**Update: April 22, 2023** On April 21, 2023, the Bankruptcy Court approved GWG’s further revised Disclosure Statement for its Second Amended Reorganization Plan. The Plan will now be sent to creditors, including L Bondholders, to accept or reject the Plan. For more information, please visit our most recent blog post: What L Bondholders Need to Know About GWG Holdings, Inc.’s Chapter 11 Plan.
Original Post:
GWG Bankruptcy Update (April 17, 2023): Liquidation Options Become Clearer as Recovery for Bondholders Remain Uncertain
In court filings on April 17, 2023, GWG submitted a Revised Disclosure Statement for its Second Amended Reorganization Plan after United States Bankruptcy Judge Marvin Isgur ordered the Chapter 11 debtor to provide L Bondholders with more information about potential recoveries before he approves sending a Disclosure Statement to creditors to vote on the Second Amended Reorganization Plan. It is believed that if the Second Amended Reorganization Plan is not accepted by creditors, GWG would likely convert to a Chapter 7 bankruptcy proceeding, liquidating the company through the Bankruptcy Code.
In either case, GWG is to be liquidated. Creditors need to decide which path of liquidation will be more favorable for them. While the Revised Disclosure Statement does provide creditors with valuable information to evaluate their options to vote for the Chapter 11 plan or reject it, which likely means a Chapter 7 liquidation, the amount bondholders will recover under the proposed restructuring plan remains extremely uncertain and will likely take multiple years to be settled.
In the court filings, GWG makes clear that the company does NOT have cash available to repay L Bondholders now. In the latest draft of the Summary of Treatment of Bondholders Under the Debtors’ Second Amended Joint Chapter 11 Plan, GWG provides: The Debtors understand and fully appreciate that Bondholders want to be repaid now the amounts that are owed to them. Unfortunately, the Debtors regret that this is not possible now because the Debtors do not have the cash available that would allow them to do so.
As GWG Holdings, Inc. continues to navigate the bankruptcy process, Iorio Altamirano LLP (gwglawyer.com) encourages L bondholders to contact the firm for a free and confidential consultation and to evaluate their other legal options to recover their investment losses. We can review and analyze potential claims and advise individuals of their legal rights without obligation or cost. Iorio Altamirano LLP represents GWG L Bondholders throughout the country in FINRA arbitration claims against the brokerage firms and financial advisors that recommended and sold the L Bonds to retail investors.
GWG’s Second Amended Reorganization Plan
Below is a high-level summary of GWG’s Second Amended Reorganization Plan based on recent court filings:
- Under the Second Amended Reorganization Plan, GWG will be liquidated through an “orderly wind-down.”
- Two liquidating trusts will be established: (i) a Wind-Down Trust and (ii) a Litigation Trust.
- The Wind Down Trust will issue trust interests (the New WDT Interests) to creditors. L Bondholders will exchange their current L Bonds for New Series A1Trust interests.
- A Wind-Down Trust will be established to take all necessary steps to wind down GWG’s business affairs and monetize GWG’s non-litigation assets. The term of the Wind-Down Trust will be three (3) years. The term may be extended by court approval for up to two (2) additional years.
- GWG’s primary non-litigation assets are its (i) portfolio of life insurance policies (the “Policy Portfolio”); and (ii) passive non-controlling equity interest in The Beneficient Company Group, L.P. (“Ben LP” and, together with its subsidiaries, “Beneficient”) and FOXO Technologies, Inc. (“FOXO”).
- The entire Policy Portfolio is currently collateral for the VIDA DIP Facility and is expected to be collateral for the Vida Exit Financing Facility.
- The net residual equity interest in the Polity Portfolio has a present value ranging from approximately $0 to $78 million.
- The price per share of FOXO’s common stock as of market close on April 14, 2023, was $0.71, which implies that the Debtors’ interests in FOXO have a value of approximately $3.26 million, assuming that a purchaser could be found for such interests.
- GWG owns a passive non-controlling equity interest in Beneficient, which is junior to approximately $1.4 billion of senior debt and senior preferred equity held by certain founders of Beneficient.
- On September 21, 2022, Beneficient announced that it had signed a business combination agreement with Avalon Acquisition Inc. (“Avalon”), a publicly-traded special purpose acquisition company (“SPAC”). The Avalon Business Combination is not yet final and may or may not be completed on the terms announced or at all. The transaction is subject to certain conditions, including the GWG’s consent (which has not yet been given), that must either be satisfied or waived prior to closing. Further, the asserted $3.5 billion implied enterprise valuation with respect to the SPAC Implied Valuation may or may not prove to be accurate. To the extent, the Avalon Business Combination is consummated, and to the extent the SPACE Implied Valuation is accurate, GWG’s interests in Beneficient would result upon completion of the Avalon Business Combination in an ownership interest in New Beneficient with a nominal value equal to approximately $1.4 billion.
- Such nominal value, however, may or may not result in distributable value to creditors, including L Bondholders.
- The value of the Company’s equity interests in New Beneficient will be subject to constant public market valuation and could be worth significantly less.
- It is important to note that market prices associated with equity interests issued in connection with the consummation of business combinations with special purpose acquisition companies have been particularly volatile over the last twelve months.
- Furthermore, as is customary in business combination transactions with special purpose acquisition companies, any equity interests of New Beneficient received by GWG upon the consummation of the Avalon Business Combination will likely be subject to customary “lock-up” restrictions, which typically include time-based restrictions on disposition before such equity interests may be monetized. These restrictions, or other restrictions that may be imposed may further reduce or eliminate any value associated with such equity interests.
