 

 

90,380

 

TOTAL REVENUE

 

 

17,480

 

 

 

661,694

 

 

 

8,546,356

 

 

(661,264

)

 

 

8,564,266

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Origination and servicing fees

 

 

—

 

 

 

—

 

 

 

661,264

 

 

(661,264

)

 

 

—

 

Interest expense

 

 

5,781,796

 

 

 

684,879

 

 

 

855,672

 

 

—

 

 

 

7,322,347

 

Employee compensation and benefits

 

 

1,605,795

 

 

 

538,930

 

 

 

—

 

 

—

 

 

 

2,144,725

 

Legal and professional fees

 

 

351,507

 

 

 

291,424

 

 

 

—

 

 

—

 

 

 

642,931

 

Other expenses

 

 

1,104,826

 

 

 

732,243

 

 

 

44,252

 

 

—

 

 

 

1,881,321

 

TOTAL EXPENSES

 

 

8,843,924

 

 

 

2,247,476

 

 

 

1,561,188

 

 

(661,264

)

 

 

11,991,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE EQUITY IN INCOME OF SUBSIDIARIES

 

 

(8,826,444

)

 

 

(1,585,782

)

 

 

6,985,168

 

 

—

 

 

 

(3,427,058

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY IN INCOME OF SUBSIDIARY

 

 

5,399,386

 

 

 

6,985,112

 

 

 

—

 

 

(12,384,498

)

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

(3,427,058

)

 

 

5,399,330

 

 

 

6,985,168

 

 

(12,384,498

)

 

 

(3,427,058

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX BENEFIT

 

 

(1,176,643

)

 

 

—

 

 

 

—

 

 

—

 

 

 

(1,176,643

)

NET INCOME (LOSS)

 

$

(2,250,415

)

 

$

5,399,330

 

 

$

6,985,168

 

$

(12,384,498

)

 

$

(2,250,415

)

F-25

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

For the six months ended June 30, 2016

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,955,631

 

 

$

29,330,628

 

 

$

34,623,309

 

 

$

(63,953,937

)

 

$

2,955,631

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Equity) of subsidiaries

 

 

(28,817,535

)

 

 

(35,136,402

)

 

 

—

 

 

 

63,953,937

 

 

 

—

 

Gain on life insurance contracts

 

 

—

 

 

 

—

 

 

 

(32,772,929

)

 

 

—

 

 

 

(32,772,929

)

Amortization of deferred financing and issuance costs

 

 

3,909,923

 

 

 

(1,446,463

)

 

 

848,702

 

 

 

—

 

 

 

3,312,162

 

Deferred income taxes

 

 

2,906,747

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,906,747

 

Preferred stock dividends payable

 

 

330,049

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

330,049

 

(Increase) in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life insurance contract benefits receivable

 

 

—

 

 

 

—

 

 

 

(6,829,022

)

 

 

 

 

 

 

(6,829,022

)

Other assets

 

 

(60,457,838

)

 

 

(37,895,574

)

 

 

—

 

 

 

97,315,946

 

 

 

(1,037,466

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to related party

 

 

(2,802,976

)

 

 

1,195

 

 

 

2,700,000

 

 

 

—

 

 

 

(101,781

)

Accounts payable and accrued expenses

 

 

2,240,523

 

 

 

717,298

 

 

 

(1,765,065

)

 

 

—

 

 

 

1,192,756

 

NET CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(79,735,476

)

 

 

(44,429,318

)

 

 

(3,195,005

)

 

 

97,315,946

 

 

 

(30,043,853

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in life insurance contracts

 

 

—

 

 

 

—

 

 

 

(48,700,036

)

 

 

—

 

 

 

(48,700,036

)

Carrying value of matured life insurance contracts

 

 

—

 

 

 

—

 

 

 

6,302,243

 

 

 

—

 

 

 

6,302,243

 

Investment in Secured MCA advances

 

