UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ |
Commission file number 000-55783
Commission file number 000-55784
Life Partners Position Holder Trust Life Partners IRA Holder Partnership, LLC |
(Exact name of registrant as specified in its charter) |
Texas Texas | | 81-6950788 81-4644966 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2001 Bryan Street, Suite 1800, Dallas, TX | | 75201 |
(Address of principal executive offices) | | (Zip Code) |
Registrants’ telephone number: (214) 560-5404
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Position Holder Trust Interests
(Title of Class)
Continuing Fractional Interests
(Title of Class)
IRA Partnership Interests
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. 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):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company) | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has 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 registrant is a shell company (as defined in Rule 12b-2 of the 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 registrant has 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 ☐
DOCUMENTS INCORPORATED BY REFERENCE
None.
LIFE PARTNERS POSITION HOLDER TRUST
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
Table of Contents
Item 1. Description of Business
Life Partners Position Holder Trust (“Trust”) and Life Partners IRA Holder Partnership, LLC (“IRA Partnership” or “Partnership”) were created on December 9, 2016, as a result of bankruptcy proceedings initiated in 2015 by Life Partners Holdings, Inc., a Texas corporation, its wholly-owned subsidiary Life Partners, Inc., a Texas corporation, and its wholly-owned subsidiary LPI Financial Services, Inc., a Texas corporation (collectively, “Debtors”). From 1991 until 2014, Life Partners, Inc. was a specialty financial services company engaged in the business of purchasing individual life insurance policies from third parties by raising money from the offer and sale to investors of “fractional interests” in such policies.
The Bankruptcy Court for the Northern District of Texas created the Trust and IRA Partnership as part of the Debtors’ plan of reorganization to satisfy the claims of a creditor group that was comprised of approximately 22,000 holders of record (“Investors”), of over 100,000 “fractional interests” in life insurance policies on third parties (“Policies”), with a face amount of approximately $2.2 billion as of December 9, 2016. When used in this report, unless otherwise indicated, the terms “Registrants,” “we,” “us” and “our” refers to Life Partners Position Holder Trust and Life Partners IRA Holder Partnership, LLC together. “Trust” or “Position Holder Trust” refers to Life Partners Position Holder Trust. and the “IRA Partnership” refers to Life Partners IRA Holder Partnership, LLC.
The Bankruptcy
The Trust and IRA Partnership were formed pursuant to the Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al., dated as of October 27, 2016, known as the “Plan,” which was confirmed by the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division on November 1, 2016. The Plan became effective on December 9, 2016.
The primary purpose of the Trust is to liquidate the assets of the Debtors in a manner calculated to conserve, protect and maximize the value of the assets and to distribute the proceeds thereof to the Investors. The Position Holder Trust was established by the Bankruptcy Court as a liquidating trust, treated as a grantor trust for state law and federal income tax purposes. It has no authority to engage in the conduct of a trade or business, except to the extent reasonably necessary and consistent with its liquidating purpose. Upon completion of their liquidating purposes, the Trust and the IRA Partnership will be dissolved.
Detailed background information regarding the bankruptcy proceedings pursuant to which the Plan was developed is included in the Disclosure Statement for Third Amended Joint Plan, dated June 22, 2016.
The Debtors
Life Partners, Inc. was engaged in the business of: (i) acting as a life settlement provider by purchasing individual life insurance policies insuring the lives of terminally ill individuals or seniors from third parties. and (ii) raising money to purchase such policies by selling investment contracts or “fractional interests” to the Investors, including some whom purchased through their individual retirement accounts, or IRAs. Purchases made through an Investor’s IRA were denominated as promissory notes relating to Fractional Interests, called “IRA Notes.” The IRA Notes and Fractional Interests together are called the “Fractional Positions.”
