Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
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| 1) | Formation and Description of Business |
Formation
Formation
Woodbridge Liquidation Trust (Trust)(the “Trust”) was established (i) for the purpose of collecting, administering, distributing and liquidating the Trust assets for the benefit of the Trust beneficiaries in accordance with the Liquidation Trust Agreement of the Trust (the “Trust Agreement”) and the First Amended Joint Chapter 11 Plan of Liquidation of Woodbridge Group of Companies, LLC and Itsits Affiliated Debtors dated August 22, 2018 (as amended, modified, supplemented or restated from time to time;time, the Plan)“Plan”); (ii) to resolve disputed claims asserted against the Debtors;Debtors, as defined in the Plan; (iii) to litigate and/or settle causes of action;action (“Causes of Action”); and (iv) to pay certain allowed claims and statutory fees, as required by the Plan. Woodbridge Group of Companies, LLC and its affiliated debtors are individually referred to herein as a Debtor and collectively as the Debtors. The Trust was formed on February 15, 2019 (Plan(the “Plan Effective Date)Date”) as a statutory trust under Delaware law.
On the Plan Effective Date, in accordance with the Plan, (a) the following assets automatically vested in the Trust;Trust: (i) an aggregate $5,000,000 in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation; (ii) certain claims and Causes of Action; (iii) all of the outstanding equity interests of the Wind-Down Entity (as defined below); and (iv) certain other non-real estate related assets, (b) the equity interests of Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the Remaining Debtors)“Remaining Debtors”) were cancelled and new equity interests representing all of the newly issued and outstanding equity interests in the Remaining Debtors were issued to the Trust, (c) all of the other Debtors other than the Remaining Debtors were dissolved and (d) the real estate-related assets of the Debtors were automatically vested in the Trust’s wholly-owned subsidiary, Woodbridge Wind-Down Entity LLC (Wind-Down Entity)(the “Wind-Down Entity”) or one of the Wind-Down Entity’s43 wholly-owned single member LLCs (Wind-Down Subsidiaries)(the “Wind-Down Subsidiaries”) formed to own the respective real estate assets. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to herein as “the Company”.
As further discussed in Note 10, the Company.Trust has 2 classes of “Liquidation Trust Interests”: Class A Liquidation Trust Interests (the “Class A Interests”) and Class B Liquidation Trust Interests (the “Class B Interests”). The holders of Class A Interests and Class B Interests are sometimes collectively referred to herein as “Interestholders” or “All Interestholders”.
On December 24, 2019, the Trust’s Registration Statement on Form 10 became effective under the Securities Exchange Act of 1934 (Exchange Act)(the “Exchange Act”). The trading symbol for the Trust’s Class A Interests is WBQNL. Bid and ask prices for the Trust’s Class A Interests are quoted on the OTC Link ATS, the SEC-registered alternative trading system. The Class A Interests are eligible for the Depository Trust Company’s Direct Registration System (“DRS”) services.The Class B Interests are not registered with the SEC.
Description of Business
The
The Trust is prosecuting various Causes of Action acquired by the Trust pursuant to the Plan and is resolving claims by potentialasserted against the Debtors. As of March 31, 2022, the Company is the plaintiff in several pending lawsuits (see Note 13 for additional information). The Trust beneficiaries.is also liquidating its Forfeited Assets (see Note 7 for additional information).
As of March 31, 2022, the Wind-Down Entity owns 3 luxury single-family homes in the Los Angeles, California area. The majority of the gross carrying value of the Wind-Down Entity’s real estate assets held for sale is concentrated in these 3 single-family homes. In addition, construction is being completed on 2 other single-family homes that have been sold. The Wind-Down Entity is also liquidating its remaining 4 other real estate assets. See Note 3 for additional information.
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
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As of December 31, 2019, the Wind-Down Subsidiaries are constructing twelve single-family homes, primarily located in Los Angeles, California. The Wind-Down Subsidiaries also own real estate that is available for sale including single-family homes also located in Los Angeles, California, lots, secured loans (performing and non-performing) and other properties.
The Company is required to liquidate its assets and distribute available cash to the Trust beneficiaries. The liquidation activities are carried out by the Trust, the Wind-Down Entity and the Wind-Down Subsidiaries. As of March 31, 2022, the Company estimates that the liquidation activities will be completed by February 15, 2024.
As discussed and defined in Note 2, the Company uses the Liquidation Basis of Accounting. The Trust currently operates as one1 reportable segment comprised primarily of real estate assets held for sale.
Net assets in liquidation represent the remaining estimated aggregate value available to Trust beneficiaries upon liquidation, with no discount for the timing of proceeds (undiscounted). Due to the unpredictability of real estate market values,selling prices, the impact of the COVID-19 virus (see below), as well as the uncertainty in the timing of liquidation of the real estate and other assets, net liquidation proceeds, other recoveries and actual liquidation costs may differ materially from the estimated amounts.
As more fully discussed in Note 2, the Company’s consolidated financial statements do not include any estimate of future recoveries from litigation and settlement, since the Company cannot reasonably estimate them.
No assurance can be given that total distributions will equal or exceed the estimate of net assets in liquidation presented in the consolidated statements of net assets in liquidation.
The Trust’s expectations about the amount of any additional distributions and when they will be paid are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of any additional distributions may differ materially, perhaps in adverse ways, from the Trust estimates. Furthermore, it is not possible to predict the timing of any additional distributions and any such distributions may not be made within the timing referenced in the consolidated financial statements.
5No assurance can be given that total distributions will equal or exceed the estimate of net assets in liquidation presented in the consolidated statements of net assets in liquidation.
IndexAs a result of the COVID-19 outbreak, 3 of the Wind-Down Subsidiaries’ construction sites were closed for about three months during the summer of 2020. NaN construction site was closed for about two weeks in late December 2020. The continued spread of COVID-19 presents challenges for the Company and its vendors, mainly due to labor and product supply shortages. The Company continues to observe health and safety guidelines, including allowing its employees to work remotely. The Company will continue to evaluate the impact of the COVID-19 outbreak on its activities, including the cost of construction, the timing of completion of the single-family homes that are under construction, the time needed to market and sell the single-family homes, and the price at which these single-family homes will be sold.
The ultimate impact of the COVID-19 outbreak will depend on many factors, some of which cannot be foreseen, including the duration, severity, and geographic concentrations of the pandemic and any resurgence of the disease.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
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| 2) | Summary of Significant Accounting Policies |
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP)(“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)(the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the consolidated financial statements for the unaudited interim periodperiods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such period.periods. These consolidated financial statements have been presented in accordance with Accounting Standards Codification (ASC) Subtopic 205-30, “Liquidation Basis of Accounting,” as amended by Accounting Standards Update (ASU) No. 2013-07, “Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting.” The June 30, 2021 consolidated statement of net assets in liquidation included herein was derived from the audited consolidated financial statements but does not include all disclosures or notes required by U.S. GAAP for complete financial statements.
All material intercompany accounts and transactions have been eliminated.
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the carrying amounts of assets and liabilities are revised in the period that available information supports a change in the carrying amount.
Liquidation Basis of Accounting
Under Liquidation Basisthe liquidation basis of Accounting,accounting, all assets are recorded at their estimated net realizable value or liquidation value, which represents the estimated amount of net cash that will be received upon the disposition of the assets (on an undiscounted basis). The measurement of real estate assets held for sale is based on the terms of current contracts (if any), estimates and other indications of sales value, net of estimated selling costs. To determine the value of real estate assets held for sale, the Company considered the three traditional approaches to value (cost, income and sales comparison) commonly used by the real estate appraisal community. The applicability and relevancy of each valuation approach as applied may differ by asset. In most cases, the sales comparison approach was accorded the greatest weight. This approach compares a property to other properties with similar characteristics that have recently sold. To validate management’s estimate, the Company also considers opinions from qualified real estate professionals and local real estate brokers and, in some cases, obtained third party appraisals. The estimated selling costs range from 5.0% to 6.5%.6.0% of the property sales price.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
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Liabilities, including estimated costs associated with implementing and completing the Plan, are measured in accordance with U.S. GAAP that otherwise applies to those liabilities. The Company has also recorded the estimated development costs to be incurred to prepare the assets for sale as well as the estimated holding costs to be incurred until the projected sale date and the estimated general and administrative costs to be incurred until the completion of the liquidation of the Company. When estimating development costs, the Company considered third party construction contracts and estimates of costs to complete based on construction status, progress and projected completion timing. Estimated development costs also include the costs of design and furnishings necessary to prepare and stage the homes for marketing. Holding cost estimates consider property taxes, insurance, utilities, maintenance and other costs to be incurred until the sale of the property is closed. Projected general and administrative cost estimates take into account operating costs through the completion of the liquidation of the Company.
These estimated amounts are presented in the accompanying consolidated statements of net assets in liquidation included in the consolidated financial statements.liquidation. All changes in the estimated liquidation value of the Company’s real estate held for sale, or other assets and liabilities are reflected as a change to the Company’s net assets in liquidation.
The Company does not record any amount from the future settlement of unresolved Causes of Action or recoveries from Fair Fund or Forfeited Assets (including those that may be settled, but subject to court or other regulatory agency approval) in the accompanying consolidated financial statements since they cannot be reasonably estimated. The amount recovered may be material to the Company’s net assets in liquidation.
