On June 20, 2023, the United States Bankruptcy Court for the Southern District of Texas entered an Order confirming GWG’s Further Modified Second Joint Chapter 11 Plan (the “Chapter 11 Plan”).
GWG has disclosed that they are targeting July 31, 2023, as the effective date for the Plan.
As part of the Chapter 11 Plan, GWG will no longer operate as an ongoing concern. Instead, the Chapter 11 Plan provides that the GWG will be liquidated, and two liquidating trusts will be created: (i) the Wind Down Trust and (ii) the Litigation Trust.
The Wind Down Trust will take all necessary steps to wind down the business affairs of the Debtors and liquidate the Wind Down Trust Assets. Both the Wind Down Trust and the Litigation Trust have initial three-year terms, which can be extended an additional two years.
While the L Bondholders are going to receive “New Series A1 WDT Interests” in the Wind Down Trusts, the primary issue is that GWG’s current tangible assets are dwarfed by outstanding L Bond obligations, and GWG’s remaining assets are going to take some time to monetize, if ever.
GWG has only four assets: (1) its portfolio of life insurance policies; (2) equity interest in FOXO, (3) equity interest in Beneficient; and (4) potential legal actions against third parties, primarily Beneficent.
According to GWG’s analysis in the bankruptcy proceeding, the projected net residual value from the sale of the life insurance policies is projected to be $0 to $78 million, and the equity interest in FOXO is nominal, $3.3 million.
For L Bonds to have any significant residual value, GWG must monetize its equity interest in Beneficient or its legal claims against third parties. It is very likely and possible that L bondholders receive nothing from GWG’s interests in Beneficent or its retained causes of action, and if they do, it will likely take several years to result in cash distributions.
How and when GWG will be able to monetize its equity interest in Beneficient remains uncertain and speculative.
Since going public on June 8, 2023, and opening at $15 on the first day the new BENF traded, the stock price has plummeted.
BENF ended the trading day with a closing price of $2.87 on July 13, 2023.
Based on historical trading volume data, it would take 3.5 years to sell the bondholders’ approximately 155 million to 165 million shares.
According to at least one expert, BNEF is likely worth $0 as a result of its poor fundamentals:
- Beneficient values its portfolio of private equity investments at $547.8 million and has $21.8 million in restricted cash as of December 31, 2022. It has $242.6 million in liabilities, so it has tangible net assets of $327 million.
- There are $684 million in non-controlling interests and $251 million in redeemable non-controlling interests on BENF’s balance sheet.
- The tangible net assets available to non-controlling interests and common stockholders is $1.727 per share of common stock, although some or all of the tangible net assets would be payable to the non-controlling interests. If the non-controlling interests are senior to common stockholders, the tangible net assets available to common stockholders is -$3.212 per share.
- BENF reports 80% of its total assets are goodwill. The only way BENF can be worth some positive value after things settle down is if BENF’s $2.37 billion accounting goodwill reflects a substantial market valuation of BENF’s intellectual property.
Since this report, Beneficient has filed its 10-K annual report with the SEC disclosing additional worrisome news:
- For Year-End March 31, 2023, Beneficent had a net operating loss of $253 million.
- A substantial amount of Beneficient’s assets is comprised of goodwill and intangible assets. The sustained decline in the price of BNF since going public on June 8, 2023, is an indicator that impairment is present and may require assessment. In plain English, BENF will likely need to reduce the amount of its goodwill early next year, possibly significantly, thus reducing the amount of assets held by the company.
- On June 29, 2023, Beneficient received a “Wells Notice” from the SEC’s Division of Enforcement, stating that the SEC has made a preliminary determination to recommend that the SEC file a civil enforcement action against the company alleging violations of certain provisions of the Securities Act and the Securities Exchange Act relating to the Company’s association with GWG Holdings. In addition, the company’s Founder, CEO, and Chairman, Brad Heppner, also received Wells Notices related to the investigation of GWG Holdings.
Based on historical trading volume and pricing data and the recent news, BENF stock price could continue to drop o, and any attempt by the L Bondholders’ trust to sell millions of GWG’s shares could drive the price close to $0.
According to the expert, ultimately, bondholders will likely receive negligible amounts – perhaps $1 per share – for their GWG common stock. Even this amount cannot be achieved in open market transactions when the market is not absorbing total sales of 100,000 to 200,000 shares per day. Only through a bulk sale of a large controlling interest can the bondholders’ trust hope to realize even $150 million. Moreover, based on the projections provided in GWG’s Chapter 11 Plan, a recovery of $150 million through block stock sales pays bondholders 9 cents on the dollar.
Based on the information outlined above, we believe it is highly unlikely that they will obtain a quick and full recovery through the bankruptcy process.
We also continue to believe that GWG L Bonds investors’ best avenue for potential recovery of losses is to file a separate FINRA arbitration claim against their brokerage firms. If you would like more information about how to file a claim, please contact our firm to schedule a free and confidential consultation.
To read more about the alleged misconduct, please visit our other blog posts:
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 firstname.lastname@example.org or Jorge Altamirano at email@example.com. Alternatively, call the firm toll-free at (855) 430-4010.