 

—

 

 

 

—

 

 

 

(5,647,414

)

 

 

—

 

 

 

(5,647,414

)

Proceeds from Secured MCA advances

 

 

—

 

 

 

—

 

 

 

1,025,792

 

 

 

—

 

 

 

1,025,792

 

NET CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

—

 

 

 

—

 

 

 

(47,019,415

)

 

 

—

 

 

 

(47,019,415

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings on Senior Revolving Credit Facility

 

 

—

 

 

 

—

 

 

 

17,000,000

 

 

 

—

 

 

 

17,000,000

 

Payments for redemption of Series I Secured Notes

 

 

—

 

 

 

(5,722,743

)

 

 

—

 

 

 

—

 

 

 

(5,722,743

)

Proceeds from issuance of L Bonds

 

 

71,126,660

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

71,126,660

 

Payments for redemption and issuance of L Bonds

 

 

(22,663,475

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(22,663,475

)

Proceeds from (increase in) restricted cash

 

 

—

 

 

 

(2,822,051

)

 

 

(5,996,843

)

 

 

—

 

 

 

(8,818,894

)

Issuance of common stock

 

 

212,670

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

212,670

 

Proceeds from issuance of preferred stock

 

 

10,429,654

 

 

 

—

 

 

 

71,555

 

 

 

—

 

 

 

10,501,209

 

Payments for issuance and redemption of preferred stock

 

 

(1,610,574

)

 

 

—

 

 

 

(7,340

)

 

 

—

 

 

 

(1,617,914

)

Issuance of member capital

 

 

—

 

 

 

57,813,874

 

 

 

39,502,072

 

 

 

(97,315,946

)

 

 

—

 

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

57,494,935

 

 

 

49,269,080

 

 

 

50,569,444

 

 

 

(97,315,946

)

 

 

60,017,513

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(22,240,541

)

 

 

4,839,762

 

 

 

355,024

 

 

 

—

 

 

 

(17,045,755

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF THE PERIOD

 

 

32,292,162

 

 

 

1,982,722

 

 

 

150,221

 

 

 

—

 

 

 

34,425,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF THE PERIOD

 

$

10,051,621

 

 

$

6,822,484

 

 

$

505,245

 

 

$

—

 

 

$

17,379,350

 

F-26

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Consolidating Statements of Cash Flows (continued)

For the six months ended June 30, 2015

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,011,476

 

 

$

19,247,474

 

 

$

22,281,324

 

 

$

(41,528,798

)

 

$

1,011,476

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Equity) of subsidiaries

 

 

(19,247,582

)

 

 

(22,281,216

)

 

 

—

 

 

 

41,528,798

 

 

 

—

 

Gain on life insurance contracts

 

 

—

 

 

 

—

 

 

 

(12,134,482

)

 

 

—

 

 

 

(12,134,482

)

Amortization of deferred financing and issuance costs

 

 

1,729,175

 

 

 

211,116

 

 

 

(1,982,295

)

 

 

—

 

 

 

(42,004

)

Deferred income taxes

 

 

1,251,781

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,251,781

 

Preferred stock dividends payable

 

 

335,232

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

335,232

 

(Increase) in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life insurance contract benefits receivable

 

 

—

 

 

 

—

 

 

 

(750,000

)

 

 

 

 

 

 

(750,000

)

Other assets

 

 

(17,998,823

)

 

 

(11,114,039

)

 

 

—

 

 

 

28,756,313

 

 

 

(356,549

)

Increase in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

2,493,495

 

 

 

228,640

 

 

 

(1,419,689

)

 

 

—

 

 

 

1,302,446

 

NET CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(30,425,246

)

 

 

(13,708,025

)

 

 

(5,994,858

)

 

 

28,756,313

 

 

 

(9,382,100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in life insurance contracts

 

 

—

 

 

 

—

 

 

 

(10,224,018

)

 

 

—

 