Before the bankruptcy proceedings, Life Partners Holdings, Inc. and Life Partners, Inc. were defendants in numerous lawsuits commenced by the SEC, the State of Texas and certain investors who purchased Fractional Positions, which alleged numerous violations of various federal and state securities laws with respect to the unregistered sale of Fractional Positions and the filing of misleading periodic reports with the SEC. In December 2014, the SEC obtained a $38.7 million judgment against Life Partners Holdings, Inc., as well as judgments aggregating $8 million against two former officers. On January 20, 2015, Life Partners Holdings, Inc. filed for protection under the Bankruptcy Code, followed by Life Partners, Inc. and LPI Financial Services, Inc. The common stock of Life Partners Holdings, Inc. traded on the Nasdaq Global Select stock exchange until Nasdaq delisted it on June 1, 2015.
The Reorganization Plan
During the course of the bankruptcy proceedings, the Chapter 11 Trustee and the Official Committee of Unsecured Creditors developed an amended plan of reorganization, which was confirmed by the Bankruptcy Court. In developing the Plan, the Chapter 11 Trustee and the Debtors negotiated a settlement agreement of pending class action litigation. Under that agreement, Investors who held Fractional Positions were provided with options under the Plan to elect the treatment of their claims against the Debtors. Investors that owed any amounts to the Debtors regarding their Fractional Positions were provided with a “catch-up” process to preserve their Fractional Positions. Investors who paid such amounts by the deadline became eligible to make an election with respect to their Fractional Positions.
On June 24, 2016, the Bankruptcy Court approved the Disclosure Statement for the Plan and authorized the Chapter 11 Trustee and the Official Committee of Unsecured Creditors to solicit votes on the approval and acceptance of the Plan. After a contested confirmation hearing, the Bankruptcy Court confirmed the Plan on November 1, 2016.
The Plan became effective on December 9, 2016. Under the Plan, three new legal entities were created to implement the provisions of the Plan and to take required actions under the Plan:
· | Life Partners Position Holder Trust – The Position Holder Trust is a liquidating trust that owns the legal title to, and together with the Continuing Fractional Interest Holders, essentially all beneficial and equitable title in the Policies. The Trust will distribute the liquidation proceeds of those assets to the Trust beneficiaries and Continuing Fractional Interest Holders. In satisfaction of their respective claims against the Debtors, the Trust issued: (i) “Continuing Fractional Interests” to the holders of Fractional Interests who elected to continue their previous Fractional Interests in particular life insurance policies. (ii) beneficial interests called “Position Holder Trust Interests” to the holders of Fractional Interests who elected to pool their positions under the Position Holder Trust and (iii) new secured 15-year promissory notes to the IRA Holders, called “New IRA Notes,” secured by the right to receive payment from a sinking fund established under the Plan. |
| |
· | Life Partners IRA Holder Partnership, LLC – The IRA Partnership is a Texas limited liability company that issued limited liability company interests to certain IRA Holders in satisfaction of claims against the Debtors. The IRA Partnership holds Position Holder Trust interests that permit holders of IRA Partnership interests to receive proceeds from the liquidation of the Position Holder Trust. The IRA Partnership engages in no other business activity. |
| |
· | The Creditors’ Trust – The Plan also gave Investors an option to rescind their purchase of a Fractional Position and become holders of a Creditors’ Trust Interest. Life Partners Creditors’ Trust (“Creditors’ Trust”) is a liquidating trust that will (a) pursue litigation and other causes of action assigned to it under the Plan and (b) distribute the net proceeds collected by it to the holders of interests in the Creditors’ Trust. The Creditors’ Trust is administered by a different trustee. In 2021, the Creditors’s Trust was dissolved pursuant an order by The United States Bankruptcy Court For Northern District of Texas Forth Worth Division on March 29, 2021. |
Financing for the Position Holder Trust
Effective January 30, 2019, the Trust had a $15 million revolving credit facility with Veritex Community Bank of Dallas, Texas (Veritex Credit Facility), with an initial 2-year term and interest at 6%. Effective January 29, 2021, the Trust renewed the revolving credit facility for an additional 2-year term. As part of the renewal, the revolving credit facility was increased to $25.0 million and shall bear interest at the rate of 5% per annum. The Veritex Credit Facility will continue to be secured by a lien on the Position Holder Trust’s assets. There are no amounts outstanding as of December 31. 2021 and December 31, 2020.
