GWG Holdings Files for Bankruptcy, L Bond Investors Worried

Posted on 04/25/2022

On April 20, 2022, GWG Holdings, Inc. filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas (Bankruptcy Petition # 22-90032, 4:2022bk90032). In February 2022, GWG disclosed that it was unable to continue making payments on the L Bonds. GWG Holdings missed US$ 13.6 million in combined interest and principal payments for its L Bonds. The L Bonds are backed by life settlements. GWG Holdings pooled money from bond investors to purchase life insurance policies on the secondary market; GWG Holdings then used payouts from the policies when people died to repay investors. GWG Holdings is a NASDAQ listed company that is a provider of liquidity to owners of life insurance in the secondary market. GWG Holdings and company officials are accused in a U.S. federal lawsuit of misleading investors. Emerson Equity LLC is the managing broker-dealer for the GWG issuer. GWG Holdings is the parent company of GWG Life and Life Epigenetics.

GWG L Bond investors have sustained significant losses. In December 2021, the GWG Holdings’ auditor resigned. As of September 2021, GWG had more than US$ 2 billion in total liabilities, including US$ 1.55 billion in L Bonds. According to the GWG L Bond Prospectus, the L Bonds’ security interest is subordinate to other debt obligations.

GWG Holdings began publicly offering and selling L Bonds in January 2012 and up until April 2021. At September 30, 2021 and December 31, 2020, the weighted-average interest rate of GWG Holdings’ L Bonds was 7.25% and 7.21%, respectively. The principal amount of L Bonds outstanding, including Liquidity Bonds discussed below, was US$ 1.3 billion as of both September 30, 2021 and December 31, 2020, respectively.

The Beneficient Company Group, L.P. (Ben) is a financial services company based in Dallas, Texas that markets an array of liquidity and trust administration products to alternative asset investors primarily comprised of mid-to-high-net-worth individuals having a net worth between US$ 5 million and US$ 30 million and small-to-midsize institutional investors and family offices with less than US$ 1 billion in investable assets.

Beneficient Company Group is also a large shareholder in GWG, along with CONCERT Wealth Management, Inc., according to latest obtained SEC filing data. According to the class action securities lawsuit, the complaint alleges that in 2018 and 2019, GWG Holdings moved over US$ 350 million to The Beneficient Company Group and its subsidiaries and issued US$ 366 million in L Bonds to one of the subsidiaries. With the ceasing of L Bonds by April 2021, GWG immediately ran into liquidity problems. By August 2021, GWG had pledged its entire portfolio of life insurance policies as collateral for loans to keep GWG running. Those policies at the time had a fair market value of around US$ 790 million.

In November 2021, The Beneficient Company Group separated from GWG Holdings. In addition, The Beneficient Company Group paid off its Commercial Loan Agreement (estimated at US$ 202 million) with GWG by issuing common limited partnership units of Ben to GWG. As a result, Ben no longer has any outstanding debt obligations to GWG. GWG Holdings controlled Beneficient until November 2021 when it was spun out.

Back Story
In January 2018, The Beneficient Company Group entered into a commercial loan with GWG. As part of the strategic relationship, GWG bought 82% percent of the outstanding Beneficient master limited partnership units from existing investors. The deal valued The Beneficient Company Group up to US$ 800 million, including a US$ 150 million cash investment in GWG Holdings.

On April 15, 2019, The Beneficient Company Group acquired shares in GWG Holdings previously held by GWG Holdings’ founding stockholders, Jon R. Sabes and Steven F. Sabes.

In June 2019, GWG Holdings hired a new CEO, Murray T. Holland, who became the largest shareholder of GWG Holdings. Brad K. Heppner (CEO of The Beneficient Company Group), was Chairman of GWG Holdings’ Board of Directors from April 26, 2019 to June 14, 2021. At one point, the board of The Beneficient Company Group included Richard W. Fisher (former President of Federal Reserve Bank of Dallas), Dennis P. Lockhart (former President and Chief Executive Officer of the Federal Reserve Bank of Atlanta), and Thomas O. Hicks (Founder of Hicks, Muse, Tate and Furst).

Keywords: Sabes AV Holdings, LLC.

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