UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549-1004

FORM 10-Q

For the quarterly period ended September 30, 2021March 31, 2022

For the transition period from ___________ to ___________

Commission file number 000-55783

Commission file number 000-55784

214-560-5404

(Registrants’ telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting company filers, or emerging growth companies. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes ☐      No ☒

The registrants do not have any voting or non-voting equity securities.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrants have filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒      No ☐

LIFE PARTNERS POSITIONS HOLDERS TRUST

TABLE OF CONTENTS

LIFE PARTNERS POSITION HOLDER TRUST

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements

LIFE PARTNERS POSITION HOLDER TRUST

CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONS

See accompanying notes to consolidated financial statements

LIFE PARTNERS POSITION HOLDER TRUST

CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN NET ASSETS

See accompanying notes to consolidated financial statements

LIFE PARTNERS POSITION HOLDER TRUST

CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWS

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31,

See accompanying notes to consolidated financial statements

LIFE PARTNERS POSITION HOLDER TRUST

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 - Operations and Summary of Significant Accounting Policies

Operations

Life Partners Position Holder Trust (the “Position Holder Trust” or the “Trust”) was created on December 9, 2016, pursuant to the Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al., dated as of October 27, 2016, which we call the “Plan,” that was confirmed by order of the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (“Bankruptcy Court”) on November 1, 2016, as amended. The Trust holds and manages individual insurance policies from third parties.

In connection with its formation and the inception of its activities on December 9, 2016, the Trust issued a total of 1,012,355,948 units of beneficial interest (the “Units”) to the fractional interest holders having claims in the Debtors bankruptcy pursuant to the Plan. Each fractional interest holder received a Unit for each dollar of expected death benefit such holder contributed to the Trust. As of September 30, 2021,March 31, 2022, and December 31, 2020,2021, there were 6,4156,498 and 6,4976,454 holders of the 1,234,577,9781,241,056,320 and 1,226,958,714 Units1,236,955,963 units outstanding, respectively. The Trust owns a portfolio of life insurance policies; a portion of the policies is encumbered by the beneficial interest of continuing fractional interest holders. At September 30, 2021 and December 31, 2020, theThe Trust’s portion of the portfolio consists of positions in 2,6072,466 and 2,7392,493 life insurance policies, with aggregate fair values of $191.8$190.6 million and $159.2$190.3 million and aggregate face values of approximately $0.9 billion on March 31, 2022, and $1.0 billion, respectively.December 31, 2021. The fair value of the interests in the life insurance policies owned by continuing fractional interest holders are not reflected in the Trust’s financial statements.

TheUnit Redemption

On September 16, 2020, the U.S. Bankruptcy Court organizedfor the Northern District of Texas approved the Trustee’s Motion to Approve Redemption of Additional Units and Member Interests, granting the Trustee the authority to redeem Trust Units in the Life Partners Position Holder Trust and Member Interests in the Life Partners IRA Holder Partnership, LLC, at the discretion of the Trustee and Manager, when financially or administratively practicable. In first quarter of 2022, the Trust redeemed 65,086 Units for a total of $14.9 thousand. In first quarter of 2021, the Trust redeemed 1,215,113 Units for a total of $230.9 thousand.

Included in the redemption in the first quarter of 2021, the Trust redeemed 788,765 units for $149.9 thousand held by the Life Partners Creditors’ Trust. The Life Partners Position Holder Trust and the Partnership in orderLife Partners Creditors’ Trust share the same Trust Governing Board. The redemption was executed to liquidatereduce the assetsadministrative burden of the Debtors in a manner calculatedLife Partners Position Holder Trust and to conserve, protect and maximizefacilitate the valueexpected termination of the assets,Life Partners Creditor’s Trust. The units were redeemed at the same price per unit as all other redemptions performed at the same or similar time and to distribute the proceeds thereof to the Trust’s securities holders in accordanceline with the Plan. The Trust and IRA Partnership have no other business interests nor operations and will not acquire any additional life insurance policies inMotion approved by the future. The Trust’s beginning assets and liabilities were contributed pursuant toU.S. Bankruptcy Court for the Plan asNorth District of December 9, 2016.Texas.

Covid-19 Pandemic Update

The novel coronavirus (COVID-19) pandemic has not had a material adverse effect on the Trust’s operations during the nine monthsquarter ending September 30, 2021.March 31, 2022. The extent to which the Trust will be impacted by the outbreak will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact, among other things.

COVID-19 has not impacted the Trust’s ability to realize maturity receivables and pay its premium obligations or other expenses. The Trust will continue to monitor the impact of risk associated with mortality experience, default on future premium obligations by the continuing fractional holders which would increase the Trust’s premium obligations and any risk associated with default on payment obligations by the insurance policy carriers.