On a quarterly basis, the Company reviews the estimated net realizable values, and liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period when this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include the accrued liquidation costs related to the asset.
Litigation and Other Recoveries
As of December 31, 2019, the Trust is the plaintiff in several pending lawsuits. These lawsuits are in their early stages and the Trust is unable to estimate the amount of recovery, if any, at this time. Accordingly, the Company has not recorded any amount for future recoveries from Causes of Action. In addition, no estimate has been included for fair funds or forfeited assets in the accompanying consolidated financial statements since they also cannot be reasonably estimated. The amounts recovered may be material to the Company’s net assets in liquidation.
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
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The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement ishas been executed and collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. Insurance claims are recognized when the insurance company accepts the claim or if a claim is pending and the recoverable amount can be estimated. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets (Note 7) received from the United States Department of Justice (the “DOJ”), other than cash, have been recorded at their estimated net realizable value. In addition,addition, the Company recognizes other amounts to be received based on contractual terms or when the amounts to be received are certain.
Accrued Liquidation Costs
The Company accrues for estimated liquidation costs to the extent they are reasonably determinable. These costs consist of (a) estimated development costs of the single-family homes under development, other project related costs, architectural and engineering, project management, city fees, bond payments (net of refunds), furnishings, marketing and other costs; (b) estimated holding costs, including property taxes, insurance, maintenance, utilities and other; and (c) estimated general and administrative costs including payroll, legal and other professional fees, trustee and board fees, rent and other office related expenses, interest on financing and other general and administrative costs to operate the Company.
Cash Equivalents
The Company considers short-term investments that have a maturity date of ninety days or less at the time of investment to be a cash equivalent. The Company’s cash equivalents include money market savings deposits and money market funds.
Restricted Cash
Restricted cash includes cash that can only be used for certain specified purposes.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. At times, balances in any one financial institution may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. The Company believes it mitigates this risk by depositing its cash, cash equivalents and restricted cash in high-credit quality financial institutions. In addition, the Company uses strategies to reduce deposit balances at any one financial institution consistent with FDIC insurance limits.
Income Taxes
The Trust is intended to be treated as a grantor trust for income tax purposes and, accordingly, is not subject to federal or state income tax on any income earned or gain recognized by the Trust. The Trust’s beneficiaries will be treated as the owner of a pro rata portion of each asset, including cash and each liability received by and held by the Trust, and eachTrust. Each beneficiary will be required to report on his or her federal and state income tax return his or her pro rata share of taxable income, including gains and losses recognized by the Trust. Accordingly, there is no provision for federal or state income taxes recorded in the accompanying consolidated financial statements. PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
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The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in the consolidated financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provision for uncertain income tax positions has been recorded in the consolidated financial statements.
3) | Real Estate Assets Held for Sale |
The Company’s real estate assets held for sale as of DecemberMarch 31, 2019,2022, with comparative information as of June 30, 2019, is2021, are as follows ($ in thousands):
| | March 31, 2022 | | | June 30, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | | | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | | | | | | | | | | | | | | | | | | | | | | | | | | | Single-family homes | | | 3 | | | $ | 98,451 | | | $ | (5,907 | ) | | $ | 92,544 | | | | 7 | | | $ | 146,750 | | | $ | (8,805 | ) | | $ | 137,945 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other real estate assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Secured loans | | | 2 | | | | 986 | | | | (40 | ) | | | 946 | | | | 4 | | | | 1,945 | | | | (87 | ) | | | 1,858 | | Other properties | | | 2 | | | | 1,107 | | | | (55 | ) | | | 1,052 | | | | 2 | | | | 1,107 | | | | (55 | ) | | | 1,052 | | Subtotal | | | 4 | | | | 2,093 | | | | (95 | ) | | | 1,998 | | | | 6 | | | | 3,052 | | | | (142 | ) | | | 2,910 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 7 | | | $ | 100,544 | | | $ | (6,002 | ) | | $ | 94,542 | | | | 13 | | | $ | 149,802 | | | $ | (8,947 | ) | | $ | 140,855 | |
| | December 31, 2019 | | | June 30, 2019 | | | | | | | | | | | | | | | | | | | | | | | Number of Assets | | | Gross Value | | | Closing and Other Costs | | | Net Value | | | Number of Assets | | | Net Value | | Single-family homes under development | | | 12 | | | $ | 249,500 | | | $ | (14,810 | ) | | $ | 234,690 | | | | 14 | | | $ | 265,340 | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate assets available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | Single-family homes | | | 5 | | | | 133,500 | | | | (7,300 | ) | | | 126,200 | | | | 11 | | | | 182,878 | | Lots | | | 19 | | | | 4,410 | | | | (332 | ) | | | 4,078 | | | | 35 | | | | 15,658 | | Secured loans | | | 18 | | | | 4,184 | | | | (209 | ) | | | 3,975 | | | | 20 | | | | 5,302 | | Other properties | | | 13 | | | | 3,740 | | | | (187 | ) | | | 3,553 | | | | 15 | | | | 12,498 | | Subtotal | | | 55 | | | | 145,834 | | | | (8,028 | ) | | | 137,806 | | | | 81 | | | | 216,336 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 67 | | | $ | 395,334 | | | $ | (22,838 | ) | | $ | 372,496 | | | | 95 | | | $ | 481,676 | |
As of DecemberMarch 31, 2019, the single-family homes under development, except one, are located in the Los Angeles, California area. Of the real estate assets available for sale,2022, all of the single-family homes are located in the Los Angeles, California area. Ofarea and 2 of the lots, twosingle-family homes are under construction. The Company is also completing the construction of 1 single-family home that was sold in December 2021 and located in New York City and 1 that was sold in May 2021 and located in Los Angeles, California and seventeen are located in Colorado.California. The loans are secured by properties that are located primarily in the Midwest and Eastern United States. The other properties are located primarily in Colorado,the state of Hawaii and the Midwest United States.state of New York.
During the three months ended DecemberMarch 31, 2019,2022, the Company sold four single-family homes, six lots and one other property and collected a principal paydown on onesettled 1 secured loan for total net proceeds of approximately $82,967,000.$725,000. As of March 31, 2022, the Company had 2 single-family homes under contract. Although the contingencies relating to these pending sales have been removed, no assurance can be given that the sales will close. During the sixthree months ended DecemberMarch 31, 2019,2021, the Company did 0t sell any real estate assets. During the nine months ended March 31, 2022, the Company sold eight4 single-family homes sixteen lots,and settled two2 secured loans and sold two other properties and collected a principal paydown on one secured loan for total net proceeds of approximately $103,929,000.$64,405,000. During the nine months ended March 31, 2021, the Company sold 5 single-family homes, 2 lots and 11 other properties for net proceeds of approximately $121,208,000. NaN of the single-family homes sold during the nine months ended March 31, 2021 was under construction and the buyer assumed the remaining obligations to complete construction of approximately $11,253,000.
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
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The Company’s restricted cash as of DecemberMarch 31, 2019,2022, with comparative information as of June 30, 2019,2021, is as follows ($ in thousands):
| | March 31, 2022
| | | June 30, 2021
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| | | | | | | Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information | | $ | 5,031 | | | $
| 4,687 | | Forfeited Assets (Note 7) | | | 2,317
| | | | 1,836
| | Interest reserve (Note 9) | | | 1,750 | | | | 1,750 | | Total restricted cash | | $ | 9,098
| | | $
| 8,273 | |
| | December 31, 2019 | | | June 30, 2019 | | | | | | | | | Distributions related to unresolved claims and uncashed distribution checks, restricted by the Company | | $ | 1,734 | | | $ | 1,810 | | | | | | | | | | | Fair Funds, legally restricted for distribution | | | 1,237 | | | | 1,237 | | | | | | | | | | | Other | | | - | | | | 317 | | | | | | | | | | | Total restricted cash | | $ | 2,971 | | | $ | 3,364 | |
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
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The Company’s other assets as of DecemberMarch 31, 2019,2022, with comparative information as of June 30, 2019,2021, are as follows ($ in thousands):
| | March 31, 2022
| | | June 30, 2021
| | | | | | | | | Escrow receivables (a) | | $
| 3,560
| | | $
| 2,500
| | Forfeited Assets (Note 7) | |
| 1,059 | | |
| 1,549 | | Settlement installment receivables, net (b) | | | 712 | | | | 1,014
| | Other | | | 400 | | | | 410 | | Total other assets | | $ | 5,731 | | | $ | 5,473
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(a) Escrow receivables as of March 31, 2022 relate to 2 single-family homes that were sold during the nine months ended March 31, 2022. and 1 single-family home sold prior to June 30, 2021. Escrow receivables as of June 30, 2021 relate to 1 single-family home sold prior to June 30, 2021. Amounts are to be released upon completion of construction and/or obtaining a certificate of occupancy.