- Beneficient may incur additional debt or issue securities that rank senior to, or pari passu with, the Wind Down Debtors’ expected interests in Beneficient following the Avalon Business Combination
- Stated another way, the value of GWG’s interests in Beneficient is uncertain.
- There are numerous risk factors disclosed by Beneficient in the Ben S-4 that could materially impact the value of the GWG’s interests in Beneficient and/or Beneficient’s ability to consummate the Avalon Business Combination, including the following:
- Beneficient disclosed that it has “not historically generated positive cash flow from operations” and “believe[s] that [it] will need substantial additional capital to fund [its] business plan.” GWG is unaware of any third parties that have agreed to make a significant cash investment in Beneficient, and, therefore, it is uncertain whether Beneficient will be able to obtain the “substantial additional capital” it needs. Beneficient disclosed that if it is “unable to obtain capital . . . [Beneficient] may be unable to continue building [its] business and as a result may be required to scale back or cease operations for [its] business, the result of which may be that you could lose some or all of your investment.”
- Beneficient disclosed that the company is under an active investigation by the SEC, which has sought information related to, among other things, the issuance of Bonds, the consolidation for financial reporting purposes of Beneficient and the company, goodwill valuation, accounting related to the trusts through which Beneficient operates its business, related party transactions, and the calculation of the debt-coverage ratio.
- GWG’s estimate of the value of its interests in Beneficient ranges from $0 to $1.428 billion. GWG believes the large range is warranted given the uncertainty and lack of information regarding Beneficient. The potential for the Avalon Business Combination to be consummated, while relevant, does not necessarily provide any additional certainty regarding the value of the GWG’s interests in Beneficient. Although GWG has used the SPAC Implied Valuation as the high end of the range of potential value, GWG believes it is important to note that the SPAC Implied Valuation was the result of negotiations between Beneficient and Avalon. GWG does not have sufficient information to perform an independent valuation analysis. Based on the current information available, the Bondholder Committee believes that no weight should be given to the SPAC Implied Valuation.
Wind-Down Trust’s Assets:
| Asset | Residual Value |
| Polity Portfolio | $0 – $78 million |
| Equity Interest in FOXO | $3.3 million |
| Equity Interest in Beneficient | $0 – $1.428 billion* |
* Based on current information available, the Official Committee of Bondholders believes that no weight should be given to the $1.4 billion value.
- The second trust, the Litigation Trust, will hold all non-released litigation assets, as well as GWG’s interest in any insurance policies covering directors and officers of GWG.
- The estimated potential recoveries from the pursuit of the retained causes of action depend on a significant part of the assumed valuation of GWG’s interest in Beneficient at the time of the transaction.
- The Investigations Committee and the Bondholder Committee believe that distributable value to the estate from litigation of the Retained Causes of Action (excluding potential damages associated with Ponzi Scheme allegations), in the form of recoveries from the D&O Liability Insurance Policies and from putative third-party defendants, could result in between $155 million and $399 million assuming a “Low” valuation of Beneficient and $99 million and $382 million assuming a “High” valuation of Beneficient.
- Neither the Investigations Committee nor the Bondholder Committee makes any representation as to whether the Litigation Trust will ultimately be successful or unsuccessful in pursuit of any of the Retained Causes of Action. Litigation is inherently uncertain, and the ability of the Litigation Trust to collect the potential damages set forth herein will depend upon a number of factors, including the probability of success in litigation, the difficulties in the collection, and the expense and delay of litigation.
A large recovery for L Bondholders is dependent upon either the success of Beneficient or GWG being able to monetize its legal claims against third parties, including Beneficent. A catch-22. Regardless, it’s likely to take years for everything to be sorted out.
As GWG Holdings, Inc. continues to navigate the bankruptcy process, with many questions remaining for L bondholders, our law firm remains ready to help GWG L bond investors file meritorious arbitration claims to recover their losses against broker-dealers. We continue to help GWG L Bond investors recover their losses.
To read more about the alleged misconduct, please visit our other blog posts:
Broker-Dealers Sold GWG L Bonds Using Aggressive and Misleading Marketing
“GWG Was a Classic Ponzi Scheme” – Official Committee of Bondholders of GWG Holdings, Inc.
Iorio Altamirano LLP (gwglawyer.com), a law firm that represents retail investors, is representing many GWG L Bond investors against brokerage firms across the country to recover investment losses and damages sustained by those firms’ recommendations to invest in GWG L Bonds. Based on the law firm’s investigation, there appears to have been widespread negligence and misconduct by many brokers and broker-dealers across the country.
For the latest on Iorio Altamirano LLP’s investigation of GWG L Bonds, including a key event timeline, visit our firm’s investigation page: Iorio Altamirano LLP’s Investigation of GWG L Bonds.
About Iorio Altamirano LLP
Iorio Altamirano LLP is a securities arbitration law firm located in New York, NY. We represent investors nationwide and vigorously pursue FINRA arbitration claims on behalf of investors to recover investment losses.
We have over 20 years of combined experience as securities arbitration lawyers and have helped investors recover investment losses in over 1,000 cases. Our firm will file a FINRA securities arbitration claim on your behalf on a contingency fee basis to try to recover your losses. If we do not obtain a recovery, you do not owe us a legal fee.
If you have invested in L Bonds offered by GWG Holdings, contact securities arbitration lawyers August Iorio at august@ia-law.com or Jorge Altamirano at jorge@ia-law.com. Alternatively, call the firm toll-free at (855) 430-4010.