Tender Offer

On June 24,2021, CFunds Life Settlement, LLC (“Contrarian”) As of March 31, 2022, management has not made an offer to purchase up to 66,964,507 interests in the Life Partners Position Holder Trust (the “Trust Interests”) and up to 99,702,160 interests in Life Partners IRA Holder Partnership, LLC (the “Partnership Interests”) at a purchase price of $0.15 per Unit (the “Offer to Purchase”). The Trustee determined that the Offer to Purchase complies with the Plan, but the Trust and the IRA Partnership expressed no opiniondetermination as to whether any investor should accepthow COVID-19 has impacted the Trust’s mortality figures and there remains uncertainty if or reject the Offer to Purchase. The Offer expired August 12, 2021. Pursuant to the Offer, Contrarian purchased 33,468,807 Trust Interests, of which 19,804,510 were related to those heldhow much future mortality might be impacted by the Partnership Interests validly tendered and not validly withdrawn. The transfer of all Interests was effected on August 31, 2021.pandemic.

Unit Redemption

On September 16, 2020, the U.S. Bankruptcy Court for the Northern District of Texas approved the Trustee’s Motion to Approve Redemption of Additional Units and Member Interests, granting the Trustee the authority to redeem Trust Units in the Life Partners Position Holder Trust and Member Interests in the Life Partners IRA Holder Partnership, LLC, at the discretion of the Trustee and Manager, when financially or administratively practicable. The Trust redeemed 103,612 Units for a total of $16.2 thousand and 10,183,928 units for a total of $1.9 million for three months ending September 30, 2021, and September 30, 2020, respectively.

The Trust redeemed 2,739,715 Units for a total of $469.7 thousand and 10,933,345 units for a total of $2.1 million for nine months ending September 30, 2021, and September 30, 2020, respectively.

Included in the redemption total above for nine months ending September 30, 2021, the Trust redeemed 1,156,938 units for $220.1 thousand held by the Life Partners Creditors’ Trust.

The Life Partners Position Holder Trust and the Life Partners Creditors’ Trust share the same Trust Governing Board. The redemption was executed to reduce the administrative burden of the Life Partners Position Holder Trust and to facilitate the expected termination of the Life Partners Creditor’s Trust. The units were redeemed at the same price per unit as all other redemptions performed at the same or similar time and in line with the Motion approved by the U.S. Bankruptcy Court for the North District of Texas.

Transition of Securities Intermediary

Upon the formation of the Trust, and pursuant to a Securities and Deposit Accounts Agreement and Securities and Deposit Accounts Control Agreement, Advanced Trust and Life Escrow Services LTA (“ATLES”), was designated by the Trust to serve as securities intermediary and depository for the Policies. In August 2021, in order to provide for administrative efficiency and to position the Policies for eventual disposition, the Trust formed two entities, PHT Holding I, LLC and PHT Holding II, LLC (the “PHT Holding Entities”), to replace ATLES. The Trust holds 100 percent of the outstanding membership units of the PHT Holding Entities. Upon the completion of the transfers of the Policies, the PHT Holding Entities will maintain custody and control of the Policies and related deposit accounts pending disbursement of Policy proceeds upon maturity in accordance with instructions provided to it by the Trustee. PHT Holding I, LLC will be the owner for Life Settlement policies and PHT Holding II, LLC will be the owner for Viatical policies.

As a part of the transfer of the Policies to the PHT Holding Entities, the Trust entered into an amendment of its Servicing Agreement with Northstar Capital Management, LLC (“Northstar”), and also entered into a Policy and Administration Agent Agreement with Northstar. Under these agreements, Northstar was engaged to complete the beneficiary and ownership transfer of the Policies, to obtain new third-party authorizations for the administration of the Policies, and to act as the PHT entities’ premium and maturity relay agent.

As compensation for its services under the amended Servicing Agreement, Northstar will receive an additional payment in the amount of $1,000 per each policy for which the transfer to the PHT Holding Entities is completed. As compensation under the Policy and Administration Agent Agreement, Northstar will receive the fixed sum of $5,000 per month, beginning upon the commencement of its services on August 17, 2021. The Trustee believes that the fees paid to Northstar are reasonable and customary, will result in overall cost savings and operational efficiency for the Trust, and will additionally provide flexibility in its ability to administer the Trust assets.

Distributions

On April 20,2021, the Trust paid the $25.0 million distribution, of which approximately $15.0 million was paid to the IRA Partnership, net of amounts owed by the Partnership to the Trust. The distribution was based on the number of Units held and deducting any unit holder obligations for unpaid premiums.