| | December 31, 2019 | | | June 30, 2019 | |
| | | | | | | Insurance claim receivable | | $ | 1,900 | | | $ | 1,900 | |
| | | | | | | | | Settlement installments receivable | | | 988 | | | | 518 | |
| | | | | | | | | Other | | | 708 | | | | 18 | |
| | | | | | | | | Total other assets | | $ | 3,596 | | | $ | 2,436 | |
(b) The allowance for uncollectible settlement installment receivables was approximately $6 and $9 ($ in thousands) at March 31, 2022 and June 30, 2021, respectively. 11
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
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| 6) | Accrued Liquidation Costs |
The following is a summary of the items included in accrued liquidation costs as of DecemberMarch 31, 2019,2022, with comparative information as of June 30, 20192021 ($ in thousands):
| | March 31, 2022
| | | June 30, 2021
| | Development costs: | | | | | | | Construction costs | | $ | 11,564 | | | $ | 23,480 | | Construction warranty | | | 2,870 | | | | 2,870 | | Indirect costs | | | 498 | | | | 712 | | Bond refunds | | | (699 | ) | | | (1,134 | ) | Total development costs | | | 14,233 | | | | 25,928 | | | | | | | | | | | Holding costs: | | | | | | | | | Property tax | | | 836 | | | | 1,901 | | Insurance | | | 462 | | | | 1,291 | | Maintenance, utilities and other | | | 479 | | | | 1,000 | | Total holding costs | | | 1,777 | | | | 4,192 | | | | | | | | | | | General and administrative costs: | | | | | | | | | Legal and other professional fees | | | 10,475 | | | | 17,697 | | Payroll and payroll-related | | | 8,546 | | | | 10,432 | | State, local and other taxes
| | | 2,188
| | | | 2,217
| | Directors and officers insurance
| | | 2,024 | | | | 2,576 | | Board fees and expenses | | | 698 | | | | 1,558 | | Other | | | 1,164 | | | | 983 | | Total general and administrative costs | | | 25,095 | | | | 35,463 | | | | | | | | | | | Total accrued liquidation costs | | $ | 41,105 | | | $ | 65,583 | |
| | December 31, 2019 | | | June 30, 2019 | | Development costs: | | | | | | | Construction costs | | $ | 86,939 | | | $ | 115,947 | | Construction warranty | | | 2,870 | | | | 3,955 | | Indirect costs | | | 1,371 | | | | 2,112 | | Bond refunds | | | (1,511 | ) | | | (2,152 | ) | Total development costs | | | 89,669 | | | | 119,862 | | | | | | | | | | | Holding costs: | | | | | | | | | Property tax | | | 4,884 | | | | 6,087 | | Insurance | | | 2,714 | | | | 6,345 | | Maintenance, utilities and other | | | 2,284 | | | | 2,508 | | Total holding costs | | | 9,882 | | | | 14,940 | | | | | | | | | | | General and administrative costs: | | | | | | | | | Legal and other professional fees | | | 18,531 | | | | 26,550 | | Payroll and payroll related | | | 11,980 | | | | 13,757 | | Board fees and expenses | | | 3,403 | | | | 3,995 | | State, local and other taxes | | | 3,207 | | | | 6,062 | | Marketing | | | 1,403 | | | | 1,583 | | Other | | | 3,200 | | | | 3,499 | | Total general and administrative costs | | | 41,724 | | | | 55,446 | | | | | | | | | | | Total accrued liquidation costs | | $ | 141,275 | | | $ | 190,248 | |
127) | Forfeited Assets - Restricted for Qualifying Victims |
The Trust entered into a resolution agreement with the DOJ which provided that the Trust would receive the assets forfeited by Robert and Jeri Shapiro (the “Forfeited Assets”). In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold and other assets. The wine and the gold were sold during the nine months ended March 31, 2022.
The agreement also provided for the Trust to liquidate the Forfeited Assets and to distribute the net sale proceeds to Qualifying Victims. Qualifying Victims include the vast majority of Trust beneficiaries (specifically, all former holders of allowed Class 3 and 5 claims and their permitted assigns), but do not include former holders of Class 4 claims. Distributions to Qualifying Victims are to be allocated pro-rata based on their net allowed claims without considering the (i) 5% enhancement for contributing their causes of action or (ii) 72.5% Class 5 coefficient.
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
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The Forfeited Assets included in the Company’s March 31, 2022 and June 30, 2021 consolidated financial statements are as follows ($ in thousands):
| | March 31, 2022
| | | June 30, 2021
| | | | | | | | | Restricted cash (Note 4) | | $ | 2,317 | | | $ | 1,836 | | Other assets (Note 5) | | | 1,059 | | | | 1,549 | | Accrued liquidation costs | | | (173 | ) | | | (218 | ) | Net assets in liquidation - restricted for Qualifying Victims | | $ | 3,203 | | | $ | 3,167 | |
| 7)8) | Net Change In Assets and Liabilities |
Restricted for Qualifying Victims:
The following is a summary of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 111 | | | | 0 | | | | 111 | | Other assets | | | (120 | ) | | | 0 | | | | (120 | ) | Total assets | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 0 | | | $ | 0 | | Accrued liquidation costs | | | (9 | ) | | | 0 | | | | (9 | ) | Total liabilities | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 0 | | | $ | 0 | | | $ | 0 | |
The following is a summary of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 28 | | | | 0 | | | | 28 | | Other assets | | | 0 | | | | 3,442 | | | | 3,442 | | Total assets | | $ | 28 | | | $ | 3,442 | | | $ | 3,470 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | Accrued liquidation costs | | | 0 | | | | 0 | | | | 0 | | Total liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 28 | | | $ | 3,431 | | | $ | 3,459 | |
The following is a summary of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 481 | | | | 0 | | | | 481 | | Other assets | | | (526 | ) | | | 36 | | | | (490 | ) | Total assets | | $ | (45 | ) | | $ | 36 | | | $ | (9 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 0 | | | $ | 0 | | Accrued liquidation costs | | | (45 | ) | | | 0 | | | | (45 | ) | Total liabilities | | $ | (45 | ) | | $ | 0 | | | $ | (45 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 0 | | | $ | 36 | | | $ | 36 | |
The following is a summary of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | 0 | | | $ | 0 | | | $ | 0 | | Cash and cash equivalents | | | 0 | | | | 0 | | | | 0 | | Restricted cash | | | 28 | | | | 0 | | | | 28 | | Other assets | | | 0 | | | | 3,442 | | | | 3,442 | | Total assets | | $ | 28 | | | $ | 3,442 | | | $ | 3,470 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | Accrued liquidation costs | | | 0 | | | | 0 | | | | 0 | | Total liabilities | | $ | 0 | | | $ | 11 | | | $ | 11 | | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 28 | | | $ | 3,431 | | | $ | 3,459 | |
All Interestholders
The following provides details of the net change in the carrying value of assets and liabilities, net during the three months ended DecemberMarch 31, 20192022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (736 | ) | | $ | 9,870 | | | $ | 9,134 | | Cash and cash equivalents | | | 19,910
| | | | 0
| | | | 19,910
| | Restricted cash | | | 0
| | | | 0
| | | | 0
| | Other assets | | | (24,991 | ) | | | 20
| | | | (24,971 | ) | Total assets | | $ | (5,817 | ) | | $ | 9,890 | | | $ | 4,073 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 0 | | | $ | 79 | | | $ | 79 | | Accrued liquidation costs | | | (6,500 | ) | | | 2,228 | | | | (4,272 | ) | Total liabilities | | $ | (6,500 | ) | | $ | 2,307 | | | $ | (4,193 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 683 | | | $ | 7,583 | | | $ | 8,266 | |
| | Cash Activities | | | Remeasure- ment | | | Total | | | | | | | | | | | | Real estate assets, net | | $ | (82,967 | ) | | $ | (7,040 | ) | | $ | (90,007 | ) | | | | | | | | | | | | | | Cash | | | 61,843 | | | | - | | | | 61,843 | | | | | | | | | | | | | | | Restricted cash | | | (358 | ) | | | - | | | | (358 | ) | | | | | | | | | | | | | | Other assets | | | (968 | ) | | | 1,950 | | | | 982 | | | | | | | | | | | | | | | Total assets | | $ | (22,450 | ) | | $ | (5,090 | ) | | $ | (27,540 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (365 | ) | | $ | 117 | | | $ | (248 | ) | | | | | | | | | | | | | | Accrued liquidation costs | | | (25,839 | ) | | | (2,413 | ) | | | (28,252 | ) | | | | | | | | | | | | | | Total liabilities | | $ | (26,204 | ) | | $ | (2,296 | ) | | $ | (28,500 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 3,754 | | | $ | (2,794 | ) | | $ | 960 | |
14
The following provides details of claims being disallowed,the distributions (declared) reversed, net during the three months ended March 31, 2022 ($ in thousands):
Distributions declared | | $ | (39,981 | ) | Distributions reversed | | | 472
| | Distributions (declared) reversed, net | | $ | (39,509 | ) |
Distributions payable decreased by approximately $(137,000) during the three months ended March 31, 2022.
The following is a summary of the change in the carrying value of assets and liabilities, net during the three months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | |
| | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (9 | ) | | $ | 0 | | | $ | (9 | ) | Cash and cash equivalents | | | (11,199 | ) | | | 0
| | | | (11,199 | ) | Restricted cash | | | 1,262
| | | | 0
| | | | 1,262
| | Other assets | | | (287 | ) | | | (1,091 | ) | | | (1,378 | ) | Total assets | | $ | (10,233 | ) | | $ | (1,091 | ) | | $ | (11,324 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | 42 | | | $ | 30 | | | $ | 72 | | Accrued liquidation costs | | | (11,238 | ) | | | (2,132 | ) | | | (13,370 | ) | Total liabilities | | $ | (11,196 | ) | | $ | (2,102 | ) | | $ | (13,298 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 963 | | | $ | 1,011 | | | $ | 1,974 | |
The following provides details of the distributions (declared) reversed, net during the three months ended March 31, 2021 ($ in thousands):
Distributions declared | | $ | (50,005 | ) | Distributions reversed | | | 47
| | Distributions (declared) reversed, net | | $ | (49,958 | ) |
Distributions payable increased by approximately $1,261,000 during the three months ended March 31, 2021.