The primary needs for working capital are to pay premiums on Policies and expenses relating to administration of the Trust and its assets. The Plan authorizes the use of collected death benefits, called the “Maturity Funds Facility,” from which the Trustee may borrow on a short-term revolving basis to fund its premium reserves. The Trust is also entitled to access the cash surrender value included in the beneficial ownership registered in its name to use for any purpose permitted by the Position Holder Trust Agreement, including to satisfy its share of the premium obligations relating to the Policies. If any such use results in a decrease in the death benefit payable under the related Policy, the decrease will be taken out of the Position Holder Trust’s share of the maturity proceeds of the Policy or, if the Trust’s share is insufficient, the Trust must make up the difference.
Administration and Operation
The Position Holder Trust will terminate when its Policy assets have all matured, have been abandoned or have been liquidated, and the Trust assets have been distributed in accordance with the Plan. The Plan originally anticipated that the Trust would terminate no later than December 9, 2026, unless extended by the Bankruptcy Court no more than four times, with each extension not exceeding five years. In 2019, the Trust requested and was granted a Motion by the Bankruptcy Court to extend the termination date to December 9, 2031. As upon the occurrence of the termination of the Trust and consent of the Bankruptcy Court, the Trustee will be discharged from his duties. Unlike the Trust, however, the IRA Partnership does not have an established termination date but is expected to be wound down by the Trustee as Manager when the liquidation of the Trust is complete.
The Position Holder Trust Agreement and the IRA Partnership Agreement contain limitation of liability and indemnification provisions with respect to the Trustee, the Governing Trust Board and the Advisory Committee, their members, designees, or any duly designated agent or representative of the Governing Trust Board and the Advisory Committee. The Trustee, Advisory Committee or Governing Trust Board are each authorized under the Plan to retain and consult with attorneys, accountants and agents, and the Trustee or a member of the Advisory Committee or Governing Trust Board will not be liable for any act taken, omitted to be taken, or suffered to be done in accordance with advice or opinions rendered by such professionals. Notwithstanding such authority, none of the Trustee, Governing Trust Board nor the Advisory Committee are under any obligation to consult with attorneys, accountants or agents, and a determination to not do so will not result in the imposition of liability on the Trustee, Governing Trust Board or Advisory Committee, or their members and/or designees, unless such determination is based on willful misconduct, gross negligence, or fraud.
The Trust and IRA Partnership have no employees, and none are expected in the future. Vida Capital, Inc. (“Vida”) was appointed as the servicing company under the Plan in connection with the maintenance and collection of benefits of the Policies and to provide investor account services, including maintaining the ownership registers for the Continuing Fractional Interests, Position Holder Trust Interests and IRA Partnership interests. As permitted under the Plan, Vida subcontracted the servicing agreement to its subsidiary, Magna Servicing, LLC (old “Servicing Company”). On September 10, 2019, the Life Partners Position Holder Trust entered into an agreement with Vida Capital, Inc. and Magna Servicing LLC to effectuate a termination of the policy services provided by them to the Trust, effective October 31, 2020. As part of the termination the Trust committed to pay Vida Capital, Inc a termination fee of $2.5 million. Starting November 1, 2020, NorthStar Life Services, LLC (new “Servicing Company”) took over the responsibility of policy services.
NorthStar Life Services, LLC (“NorthStar”) is a well-known and experienced servicer that has been providing servicing of life insurance policies since 2009. NorthStar Life Services, LLC is owned and operated by John McFarland and is comprised of a highly skilled group of life settlement professionals with an executive team that has more than 80 years of combined life settlement experience. Additionally, NorthStar will be focused on building the IT infrastructure and applications necessary for both portfolio servicing and client relations to ensure the long-term operational efficiency of the Trust. McFarland an industry expert with 15 years of experience in the industry and is also the owner and current CEO of NorthStar Capital Management, LLC, and a Director of the Life Insurance Settlement Association (LISA). McFarland was previously Chief Operating Officer of AVS Underwriting, LLC, the largest and oldest life expectancy provider in the market. The Trustee is confident that the contributions of NorthStar Life Services, LLC, guided by Mr. McFarland, will enhance the value of the portfolio and streamline operations of the Trust.