Subsequent to the end of the quarter, on October 4, 2021, the Trust announced in its newsletter the Trust's Governing Trust Board's and Trustee's decision to make a distribution of approximately $20.0 million to the holders of Units in the Trust, of which approximately $11.9 million was paid to the IRA Partnership, net of amounts owned by the Partnership to the Trust. The distribution was made on October 20, 2021, based on the number of Units held and deducting any holder obligations for unpaid premiums.

Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the consolidated financial statements of the Trust as of September 30, 2021,March 31, 2022 and for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 include all adjustments and accruals, consisting only of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP"(“GAAP”) have been condensed in or omitted from this report pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"“SEC”). These consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Trust'sTrust’s Annual Report on Form 10-K for the year ended December 31, 2020,2021 and the Plan.

The Trust’s primary purpose is the liquidation of the Trust’s assets and the distribution of proceeds to its beneficial interest holders. The Trust expects that fulfilling its purpose requires a significant amount of time, and that the Trust will have significant ongoing operations during that period due to the nature of its assets and its plan to maximize the proceeds to its beneficiaries by maintaining the majority of its life insurance policies until maturity. As a result, the Trust has concluded that its liquidation is not imminent, in accordance with the definitions under accounting principles generally accepted in the United States of America and has not applied the liquidation basis of accounting in presenting its financial statements. The Trust will continue to evaluate its operations to determine when its liquidation becomes imminent, and the liquidation basis of accounting is required.

Basis of Consolidation

The consolidated financial statements of Life Partners Position Holders Trust include the accounts of the Life Partners Position Holders Trust and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Investments in Life Insurance Policies

The Trust accounts for its interests in life insurance policies at fair value in accordance with ASC 325-30, Investments in Insurance Contracts.Contracts. Any resulting changes in fair value estimates are reflected in operations in the period the change becomes apparent.

Fair Value of Life Insurance Policies

The Trust follows ASC 820, Fair Value Measurements and Disclosures, in estimating the fair value of its life insurance policies, which defines fair value as an exit price representing the amount that would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, the guidance establishes a three-level, fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Trust’s investments in life insurance policies are considered to be Level 3 as there is currently no active market where the Trust is able to observe quoted prices for identical assets and the Trust’s valuation model incorporates significant inputs that are not observable.

The Trust’s valuation of life insurance policies is a critical estimate within the financial statements. The Trust currently uses a probabilistic method of valuing life insurance policies, which the Trust believes to be the preferred valuation method in its industry. The Trust calculates the assets’ fair value using a present value technique to estimate the fair value of the projected future cash flows. The most significant assumptions in estimating the fair value are the Trust’s estimate of the insureds’ longevity, anticipated future premium obligations and the discount rate. See Note 6, “Fair Value Measurements.”

Income Recognition

The Trust’s investments in life insurance policies are its primary source of income. Gain or loss is recognized from ongoing changes in the portfolio’s estimated fair value, including any gains or losses at maturity. Gains or losses from maturities are recognized onat receipt of an insured party’sa death notice or verified obituary for an insured party and determined based on the difference between the death benefit and the policy’s estimated fair value of the policy at maturity.

Premiums Receivable

The Trust assumed the Debtors’ receivables related to life insurance policy premiums and service fees that were paid to the Debtors on behalf of fractional interest holders prior to the Trust’s effective date. After December 9, 2016, the policy premiums allocable to continuing fractional interest holders are those persons'persons’ obligations and not the Trust. If a continuing fractional interest holder defaults on future premium obligations, such position is deemed contributed to the Trust in exchange for the number of Units provided by the Plan.

The Trust maintains an allowance for doubtful accounts for estimated losses resulting from the inability to collect premiums and service fees receivable. Such estimates are based on the position holder’s payment history and other indications of potential uncollectability. After all attempts to collect a receivable have failed, receivables are written off against the allowance. At September 30, 2021March 31, 2022, and December 31, 2020,2021, the allowance for doubtful accounts was $0.4$0.3 million and $1.0 million respectively, which fully offset receivables assumed fromoffsets the Debtors on the effective date.recorded receivables. Outstanding receivable balances may be recoverable pursuant to the Trustee’s set-off rights under the Plan.

Maturities Receivable

Maturities receivablereceivables consist of the Trust’s portion of life insurance policy maturities that occurred, but payment was not yet received as of the end of the reporting period.

Premium Liability

Premium liabilities are funds in escrow on behalf of continuing fractional holders for future payment of their premium obligations. If such funds are not used for such continuing fractional holder’s premium payments, they are refunded to the respective continuing fractional holder.

Maturity Liability

Maturity liabilities are maturities collected on behalf of continuing fractional holders pending payment to those fractional holders, including a reserve for unallocated funds from the inception of Trust.

Distributions Payable

Distributions payable are distributions declared by the Trust pending payment to Unit holders.