The following provides details of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2022 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (64,437 | ) | | $ | 18,124 | | | $ | (46,313 | ) | Cash and cash equivalents | | | 68,260
| | | | 0
| | | | 68,260
| | Restricted cash | | | 0
| | | | 0
| | | | 0
| | Other assets | | | (25,998 | ) | | | 26,745
| | | | 747
| | Total assets | | $ | (22,175 | ) | | $ | 44,869 | | | $ | 22,694 | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (184 | ) | | $ | 1,390 | | | $ | 1,206 | | Accrued liquidation costs | | | (23,712 | ) | | | (722 | ) | | | (24,434 | ) | Total liabilities | | $ | (23,896 | ) | | $ | 668 | | | $ | (23,228 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 1,721 | | | $ | 44,201 | | | $ | 45,922 | |
The following provides details of the distributions (declared) reversed, net during the nine months ended March 31, 2022 ($ in thousands):
Distributions declared | | $ | (79,997 | ) | Distributions reversed | | | 761
| | Distributions (declared) reversed, net | | $ | (79,236 | ) |
Distributions payable increased by approximately $344,000 during the nine months ended March 31, 2022.
The following is a summary of the change in the carrying value of assets and liabilities, net during the nine months ended March 31, 2021 ($ in thousands):
| | Cash | | | Remeasure- | | | | | | | Activities | | | ment | | | Total | | | | | | | | | | | | Real estate assets held for sale, net | | $ | (121,186 | ) | | $ | (13,184 | ) | | $ | (134,370 | ) | Cash and cash equivalents | | | 87,650
| | | | 0
| | | | 87,650
| | Restricted cash | | | 2,528
| | | | 0
| | | | 2,528
| | Other assets | | | (2,164 | ) | | | (762 | ) | | | (2,926 | ) | Total assets | | $ | (33,172 | ) | | $ | (13,946 | ) | | $ | (47,118 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (947 | ) | | $ | 423 | | | $ | (524 | ) | Accrued liquidation costs | | | (41,236 | ) | | | (12,887 | ) | | | (54,123 | ) | Total liabilities | | $ | (42,183 | ) | | $ | (12,464 | ) | | $ | (54,647 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 9,011 | | | $ | (1,482 | ) | | $ | 7,529 | |
The following provides details of the distributions (declared) reversed, net during the nine months ended March 31, 2021 ($ in thousands):
Distributions declared | | $ | (109,932 | ) | Distributions reversed | | | 378
| | Distributions (declared) reversed, net | | $ | (109,554 | ) |
Distributions payable increased by approximately $2,531,000 during the nine months ended March 31, 2021.
On June 19, 2020, 2 wholly-owned subsidiaries of the Wind-Down Entity entered into a $25,000,000 revolving line of credit (the “LOC”) with a financial institution. The LOC had an original maturity of June 19, 2022. The LOC requires the borrowers to establish an interest reserve of $1,750,000 (Note 4), which is to be used to pay the potential monthly interest payments. Outstanding borrowings bear interest at a fixed rate of 3.50% per annum. Indebtedness under the LOC was secured by a deed of trust on one property, the personal property associated therewith and the interest reserve. The Wind-Down Entity is the guarantor of the LOC. The Company is required to keep a cash balance of $20,000,000 on deposit with the lender in order to avoid a non-compliance fee of 2% of the shortfall in the required deposit and is required to comply with various covenants.
The property that was collateral for the LOC was sold in December 2020. The LOC agreement provides that the borrower had 60 days after the sale of the collateral to add borrower(s) and additional property(ies) as collateral. During the 60-day period, the available borrowings under the LOC were reduced to $100,000. On February 11, 2021, the LOC was amended. NaN additional wholly owned subsidiaries of the Wind-Down Entity were joined to the LOC as co-borrowers and 2 properties were added as replacement collateral as allowed for in the original agreement. As a result of this amendment, the available borrowing commitment was adjusted back up to $25,000,000. The maturity date of the LOC was changed to January 31, 20192023 with an option to extend for one additional year, subject to the availability of collateral. There were no other significant changes to the LOC.
As of March 31, 2022, the Company was in compliance with the financial covenants of the LOC. NaN amounts were outstanding under the LOC as of March 31, 2022 or June 30, 2021.
10) | Liquidation Trust Interests
|
The following table summarizes the Liquidation Trust Interests (rounded) for the nine months ended March 31, 2022 and 2021:
| | For the Nine Months Ended March 31, | | | | 2022
| | | 2021
| | Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | | | | | | | | | | | | | | | Outstanding at beginning of period | | | 11,512,855
| | | | 675,784
| | | | 11,518,232
| | | | 675,558
| | Allowed claims | | | 4,976
| | | | 0
| | | | 10,367
| | | | 1,133
| | 5% enhancement for certain allowed claims | | | 0
| | | | 0
| | | | 182
| | | | 56
| | Settlement of claims by cancelling Liquidation | | | | | | | | | | | | | | | | | Trust Interests | | | (1,392 | ) | | | (167 | ) | | | (15,121 | ) | | | (435 | ) | Outstanding at end of period | | | 11,516,439
| | | | 675,617
| | | | 11,513,660
| | | | 676,312
| |
Of the 11,516,439 Class A Interests outstanding at March 31, 2022, 11,436,675 were held by Qualifying Victims (Note 7).
At the Plan Effective Date, certain claims were disputed. As those disputed claims are resolved, additional Class A and (if applicable) Class B Interests are issued on account of allowed claims or Class A and (if applicable) Class B Interests are cancelled. No Class A or Class B Interests are issued on account of disallowed claims. The following table summarizes the unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the nine months ended March 31, 2022 and 2021:
| | For the Nine Months Ended March 31, | | | | 2022 | | | 2021 | | Liquidation Trust Interests | | Class A | | | Class B | | | Class A | | | Class B | | | | | | | | | | | | | | | Reserved for unresolved claims at beginning of period | | | 124,609
| | | | 5,011
| | | | 193,559
| | | | 7,118
| | Allowed claims | | | (4,976 | ) | | | 0 | | | | (10,367 | ) | | | (1,133 | ) | 5% enhancement for certain allowed claims | | | 0 | | | | 0
| | | | (32 | ) | | | 0
| | Disallowed claims | | | (28,840 | ) | | | (4,678) | | | | (44,372 | ) | | | (974 | ) | Reserved for unresolved claims at end of period | | | 90,793
| | | | 333
| | | | 138,788
| | | | 5,011
| |
Of the 90,793 Class A Interests relating to unresolved claims at March 31, 2022, 3,449 would be held by Qualifying Victims (Note 7).
The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash, excluding distributions of the net sales proceeds from Forfeited Assets. Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 per Class B Interest; thereafter (c) to each Liquidation Trust Interest (whether a Class A or Class B Interest) until the aggregate of all distributions made pursuant to this clause equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined in the Plan, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the holders of Allowed Subordinated Claims, as defined in the Plan, until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim.
During the three months ended March 31, 2022, 1 distribution was declared. During the nine months ended March 31, 2022, 2 distributions were declared. A distribution in the amount of approximately $41,000$39,981,000 was declared on February 4, 2022 which represented $3.44 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $39,151,000, which was paid on March 3, 2022 and (ii) a deposit of approximately $830,000 into a restricted cash account, which was made on March 15, 2022, for amounts, (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. A distribution in the amount of approximately $40,017,000 was declared on October 8, 2021 which represented $3.44 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $39,134,000, which was paid on October 29, 2021 and (ii) a deposit of approximately $883,000 into a restricted cash account, which was made on October 28, 2021, for amounts, (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
During the three months ended March 31, 2021, 1 distribution was declared. During the nine months ended March 31, 2021, 3 distributions were declared. A distribution in the amount of approximately $50,005,000 was declared on January 7, 2021 which represented $4.28 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $48,665,000, which was paid on January 27, 2021 and (ii) a deposit of approximately $1,340,000 into a restricted cash account, which was made on January 28, 2021, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. A distribution in the amount of approximately $29,957,000 was declared on October 19, 2020 which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,204,000, which was paid on November 6, 2020 and (ii) a deposit of approximately $753,000 into a restricted cash account, which was made on November 3, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information. A distribution in the amount of approximately $29,934,000 was declared on July 13, 2020 which represented $2.56 per Class A Interest. The distribution included (i) a cash distribution on account of then-allowed claims in the amount of approximately $29,201,000, which was paid on July 16, 2020 and (ii) a deposit of approximately $733,000 into a restricted cash account, which was made on August 25, 2020, for amounts (a) payable for Class A Interests that may be issued in the future upon the allowance of unresolved claims; (b) in respect of Class A Interests issued on account of recently allowed claims; (c) for holders of Class A Interests who failed to cash distribution checks mailed in respect of prior distributions; (d) for distributions that were withheld due to pending avoidance actions; and (e) for holders of Class A Interests for which the Trust is waiting for further beneficiary information.