 

 

(10,224,018

)

Carrying value of matured life insurance contracts

 

 

—

 

 

 

—

 

 

 

3,742,983

 

 

 

—

 

 

 

3,742,983

 

NET CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

—

 

 

 

—

 

 

 

(6,481,035

)

 

 

—

 

 

 

(6,481,035

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment of Senior Revolving Credit Facility

 

 

—

 

 

 

—

 

 

 

(7,150,000

)

 

 

—

 

 

 

(7,150,000

)

Payments for redemption of Series I Secured Notes

 

 

—

 

 

 

(3,617,544

)

 

 

—

 

 

 

—

 

 

 

(3,617,544

)

Proceeds from issuance of L Bonds

 

 

50,498,356

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,498,356

 

Payments for redemption and issuance of L Bonds

 

 

(13,013,057

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(13,013,057

)

Proceeds from (increase in) restricted cash

 

 

—

 

 

 

(102,500

)

 

 

(3,524,637

)

 

 

—

 

 

 

(3,627,137

)

Issuance of common stock

 

 

582,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

582,000

 

Payments for issuance and redemption of preferred stock

 

 

(273,998

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(273,998

)

Issuance of member capital

 

 

—

 

 

 

17,445,391

 

 

 

11,310,922

 

 

 

(28,756,313

)

 

 

—

 

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

37,793,301

 

 

 

13,725,347

 

 

 

636,285

 

 

 

(28,756,313

)

 

 

23,398,620

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

7,368,055

 

 

 

17,322

 

 

 

150,108

 

 

 

—

 

 

 

7,535,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF THE PERIOD

 

 

30,446,473

 

 

 

216,231

 

 

 

—

 

 

 

—

 

 

 

30,662,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF THE PERIOD

 

$

37,814,528

 

 

$

233,553

 

 

$

150,108

 

 

$

—

 

 

$

38,198,189

 

F-27

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Consolidating Statements of Cash Flows (continued)

For the three months ended June 30, 2016

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,881,326

 

 

$

16,005,180

 

 

$

18,535,197

 

 

$

(34,540,377

)

 

$

1,881,326

 

Adjustments to reconcile net loss to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Equity) of subsidiaries

 

 

(15,705,341

)

 

 

(18,835,036

)

 

 

—

 

 

 

34,540,377

 

 

 

—

 

Gain on life insurance contracts

 

 

—

 

 

 

—

 

 

 

(21,241,376

)

 

 

—

 

 

 

(21,241,376

)

Amortization of deferred financing and issuance costs

 

 

2,261,032

 

 

 

(282,257

)

 

 

549,199

 

 

 

—

 

 

 

2,527,974

 

Deferred income taxes

 

 

1,851,018

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,851,018

 

Preferred stock dividends payable

 

 

166,472

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

166,472

 

(Increase) in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life insurance contract benefits receivable

 

 

—

 

 

 

—

 

 

 

9,083,817

 

 

 

—

 

 

 

9,083,817

 

Other assets

 

 

(21,796,633

)

 

 

(12,903,506

)

 

 

—

 

 

 

33,489,247

 

 

 

(1,210,892

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due to related party

 

 

(71,975

)

 

 

17,802

 

 

 

(1,760,000

)

 

 

—

 

 

 

(1,814,173

)

Accounts payable and other accrued expenses

 

 

1,458,476

 

 

 

130,596

 

 

 

(2,364,285

)

 

 

—

 

 

 

(775,213

)

NET CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(29,955,625

)

 

 

(15,867,221

)

 

 

2,802,552

 

 

 

33,489,247

 

 

 

(9,531,047

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in life insurance contracts

 

 

—

 

 

 

—

 

 

 

(24,373,714

)

 

 

—

 

 

 

(24,373,714

)

Carrying value of matured life insurance contracts

 

 

—

 

 

 

—

 

 

 

1,691,764

 

 

 