Income Taxes

No provision for state or federal income taxes from operations has been made as the liability for such taxes is attributable to the Unit holders rather than the Trust. The Trust is a grantor trust with taxable income or loss passing through to the Unit holders. In certain instances, however, the Trust may be required under applicable state laws to withhold amounts otherwise due to Unit holders and remit them directly to state or federal tax authorities. Such payments on behalf of the Unit holders are deemed distributions to them.

The Financial Accounting Standards Board (the ”FASB”“FASB”) has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the financial statements. This requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trust’s tax returns to determine whether the tax positions are more-likely-than-not of being sustained when challenged or when examined by the applicable taxing authority. The Trust has no material uncertain income tax positions as of September 30, 2021,March 31, 2022, and December 31, 2020.2021.

Use of Estimates

The preparation of these financial statements, in conformity with GAAP, requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from these estimates and such differences could be material. The estimates related to the valuation of the life insurance policies represent significant estimates made by the Trust.

Risks and Uncertainties

The Trust encounters economic, legal, and longevity risk. The main components of economic risk potentially impacting the Trust are market risk, concentration of credit risk, and the increasing cost of insurance risk. The Trust’s market risks include interest rate risk and the risk of declines in valuation of the Trust’s life insurance policies, including declines caused by the selection of increased discount rates associated with the Trust’s fair value model. It is reasonably possible that future changes to estimates involved in valuing life insurance policies could change and materially affect future financial statements. Concentration of credit risk is the risk that an insurance carrier who has issued life insurance policies held by the Trust, does not remit the amount due under those policies due to the carrier’s deteriorating financial condition or otherwise. Another credit risk potentially impacting the Trust is the risk continuing fractional holders may default on their future premium obligations, increasing the Trust’s premium obligations. The increasing cost of insurance risk includes the carriers’ attempts to change a policy’s cost of insurance. While some cost of insurance increases are anticipated and taken into consideration in the Trust'sTrust’s forecasts, other cost of insurance increases are unilaterally imposed by the carrier.

The main components of legal risk are: (i) the risk that an insurer could successfully challenge its obligation to pay policy benefits at maturity; and (ii) that an insured’s family could successfully challenge the Trust’s entitlement to an insurance policy’s benefits. In either case, there is also risk that the Trust would be unable to recover the premiums it paid towards the insurance policy.

Longevity risk refers to the reasonable possibility that actual mortalities of insureds in the Trust’s portfolio extend over longer periods than are anticipated, resulting in the Trust paying more in premiums and delaying its collection of death benefits. Further, increased longevity may encourage additional continuing fractional holders to default on their premium obligations, increasing the Trust’s positions and its premium payment burden. The Trust management continues to evaluate any potential impact; however, such future revisions could have a material impact on the valuation.

The Trust maintains the majority of its cash and cash equivalents in several accounts with a commercial bank. Balances on deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”). However, from time to time the Trust'sTrust’s balances may exceed the FDIC insurable amounts.

Accounting Guidance Not Yet Adopted

In June 2016, the FASB issued new guidance (ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments), effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Notable amendments in this update will change the accounting for impairment of most financial assets and certain other instruments in the following ways:

The amendments in this ASU may be early adopted during any interim or annual period beginning after December 15, 2018. The Trust is currently evaluating the impact of this new accounting guidance on its financial statements and does not plan to early adopt.

Note 2 - Commitments and Contingencies

Litigation

In accordance with applicable accounting guidance, the Trust establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Trust does not establish an accrued liability. As a litigation or regulatory matter develops, the Trust, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Such matters will continue to be monitored for further developments.

Indemnification of Certain Persons

Under certain circumstances, the Trust may be required to indemnify certain persons performing services on behalf of the Trust for liability they may incur arising out of the indemnified persons'persons’ activities conducted on behalf of the Trust. There is no limitation on the maximum potential payments under these indemnification obligations and, due to the number and variety of events and circumstances under which these indemnification obligations could arise, the Trust is not able to estimate such maximum potential payments. The Trust has not made any payments under such indemnification obligations and no amount has been accrued in the accompanying financial statements for these indemnification obligations of the Trust. The Trust maintains insurance to mitigate its exposure to this contingency risk.

Note 3 - Restricted Cash and Cash Equivalents

The Plan imposes restrictions on the Trust to maintain certain funds in segregated accounts. As of September 30, 2021,March 31, 2022, and December 31, 2020,2021, the Trust has $109.4$102.3 million and $99.5$94.5 million, respectively, in restricted cash and cash equivalents. The restricted cash accounts are for: maturities, premium reserves, premium obligations, and collateral deposits.deposits on debt.

The following tables provide a reconciliation of cash, restricted cash and cash equivalents reported in the consolidated statement of cash flows to the consolidated balance sheets.