During the three months ended March 31, 2022 and 2021, approximately $495,000 and $229,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $608,000 and $351,000, respectively, of distributions were paid to holders of Class A Interests from the restricted cash account and distributions payable were reduced by the same amount as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of uncashed distribution checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was received.
During the three months ended March 31, 2022 and 2021, approximately $472,000 and $47,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $761,000 and $379,000, respectively, were released from the restricted cash account and distributions payable were reduced by the same amount.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
| (Unaudited)
|
The following provides details of the net change in assets and liabilities during the six months ended December 31, 2019 ($ in thousands):
| | Cash Activities | | | Remeasure- ment | | | Total | | | | | | | | | | | | Real estate assets, net | | $ | (103,929 | ) | | $ | (5,251 | ) | | $ | (109,180 | ) | | | | | | | | | | | | | | Cash | | | 63,832 | | | | - | | | | 63,832 | | | | | | | | | | | | | | | Restricted cash | | | (394 | ) | | | - | | | | (394 | ) | | | | | | | | | | | | | | Other assets | | | (1,396 | ) | | | 2,556 | | | | 1,160 | | | | | | | | | | | | | | | Total assets | | $ | (41,887 | ) | | $ | (2,695 | ) | | $ | (44,582 | ) | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | $ | (370 | ) | | $ | 226 | | | $ | (144 | ) | | | | | | | | | | | | | | Accrued liquidation costs | | | (46,231 | ) | | | (2,742 | ) | | | (48,973 | ) | | | | | | | | | | | | | | Total liabilities | | $ | (46,601 | ) | | $ | (2,516 | ) | | $ | (49,117 | ) | | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | $ | 4,714 | | | $ | (179 | ) | | $ | 4,535 | |
Asamount as a result of claims being disallowed during the six months ended December 31, 2019 approximately $77,000 was released from the restricted cash account and distributions payable were reduced by the same amount.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
| (Unaudited)
|
| 8) | Revolving Line of Credit |
WB Propco, LLC, a subsidiary of the Wind-Down Entity is the borrower under a $21,985,000 revolving line of credit (LOC) with a financial institution. The Wind-Down Entity is a guarantor under the LOC. The LOC matures on May 1, 2020. Outstanding borrowings bear interest at the prime rate (the prime rate was 4.75% at December 31, 2019), provided however, that the interest rate can never be lower than 5.25% per annum. The interest rate is adjusted monthly. The carrying value of the collateral for the LOC was approximately $100,000,000 at December 31, 2019. As of December 31, 2019, WB Propco, LLC was in compliance with the financial covenants of the LOC.
No amounts were outstanding under the LOC as of December 31, 2019.
The following table summarizes the Liquidation Trust Interests (rounded) as of June 30, 2019 and December 31, 2019:
Liquidation Trust Interests | | Class A | | | Class B | | | | | | | | | Outstanding at June 30, 2019 | | | 11,433,623 | | | | 655,261 | | | | | | | | | | | Allowed claims | | | 84,855 | | | | 21,334 | | | | | | | | | | | 5% enhancement for certain allowed claims | | | 459 | | | | 5 | | | | | | | | | | | Settlement of claims by reducing Liquidation Trust Interests | | | (2,663 | ) | | | (761 | ) | | | | | | | | | | Outstanding at December 31, 2019 | | | 11,516,274 | | | | 675,839 | |
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
| (Unaudited)
|
At the Plan Effective Date, certain claims were disputed. As the claims are resolved, additionalor Class A and Class B Interests are issued for allowed claims and no Class A and Class B Interests are issued for disallowed claims. The following table summarizes the Trust’s unresolved claims relating to Liquidation Trust Interests (rounded) as of June 30, 2019 and December 31, 2019:being cancelled.
Liquidation Trust Interests | | Class A | | | Class B | | | | | | | | | Reserved for unresolved claims at June 30, 2019 | | | 482,734 | | | | 34,697 | | | | | | | | | | | Allowed claims | | | (84,855 | ) | | | (21,334 | ) | | | | | | | | | | Disallowed claims | | | (41,688 | ) | | | (5,406 | ) | | | | | | | | | | Reserved for unresolved claims at December 31, 2019 | | | 356,191 | | | | 7,957 | |
No distributions were declared during the three or six months ended December 31, 2019. During the three and six months ended DecemberMarch 31, 2019, as claims were resolved, distributions of2022 and 2021, approximately $26,000$0 and $670,000,$197,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $0, and $431,000, respectively, were paid from the restricted cash account relating to the Class A Interests that were issued.
In October 2019, approximately $112,000 was received from the Company’s transfer agent and others relating to distribution checks that were returned or not cashed. This amount wasThese amounts were deposited into the restricted cash account and distributions payable were increased by the same amount.
| 11)12) | Related Party Transactions |
Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA (G3), a construction firm specializing in the development of high-end luxury residences. G3 Group LA is owned by Terry Goebel and his son Kelly Goebel. As of DecemberMarch 31, 2019,2022, the Company iswas under contract with G3 Group LA for the development of one 1 single-family home in the Los Angeles, area. One additional construction contract was assumed by the buyer of a single-family home in November 2019.California. As of DecemberMarch 31, 2019,2022 and June 30, 2021 the remaining amounts payable under these contracts wasthis contract were approximately $12,000,000, including payables under the contract assumed by a third party buyer in November 2019. $3,045,000 and $4,391,000, respectively. During the three and six months ended DecemberMarch 31, 2019,2022 and 2021, approximately $1,654,000$267,000 and $5,924,000,$1,496,000, respectively, wasand during the nine months ended March 31, 2022 and 2021, approximately $3,443,000 and $5,887,000, respectively, were paid by the Company to G3 related to these contracts.this contract.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
WoodbridgeThe Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
| (Unaudited)
|
The liquidation trusteeTrustee of the Trust is entitled to receive 5% of the total gross amount recovered by the Trust from the pursuit of Trust claims andthe Causes of Action. During the three and six months ended DecemberMarch 31 2019,, 2022 and 2021, approximately $81,000 $23,000 and $190,000 was$72,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $1,334,000 and $462,000, respectively, were accrued as amounts due to the liquidation trustee, respectively.Liquidation Trustee. As of DecemberMarch 31, 2022 and June 30, 2019,2021, approximately $261,000 $1,310,000 and $82,000, $160,000, respectively, waswere payable to the liquidation trustee. This amount isLiquidation Trustee. These amounts are included in accounts payable and accrued liabilities in the accompanying consolidated statements of net assets in liquidation.During the three months ended March 31, 2022 and 2021, approximately $0 and $0, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $184,000 and $491,000, respectively, were paid to the Liquidation Trustee. See Note 15 for additional information.
In November 2019, the Trust entered into an arrangement with Akerman LLP, a law firm based in Miami, Florida of which the liquidation trusteeLiquidation Trustee is a partner, for the provision, at the option of the Trust on an as-needed basis, of e-discovery and related litigation support services in connection with the Trust’s prosecution of the Causes of Action. Under the arrangement, the Trust is charged for the services at scheduled rates per task which, depending on specific task, include flat rates, rates based on volume of data processed, rates based on the number of data users, the hourly rates of Akerman LLP personnel, or other rates. During the three months ended March 31, 2022 and 2021, approximately $137,000 and $109,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $351,000 and $314,000, respectively, were paid related to these services and there are 0 outstanding payables as of March 31, 2022 and June 30, 2021.
The executive officers of the Wind-Down Entity are entitled to a discretionary bonus based on the Wind-Down Entity achieving certain specified cumulative amounts of distributions to the Trust. Based on the carrying amounts of the net assets in liquidation included in the accompanying consolidated statements of net assets in liquidation, approximately $3,800,000 was accrued as of DecemberMarch 31, 2022 and June 30, 2019,2021, approximately $2,348,000 and $3,040,000, respectively, were accrued as the estimated amount of the bonus including(including associated payroll taxes. This amount istaxes). These amounts are included in the payroll and payroll relatedpayroll-related costs portion of accrued liquidation costs in the accompanying consolidated statementsstatement of net assets in liquidation.During the three months ended March 31, 2022 and 2021, approximately $692,000 and $1,025,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $692,000 and $1,025,000, respectively, were paid related to the bonuses.
During the three and nine months ended March 31, 2022 and 2021, the Company recorded the following amounts from the settlement of Causes of Action ($ in thousands):
| | For the Three Months Ended March 31, | | | For the Nine Months Ended March 31, | | | | 2022
| | | 2021
| | | 2022
| | | 2021
| | | | | | | | | | | | | | | Comerica Bank | | $ | 0 | | | $ | 0 | | | $ | 24,815 | | | $ | 0 | | Other settlement recoveries | | | 468 | | | | 1,278 | | | | 1,868 | | | | 8,443 | | Total | | $ | 468 | | | $ | 1,278 | | | $ | 26,683 | | | $ | 8,443 | |
On August 6, 2021, the Trust agreed to settle 2 pending actions against Comerica Bank. As a result, the Company received proceeds of approximately $54,500,000 from the settlement during the three months ended March 31, 2022. The allocation of the proceeds is as follows ($ in thousands):
Trust's net portion
| | $ | 24,815 | | Payable to non-contributing claimants | | | 15,600 | | Payable for approved legal fees and litigation costs | | | 13,960 | | Payable for incentive awards | | | 100 | | Payable for administrative costs relating to non-contributing claimants | | | 25 | | Total | | $ | 54,500 | |
All of the proceeds have been distributed according to the settlement except for approximately $13,000 payable to non-contributing claimants and approximately $25,000 payable for court approved notice and administrative costs as the Company has not received all of the necessary documentation.