—

 

 

 

1,691,764

 

Investment in Secured MCA advances

 

 

—

 

 

 

—

 

 

 

(1,293,829

)

 

 

 

 

 

 

(1,293,829

)

Proceeds from Secured MCA advances

 

 

—

 

 

 

—

 

 

 

907,649

 

 

 

—

 

 

 

907,649

 

NET CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

—

 

 

 

—

 

 

 

(23,068,130

)

 

 

—

 

 

 

(23,068,130

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net repayment of Senior Revolving Credit Facility

 

 

—

 

 

 

—

 

 

 

(3,000,000

)

 

 

 

 

 

 

(3,000,000

)

Payments for redemption of Series I Secured Notes

 

 

—

 

 

 

(485,350

)

 

 

—

 

 

 

—

 

 

 

(485,350

)

Proceeds from issuance of L Bonds

 

 

36,757,771

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

36,757,771

 

Payments for redemption and issuance of L Bonds

 

 

(11,753,782

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(11,753,782

)

Proceeds from (increase in) restricted cash

 

 

—

 

 

 

(116,672

)

 

 

8,784,498

 

 

 

—

 

 

 

8,667,826

 

Issuance of member capital

 

 

—

 

 

 

18,951,362

 

 

 

14,537,885

 

 

 

(33,489,247

)

 

 

—

 

Issuance of common stock

 

 

166,125

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

166,125

 

Proceeds from issuance of preferred stock

 

 

9,401,118

 

 

 

—

 

 

 

71,555

 

 

 

—

 

 

 

9,472,673

 

Payments for issuance and redemption of preferred stock

 

 

(838,021

)

 

 

—

 

 

 

(7,340

)

 

 

—

 

 

 

(845,361

)

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

33,733,211

 

 

 

18,349,340

 

 

 

20,386,598

 

 

 

(33,489,247

)

 

 

38,979,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

3,777,586

 

 

 

2,482,119

 

 

 

121,020

 

 

 

—

 

 

 

6,380,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF THE PERIOD

 

 

6,274,035

 

 

 

4,340,365

 

 

 

384,225

 

 

 

—

 

 

 

10,998,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF THE PERIOD

 

$

10,051,621

 

 

$

6,822,484

 

 

$

505,245

 

 

$

—

 

 

$

17,379,350

 

F-28

GWG HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(18) Guarantee of L Bonds (cont.)

Consolidating Statements of Cash Flows (continued)

For the three months ended June 30, 2015

 

Parent

 

Guarantor Subsidiary

 

Non-Guarantor Subsidiaries

 

Eliminations

 

Consolidated

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(2,250,415

)

 

$

5,399,330

 

 

$

6,985,168

 

 

$

(12,384,498

)

 

$

(2,250,415

)

Adjustments to reconcile net loss to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Equity) of subsidiaries

 

 

(5,399,386

)

 

 

(6,985,112

)

 

 

—

 

 

 

12,384,498

 

 

 

—

 

Gain on life insurance contracts

 

 

—

 

 

 

—

 

 

 

(14,028,327

)

 

 

—

 

 

 

(14,028,327

)

Amortization of deferred financing and issuance costs

 

 

1,685,700

 

 

 

80,928

 

 

 

(1,259,602

)

 

 

—

 

 

 

507,026

 

Deferred income taxes

 

 

(930,470

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(930,470

)

Preferred stock dividends payable

 

 

146,420

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

146,420

 

(Increase) in operating assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Life insurance contract benefits receivable

 

 

—

 

 

 

—

 

 

 

17,140,000

 

 

 

—

 

 

 

17,140,000

 

Other assets

 

 

(7,124,387

)

 

 

(5,236,604

)

 

 

—

 

 

 

12,135,615

 

 

 

(225,376

)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and other accrued expenses

 

 

213,843

 

 

 

(509,444

)

 

 

(1,037,640

)

 

 

—

 