14) | Commitments and Contingencies |
As of DecemberMarch 31, 2019,2022, the Company had construction contracts under which an aggregate of approximately $52 million$5,200,000 was unpaid, including future costs and amounts payable.unpaid.
The Company hashad a lease for its office space that expiresexpired on August 31, 2020.2021. The amount ofCompany had 1 three-month option to extend the lease. On June 4, 2021, the Company opted not to extend its existing lease and entered into a new office lease at a different location. The new lease is for the period from August 1, 2021 through July 31, 2022. The annual rent is approximately $43,000 plus common area maintenance charges. The Company has 2 six-month options to extend the lease. The Company paid approximately $55,000 for the lease year ending July 31, 2022 relating to prepaid rent, common area maintenance charges and a security deposit for the new lease during the year ended June 30, 2021. During the three months ended March 31, 2022 and 2021, approximately $0 and $76,000, respectively, and during the nine months ended March 31, 2022 and 2021, approximately $50,000 and $221,000, respectively were paid as rent, including common area maintenance and parking charges, during the three and six months ended December 31, 2019 was approximately $68,000 and $135,000, respectively.charges.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. | Financial Statements (Continued) |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements
| (Unaudited)
|
The Company is not presently the defendant in any material litigation nor, to the Company’s knowledge, is any material litigation threatened against the Company.
The Company is not aware of any environmental liabilities that it believes would have a material adverse effect on its net assets in liquidation.
The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.
On January 2, 2020, aDistributions
During the period from April 1, 2022 through May 13, 2022, as (a) claims were resolved, (b) claims were recently allowed, (c) addresses for holders of uncashed distribution in the amount of approximately $53,426,000checks were obtained, (d) pending avoidance actions were resolved and (e) further beneficiary information was declared which represents $4.50 per Class A Interest. Totalreceived, distributions of approximately $51,188,000$92,000 were paid on January 10, 2020. A deposit of approximately $2,238,000 was made into a restricted cash account for distributions (a) payable in respect of Class A Interests that in the future may be issued upon the allowance of currently disputed claims, (b) payable to holders of Class A Interests who failed tofrom the restricted cash distribution checks mailed in respect ofaccount and distributions payable were reduced by the initial distribution and (c) payable in respect of allowed Class A Interests, the legal owners of which remain unidentified.same amount.
The following table summarizes the Trust’s claims relating to Class A and Class B Interests during the period from January 1, 2020 through February 12, 2020:
Liquidation Trust Interests | | Class A | | | Class B | | | | | | | | | Reserved for unresolved claims at January 1, 2020 | | | 356,191 | | | | 7,957 | | | | | | | | | | | Allowed claims | | | - | | | | - | | | | | | | | | | | Disallowed claims | | | (79,071 | ) | | | - | | | | | | | | | | | Reserved for unresolved claims at February 12, 2020 | | | 277,120 | | | | 7,957 | |
During the period from JanuaryApril 1, 20202022 through February 12, 2020,May 13, 2022, as claims were allowed, distributions of approximately $10,000 were paid from the restricted cash account relating to the Class A Interests that were issued. In addition, approximately $67,000 was paid from the restricted cash account relating to holders of Class A Interests that provided a current address or the legal owner of the Class A Interest was identified. As a result of claims being disallowed or Class A Interests being cancelled, approximately $652,000$52,000 was released from the restricted cash account and distributions payable waswere reduced by the same amount.
PART I. FINANCIAL INFORMATION (CONTINUED)
Table of Contents
| PART I. FINANCIAL INFORMATION (CONTINUED) | Item 1. | Financial Statements (Continued) | | |
Woodbridge Liquidation Trust and Subsidiaries
Notes to Consolidated Financial Statements As of DecemberFor the Three and Nine Months Ended March 31, 20192022 and 2021
(Unaudited) | (Unaudited)
|
Sales of Real Estate Assets
During the period from JanuaryApril 1, 20202022 through February 12, 2020,May 13, 2022, approximately $1,800,000 relating to a pending sale was released from escrow. During the period from April 1, 2022 through May 13, 2022, the Company sold one lot and settled one secured loan and realized net proceedsincreased construction contracts by approximately $106,000.
Causes of approximately $833,000. As of February 12, 2020, the Company had one single-family home under contract. Although the contingencies relating to this pending sale have been removed, no assurance can be given that the sale will close.Action
During the period from JanuaryApril 1, 20202022 through February 12, 2020,May 13, 2022, the Trust recorded approximately $860,000$23,000 from the settlement of Causes of Action. The Company recorded approximately $42,000$1,000 as the amount due to the liquidation trustee.Liquidation Trustee on account of such settlements.
A tender offer by Contrarian Liquidity Option, LLC and its affiliates to purchase up to 2,015,305 outstanding Class A Interests, which offer commenced on or about December 12, 2019 and was thereafter amended, expired at 5:00PM New York City time on January 31, 2020. Based on public filings byRelated Party Transactions
During the offeror, an aggregate of 22,637.19 Class A Interests were tendered and received, and not validly withdrawn, priorperiod from April 1, 2022 through May 13, 2022, the Trust paid approximately $1,241,000 to the expiration and the offeror accepted for payment all such Class A Interests.Liquidation Trustee.
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PART I. FINANCIAL INFORMATION (CONTINUED) Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of changes in net assets and net assets in liquidation should be read in conjunction with the accompanying unaudited consolidated financial statements of Woodbridge Liquidation Trust and the related notes thereto. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries, as used herein, are defined in Note 1 to the consolidated financial statements and are collectively referred to herein as the Company.“the Company”.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include, without limitation, financial guidance, and projections and statements with respect to expectationsexpectation of future financial condition, changes in net assets in liquidation, cash flows, plan,plans, targets, goals, objectives and performance of the Company.Trust. Such forward-looking statements also include statements that are preceded by, followed by, or that include the words “believes”, “estimates”, “plans”, “expects”, “intends”, “is anticipated”, “will continue”, “project”, “outlook”, “evaluate”, “may”, “could”, “would”, “should” and similar expressions, and all other statements that are not historical facts. All such forward-looking statements are based on the Trust’s current expectations and involve risks and uncertainties which may cause actual results to differ materially from those set forth in such statements. Such risks and uncertainties include the possibilityamount of properties being sold for amounts that differ from the ascribed values,sales proceeds, timing of sales of real estate assets, timing and amount of funds needed to complete construction of single-family homes, amount of general and administrative costs, the number and amount of successful litigationslitigation and/or settlements and the ability to recover thereon, the amount of funding required to continue litigations,litigation, the continuing impact of the COVID-19 pandemic, interest rates, adverse weather conditions in the regions in which properties to be sold are located, economic and political conditions, changes in tax and other governmental rules and regulations applicable to the Trust and its subsidiaries and other risks and uncertainties identified in Part I. Financial Information, Item 1A. Risk Factors of the Company’s Registration StatementAnnual Report on Form 10, as amended,10-K, or contained in any of the Trust’s subsequent filings with the Securities and Exchange Commission (SEC).SEC including in Part II. Other Information, Item 1A. Risk Factors of this Form 10-Q. These risks and uncertainties are beyond the ability of the CompanyTrust to control, and in many cases, the Trust cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.
In connection with the “safe harbor” provisions of the Securities Act of 1933 and the Exchange Act, the Trust has identified and is disclosing important factors, risks and uncertainties that could cause its actual results to differ materially from those projected in forward-looking statements made by the Trust, or on the Trust’s behalf. (See “Part II. Other Information, Item 1A. Risk Factors” of this Form 10-Q.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of the Trust’s subsequent filings with the SEC. Because of these factors, risks and uncertainties, the CompanyTrust cautions against placing undue reliance on forward-looking statements. Although the CompanyTrust believes that the assumptions underlying the forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, the CompanyTrust does not undertake any obligationobligations to modify, update or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in or revisions of underlying assumptions, or changes in circumstances arising after the date that the forward-looking statements werestatement was made.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Overview
Pursuant to the Plan, the Trust was formed on February 15, 2019 to hold, either directly or indirectly through the Wind-Down Entity and the Wind-Down Subsidiaries, the assets and equity interests formerly owned by the Debtors. Each of the real properties formerly owned by the Debtors was, as of February 15, 2019, owned by one of the Wind-Down Subsidiaries. The purpose of the Wind-Down Entity and the Wind-Down Subsidiaries is to develop (as applicable), market and sell those properties to generate cash. Assets formerly owned by the Debtors other than real estate assets and certain cash were transferred to the Trust. The purpose of the Trust is to receive remittances of cash from the Wind-Down Entity, to resolve disputed claims, to prosecute the Causes of Action, to pay allowed unimpairedadministrative and priority claims, as defined in the Plan, and, subject to the payment of Trust expenses and the retention of various reserves, to make distributions of cash to Interestholders in accordance with the Plan.
The Trust operates pursuant to the Plan and the Trust Agreement. The Trust was formed as a Delaware statutory trust and is administered by the liquidation trusteeLiquidation Trustee under the supervision of its Supervisory Board. The Wind-Down Entity, a wholly-owned subsidiary of the Trust, operates pursuant to the Plan and the Wind-Down Entity LLC Agreement. The Wind-Down Entity was formed as a Delaware limited liability company and is administered by its Board of Managers, one of which is the chief executive officer. One member of the Board of Managers is also a member of the Supervisory Board of the Trust.
The Bankruptcy Court has retained certain jurisdictions regarding the Trust, the liquidation trustee,Liquidation Trustee, the Supervisory Board, the Wind-Down Entity, the Board of Managers, and assets of the Trust and the Wind-Down Entity, including the determination of all disputes arising out of or related to administration of the Trust and the Wind-Down Entity and its subsidiaries.
As of DecemberMarch 31, 2019 and February 12, 2020,2022, the number of Liquidation Trust Interests outstanding in each class is as follows:
Class of Interest | | Number Outstanding | |
| | | | Class A Liquidation Trust Interests | | | 11,516,27411,516,439 | |
| | | | | Class B Liquidation Trust Interests | | | 675,839675,617 | |
For each of the classes of Liquidation Trust Interests, the number of Liquidation Trust Interests outstanding will increase to the extent that the disputed claims become allowed claims. On December 24, 2019,In addition, the Trust’s Registration Statement on Form 10 became effective under the Exchange Act.As a result, the Class Anumber of Liquidation Trust Interests became transferable onoutstanding will decrease to the extent that date.disputed claims are settled by cancelling previously issued Liquidation Trust Interests.
Since the Plan Effective Date through DecemberMarch 31, 2019,2022, the Wind-Down Subsidiaries have disposed of approximately 97143 properties for aggregate net sales proceeds of approximately $183.73$481.73 million. During the period from JanuaryApril 1, 20202022 through February 12, 2020,May 13, 2022, the Wind-Down Subsidiaries sold one lot and settled one secured loan and realizedCompany did not sell any real estate assets. As of March 31, 2022, the Company owned seven real estate assets (including two single-family homes under construction) with a gross carrying value of approximately $100.54 million. Therefore, it is unlikely that the net proceeds for the three or nine months ended March 31, 2022 will be indicative of approximately $.83 million. As of February 12, 2020,future net proceeds, which are likely to be significantly lower. In addition, it may take longer to sell the properties than the Company had one single-family home under contract. Although the contingencies relatinghas estimated. The Company expects to this pending sale have been removed, no assurance can be given that the sale will close. There can be no assurance that the amount of net sales proceeds that the Company will receive in the future will be consistent with the amount received from the Plan Effective Date through December 31, 2019 or during the period from January 1, 2020 through February 12, 2020. The Wind-Down Entity expects thatcomplete the liquidation of the Wind-Down Subsidiaries’its assets will be completed during the fiscal year ending June 30, 2022.2024.
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PART I. FINANCIAL INFORMATION (CONTINUED)Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The Trust is required to be terminated, and the liquidation trustee discharged from duties, at such time as: (a) the liquidation trustee determines that the pursuit of additional causes of action held by the Trust is not likely to yield sufficient additional proceeds to justify further pursuit of such causes of action and (b) all distributions required to be made by the liquidation trustee to the holders of allowed claims and to the Interestholders under the Plan and the Trust Agreement have been made. Notwithstanding the above, the Trust must be terminated no later than February 15, 2024 unless the Bankruptcy Court, upon motion made within the six month period before such date, determines that a fixed period extension is necessary to facilitate or complete the recovery on, and liquidation of, the Trust’s assets, except that the Bankruptcy Court may not grant an extension that, together with any prior extensions, exceeds three years unless the Trust has obtained a favorable letter ruling from the Internal Revenue Service to the effect that the further extension would not adversely affect the status of the Trust as a liquidating trust for federal income tax purposes.
Discussion of the Company’s Operations
The Trust, the Wind-Down Entity and the Wind-Down Subsidiaries were formed on February 15, 2019 and had no operations before that date. Therefore, this discussion does not contain comparisons between periods.Three months ended March 31, 2022
The following is a summary of the Company's operations during the three months ended December 31, 2019:
Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended March 31, 2022 ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | Net assets in liquidation as of December 31, 2021 | | $ | 3,203 | | | $ | 124,302 | | | $ | 127,505 | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying | | | | | | | | | | | | | value of assets and liabilities, net | | | - | | | | - | | | | - | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 8,266 | | | | 8,266 | | Distributions (declared) reversed, net | | | - | | | | (39,509 | ) | | | (39,509 | ) | Net change in assets and liabilities | | | - | | | | (31,243 | ) | | | (31,243 | ) | | | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2022 | | $ | 3,203 | | | $ | 93,059 | | | $ | 96,262 | |
There was no change to Net assets in liquidation – Restricted for Qualifying Victims during the three months ended March 31, 2022.
Net assets in liquidation – All Interestholders decreased by approximately $31.24 million during the three months ended March 31, 2022. This decrease was due to an increase in the carrying value of assets and liabilities, net of approximately $8.27 million and distributions (declared) reversed, net of approximately $39.51 million.
The components of the approximately $8.27 million net change in the carrying value of assets and liabilities are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | Other settlement recoveries recognized, net (1)
| | $
| - | | | $
| 445 | | | $
| 445 | | Remeasurement of assets and liabilities, net | |
| - | | | | 7,627 | | | | 7,627 | | Other | | | - | | | | 194 | | | | 194 | | Change in carrying value of assets and liabilities, net | | $ | - | | | $ | 8,266 | | | $ | 8,266 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $22 ($ in thousands). |
During the three months ended March 31, 2022, the Company:
| o | Declared a distribution of $3.44 per Class A Interest, which totaled approximately $39.98 million. |
| o | Sold the rest of the gold Forfeited Assets for net proceeds of approximately $0.12 million. |
| o | Completed construction of one single-family home (642 St. Cloud). |
| o | Settled one secured loan for net proceeds of approximately $0.72 million. |
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $0.47 million. |
| o | Paid construction costs of approximately $1.80 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $0.66 million. |
| o | Paid general and administrative costs of approximately $4.04 million, including approximately $0.17 million of board member fees and expenses, approximately $1.84 million of payroll and other general and administrative costs and approximately $2.03 million of professional fees. |
For the three months ended DecemberMarch 31, 20192021
Net assets in liquidation, as of September 30, 2019 | | $ | 333,582 | | Change in assets and liabilities: | | | | | Change in carrying value of assets and liabilities, net | | | 960 | | Distributions reversed | | | 41 | | Net change in assets and liabilities | | | 1,001 | | | | | | | Net assets in liquidation, as of December 31, 2019 | | $ | 334,583 | |
22The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the three months ended March 31, 2021 ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | Net assets in liquidation as of December 31, 2021 | | $ | - | | | $ | 210,476 | | | $ | 210,476 | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 3,459 | | | | - | | | | 3,459 | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 1,974 | | | | 1,974 | | Distributions (declared) reversed, net | | | - | | | | (49,958 | ) | | | (49,958 | ) | Net change in assets and liabilities | | | - | | | | (47,984 | ) | | | (47,984 | ) | | | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2021 | | $ | 3,459 | | | $ | 162,492 | | | $ | 165,951 | |
PART I. FINANCIAL INFORMATION (CONTINUED)Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $1.00$3.46 million during the three month periodmonths ended DecemberMarch 31, 2019.2021.
Net assets in liquidation – All Interestholders decreased approximately $47.98 million during the three months ended March 31, 2021. This increasedecrease was due to changes in the carrying value of assets and liabilities, net of approximately $.96$1.97 million and distributions that were(declared) reversed, for disallowed claimsnet of approximately $.04$49.95 million.
The components of the approximately $3.46 million and $1.97 million net change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | | Recognition of Forfeited Assets | | $ | 3,459 | | | $ | - | | | $ | 3,459 | | Remeasurement of assets and liabilities, net | | | - | | | | 2,473 | | | | 2,473 | | Other settlement recoveries recognized, net (1) | | | - | | | | 1,326 | | | | 1,326 | | Carrying value in excess of sales proceeds | | | - | | | | (1,900 | ) | | | (1,900 | ) | Other | | | - | | | | 75 | | | | 75 | | Change in carrying value of assets and liabilities, net | | $ | 3,459 | | | $ | 1,974 | | | $ | 5,433 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $72 ($ in thousands). |
During the three months ended March 31, 2021, the Company:
| o | Declared a distribution of $4.28 per Class A Interest, which totaled approximately $50.01 million. |
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $1.28 million. |
| o | Recorded Forfeited Assets with an estimated net realizable value of approximately $3.46 million. |
| o | Paid construction costs of approximately $5.77 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $0.77 million. |
| o | Paid general and administrative costs of approximately $4.29 million, including approximately $0.21 million of board member fees and expenses, approximately $1.90 million of payroll and other general and administrative costs and approximately $2.18 million of professional fees. |
Nine months ended March 31, 2022
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the nine months ended March 31, 2022 ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | | Net assets in liquidation as of June 30, 2021 | | $ | 3,167 | | | $ | 126,373 | | | $ | 129,540 | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 36 | | | | - | | | | 36 | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 45,922 | | | | 45,922 | | Distributions (declared) reversed, net | | | - | | | | (79,236 | ) | | | (79,236 | ) | Net change in assets and liabilities | | | - | | | | (33,314 | ) | | | (33,314 | ) | | | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2022 | | $ | 3,203 | | | $ | 93,059 | | | $ | 96,262 | |
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $0.04 million during the nine months ended March 31, 2022.