 

 

(1,333,241

)

NET CASH FLOWS USED IN OPERATING ACTIVITIES

 

 

(13,658,695

)

 

 

(7,250,902

)

 

 

7,799,599

 

 

 

12,135,615

 

 

 

(974,383

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in life insurance contracts

 

 

—

 

 

 

—

 

 

 

(7,777,541

)

 

 

—

 

 

 

(7,777,541

)

Carrying value of matured life insurance contracts

 

 

—

 

 

 

—

 

 

 

132,388

 

 

 

—

 

 

 

132,388

 

NET CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

—

 

 

 

—

 

 

 

(7,645,153

)

 

 

—

 

 

 

(7,645,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment of Senior Revolving Credit Facility

 

 

—

 

 

 

—

 

 

 

(7,150,000

)

 

 

 

 

 

 

(7,150,000

)

Payments for redemption of Series I Secured Notes

 

 

—

 

 

 

(2,344,355

)

 

 

—

 

 

 

—

 

 

 

(2,344,355

)

Proceeds from issuance of L Bonds

 

 

22,538,059

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

22,538,059

 

Payments for redemption and issuance of L Bonds

 

 

(6,134,935

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,134,935

)

Proceeds from (increase in) restricted cash

 

 

—

 

 

 

1,677,500

 

 

 

1,732,927

 

 

 

—

 

 

 

3,410,427

 

Issuance of member capital

 

 

—

 

 

 

6,872,932

 

 

 

5,262,683

 

 

 

(12,135,615

)

 

 

—

 

Issuance of common stock

 

 

582,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

582,000

 

Payments for issuance and redemption of preferred stock

 

 

(273,998

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(273,998

)

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES

 

 

16,711,126

 

 

 

6,206,077

 

 

 

(154,390

)

 

 

(12,135,615

)

 

 

10,627,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

3,052,431

 

 

 

(1,044,825

)

 

 

56

 

 

 

—

 

 

 

2,007,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BEGINNING OF THE PERIOD

 

 

34,762,097

 

 

 

1,278,378

 

 

 

150,052

 

 

 

—

 

 

 

36,190,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

END OF THE PERIOD

 

$

37,814,528

 

 

$

233,553

 

 

$

150,108

 

 

$

—

 

 

$

38,198,189

 

F-29

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

 

June 30,
2016

 

December 31,
2015

AXA Equitable

 

15.1

%

 

14.0

%

Transamerica

 

10.8

%

 

 

*

John Hancock

 

10.0

%

 

12.7

%

____________

*         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

 

June 30,
2016

 

December 31,
2015

California

 

21.8

%

 

25.2

%

Florida

 

19.6

%

 

19.2

%

 (20) Subsequent events

Subsequent to June 30, 2016, one policy covering one individual matured. The life insurance contract benefit of this policy was $700,000 and we recorded realized gains of $452,000 on this policy.

Subsequent to June 30, 2016, we have issued approximately $19,009,000 in additional principal amount of L Bonds, and 7,336 shares of RPS for gross consideration of approximately $7,336,000.

Subsequent to June 30, 2016 , the Company has issued 500 shares of common stock to a vendor as a form of payment for services the vendor provided to the Company. Also, one of our Series A Preferred Stock holders converted 2,600 shares of preferred stock into 1,950 shares of common stock.

Effective September 1, 2016, we will cease selling 6-month and 1-year L Bonds until further notice. In addition, effective September 1, 2016, the L Bond interest rates will change to 5.50%, 6.25%, 7.50% and 8.50% for the 2-, 3-, 5- and 7-year L Bonds, respectively.

Effective September 1, 2016, we no longer anticipate renewing Series I Secured Notes.

F-30

1,000,000 Units

($1,000,000,000)

GWG HOLDINGS, INC.

L Bonds

______________________________

PROSPECTUS SUPPLEMENT

______________________________

August 12, 2016