Net assets in liquidation – All Interestholders decreased by approximately $33.31 million during the nine months ended March 31, 2022. This decrease was due to an increase in the carrying value of assets and liabilities, net of approximately $45.92 million and distributions (declared) reversed, net of approximately $79.23 million.
The components of the approximately $0.04 million and $45.92 million of the net change in carrying value of assets and liabilities are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | Causes of Action, net(1) : | | | | | | | | | | Comerica Bank | | $ | - | | | $ | 23,575 | | | | 23,575 | | Other settlement agreements | | | - | | | | 1,777 | | | | 1,777 | | Sales proceeds in excess of carrying value | | | - | | | | 6,460 | | | | 6,460 | | Remeasurement of assets and liabilities, net | | | 36 | | | | 13,428 | | | | 13,464 | | Other | | | - | | | | 682 | | | | 682 | | Change in carrying value of assets and liabilities, net | | $ | 36 | | | $ | 45,922 | | | $ | 45,958 | |
(1) | Net of the 5% payable to the Liquidation Trustee of approximately $1,241 for Comerica Bank and $93 for other settlement agreements ($ in thousands). |
Reduction of state, local and other taxes | | $ | 2,890 | | Settlement recoveries recognized, net | | | 1,402 | | Sales proceeds in excess of carrying value | | | 1,424 | | Remeasurement of assets and liabilities, net | | | (5,040 | ) | Other | | | 284 | | Change in carrying value of assets and liabilities, net | | $ | 960 | |
During the threenine months ended DecemberMarch 31, 2019,2022, the Company:
| -o | Declared two distributions, both of $3.44 per Class A Interest, which totaled approximately $80.00 million. |
| o | Sold the wine and the gold Forfeited Assets for net proceeds of approximately $0.49 million. |
| o | Completed construction of one single-family home (642 St. Cloud). |
| o | Sold four single-family homes six lots and one other property and collected a principal paydown on onesettled two secured loanloans for total net proceeds of approximately $82.97$64.40 million. One of the single-family homes was under construction. |
| o | Recorded approximately $24.81 million from the settlement of the two pending actions against Comerica Bank, the California Class Action and the Delaware Adversary Action. |
| o | Signed agreements to settle other Causes of Action for payment to the Trust of approximately $1.87 million. |
| o | Paid construction costs of approximately $9.47 million relating to single-family homes under development. |
| o | Paid holding costs of approximately $1.90 million. |
| o | Paid general and administrative costs of approximately $12.56 million, including approximately $0.56 million of board member fees and expenses, approximately $4.68 million of payroll and other general and administrative costs and approximately $7.32 million of professional fees. |
For the nine months ended March 31, 2021
The following is a summary of the Consolidated Statement of Changes in Net Assets in Liquidation for the nine months ended March 31, 2021 ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | | Net assets in liquidation as of June 30, 2020 | | $ | - | | | $ | 264,517 | | | $ | 264,517 | | | | | | | | | | | | | | | Change in assets and liabilities: | | | | | | | | | | | | | Restricted for Qualifying Victims - change in carrying value of assets and liabilities, net | | | 3,459 | | | | - | | | | 3,459 | | | | | | | | | | | | | | | All Interestholders: | | | | | | | | | | | | | Change in carrying value of assets and liabilities, net | | | - | | | | 7,529 | | | | 7,529 | | Distributions (declared) reversed, net | | | - | | | | (109,554 | ) | | | (109,554 | ) | Net change in assets and liabilities | | | - | | | | (102,025 | ) | | | (102,025 | ) | | | | | | | | | | | | | | Net assets in liquidation, as of March 31, 2021 | | $ | 3,459 | | | $ | 162,492 | | | $ | 165,951 | |
Net assets in liquidation – Restricted for Qualifying Victims increased by approximately $3.46 million during the nine months ended March 31, 2022.
Net assets in liquidation – All Interestholders decreased approximately $102.02 million during the nine months ended March 31, 2021. This decrease was due to changes in the carrying value of assets and liabilities, net of approximately $7.53 million and distributions (declared) reversed, net of approximately $109.55 million.
The components of the approximately $3.46 million and $7.53 million change in the carrying value of assets and liabilities, net are as follows ($ in thousands):
| | Restricted for Qualifying Victims | | | All Interestholders | | | Total | | | | | | | | | | | | | | | Recognition of Forfeited Assets | | $ | 3,459 | | | $ | - | | | $ | 3,459 | | Settlement recoveries recognized, net (1) | | | - | | | | 8,013 | | | | 8,013 | | Carrying value in excess of sales proceeds | | | - | | | | (1,540 | ) | | | (1,540 | ) | Remeasurement of assets and liabilities, net | | | - | | | | 2,775 | | | | 2,775 | | Adjustment to insurance claim receivable | | | - | | | | (1,900 | ) | | | (1,900 | ) | Other | | $ | - | | | $ | 181 | | | $ | 181 | | Change in carrying value of assets and liabilities, net | | $ | 3,459 | | | $ | 7,529 | | | $ | 10,988 | |
(1) | -Net of the 5% payable to the Liquidation Trustee of approximately $462 ($ in thousands). |
During the nine months ended March 31, 2021, the Company:
| o | Declared three distributions, two each of $2.56 and one of $4.28 per Class A Interest, which totaled approximately $109.93 million. |
| o | Sold five single-family home, two lots and eleven other properties for net proceeds of approximately $121.16 million. One of the single-family homes was under construction and the buyer assumed the remaining obligations to complete the construction of the property of approximately $11.25 million. |
| o | Signed agreements to settle Causes of Action for payment to the Trust of approximately $1.48$8.44 million. |
| -o | Recorded Forfeited Assets with an estimated net realizable value of approximately $3.46 million. |
| o | Paid construction costs of approximately $11.45$22.04 million relating to single-family homes under development. |
| -o | Paid holding costs of approximately $5.16$4.13 million. |
| -o | Paid general and administrative costs of approximately $6.06$14.39 million, including approximately $.31$0.68 million of board member fees and expenses, approximately $1.17$6.35 million of payroll and other general and administrative costs and approximately $4.58$7.36 million of post Plan Effective Date professional fees. |
| - | Paid professional fees incurred before the Plan Effective Date of approximately $.36 million.
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The following is a summary of the Company's operations during the six months ended December 31, 2019:
Consolidated Statement of Changes in Net Assets in Liquidation
For the Six months ended December 31, 2019
Net assets in liquidation, as of June 30, 2019 | | $ | 329,971 | | Change in assets and liabilities: | | | | | Change in carrying value of assets and liabilities, net | | | 4,535 | | Distributions reversed | | | 77 | | Net change in assets and liabilities | | | 4,612 | | Net assets in liquidation, as of December 31, 2019 | | $ | 334,583 | |
PART I. FINANCIAL INFORMATION (CONTINUED)Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Net assets in liquidation increased approximately $4.61 million during the six month period ended December 31, 2019. This increase was due to changes in the carrying value of assets and liabilities of approximately $4.53 million and distributions that were reversed for disallowed claims of approximately $.08 million. The components of the net changes in assets and liabilities are as follows ($ in thousands):
Reduction of state, local and other taxes | | $ | 2,890 | | Settlement recoveries recognized, net | | | 3,476 | | Sales proceeds in excess of carrying value | | | 3,291 | | Remeasurement of assets and liabilities, net | | | (5,314 | ) | Other | | | 192 | | Change in carrying value of assets and liabilities, net | | $ | 4,535 | |
During the six months ended December 31, 2019, the Company:
| - | Sold eight single-family homes, 16 lots, settled two secured loans, sold two other properties and collected a principal paydown on one secured loan for total net proceeds of approximately $103.93 million.
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| - | Signed agreements to settle Causes of Action for payment to the Trust of approximately $3.66 million
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| - | Paid construction costs of approximately $25.54 million relating to single-family homes under development.
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| - | Paid holding costs of approximately $6.58 million.
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| - | Paid general and administrative costs of approximately $11.57 million, including approximately $.59 million of board member fees and expenses, approximately $2.54 million of payroll and other general and administrative costs and approximately $8.44 million of post Plan Effective Date professional fees.
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| - | Paid professional fees incurred before the Plan Effective Date of approximately $.36 million.
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Liquidity and Capital Resources
Liquidity
The Company’s primary sources for meeting its capital requirements are its cash and cash equivalents, availability under WB Propco, LLC’s revolving line of credit (LOC),the LOC, proceeds from the sale of its real estate assets and recoveries onfrom Causes of Action. The Company’s primary uses of funds are and will continue to be for distributions, development costs, holding costs and general and administrative costs, all of which the Company expects to be able to adequately fund over the next 12twelve months from its primary sources of capital.
Capital Resources
In addition to consolidated cash and cash equivalents at DecemberMarch 31, 20192022 of approximately $101.80$43.49 million (of which approximately $2.97$9.10 million is restricted), the capital resources available to the Company and its uses of liquidity are as follows:
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