Advanced Trust and Life Escrow Services LTA (“ATLES”), was designated by the Trust to serve as securities intermediary and depository for the Policies. ATLES already served as the named beneficiary on many of the Policies and subsequently acquired Purchase Escrow Services, which had served as named beneficiary on substantially all of the remaining Policies. ATLES 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.
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. In 2022 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.
Premium Payments and Policy Maturities
Under the Plan, Continuing Fractional Interest Holders who made a Continuing Holder Election retained 95% of their original Fractional Interest, with the other 5% deemed to be contributed to the Position Holder Trust in exchange for a Position Holder Trust Interest. As such, a Continuing Fractional Holder is obligated to pay 95% of the premium payments and Policy expenses allocable to its original Fractional Interest. Holders of Position Holder Trust interests (including the IRA Partnership) are not required to pay premiums allocable to their Contributed Positions. Similarly, Continuing Fractional Interest Holders are not required to pay premiums allocable to their 5% fractional interest deemed contributed to the Trust under the Plan. The Servicing Company will make premium calls to Continuing Fractional Interests Holders by sending premium notice and payment reminders to each as necessary. Premium calls will be made once per year, per policy, and sent at least 120 days prior to the due date for payment of the premiums by the Continuing Fractional Holders. Reminders will be sent if payment in full is not received within 30 days after the notice is sent. The Trustee, however, may divide the Continuing Fractional Interest Holders into twelve groups and bill a different group each month using the same billing and reminder schedule for premium calls as set out above.
Subject to the discretion of the Trustee and the Governing Trust Board, the Servicing Company may provide Policy data and data relating to premiums and maturity funds on a secure Servicing Company website. The data is expected to be updated monthly or as frequently as practical. Policies that mature would be listed with the Policy ID, death benefit and maturity date, as well as an indication if the proceeds have been received.
Upon the occurrence of a payment default by a Continuing Fractional Holder, the Continuing Fractional Holder will be deemed to have made a Position Holder Trust election as to its Continuing Fractional Interest at a discount of 20%, effective as of the payment default date, without any further notice from or other action by the Servicing Company, the Position Holder Trust or any other person. In April 2017, the Bankruptcy Court modified the discount penalty by waiving its application to premiums billed in December 2016 and to the next premium billed for each Continuing Fractional Interest. The failure to pay any other future premium calls, however, will result in the deemed contribution of the Continuing Fractional Interest at the established discount.
Upon maturity of a Policy, the Continuing Fractional Interest Holders relating to the Policy will be entitled to receive the Policy proceeds allocable to each (i.e., 95% of the proceeds payable with respect to each original fractional interest relating to the Policy). The Policy proceeds paid to a Continuing Fractional Interest Holder will be reduced by: (1) the Servicing Fee payable with respect to each such Continuing Fractional Interest, (2) any premium amount advanced by the Position Holder Trust prior to the date of death that is not refunded as a result of the Policy’s maturity, and (3) any other out of pocket cost incurred by the Trust in the process of collection of maturity proceeds.
New IRA Notes
An IRA Holder who made a continuing holder election became the holder of a “New IRA Note”. The New IRA Notes were structured to qualify as debt with no significant incidents of ownership in life insurance contracts. Consequently, the holders of New IRA Notes should not be viewed as investing directly or indirectly in life insurance contracts, which would disqualify the IRA and cause the IRA to lose its tax-exempt status. If the New IRA Notes are not treated as debt for federal income tax purposes, but as an investment in life insurance contracts, the entire IRA account balance could be deemed distributed to the IRA Holder who would recognize income in the amount of any cash and the fair market value of any property deemed distributed. Further, if the IRA owner is under age 59 ½, then the deemed distribution would be subject to an additional 10% early withdrawal penalty. Any such disqualification, however, would not adversely affect the terms and conditions of the New IRA Notes.
The terms and conditions of the New IRA Notes include a stated principal amount equal to 32% of the dollar amount of face value associated with the Fractional Interest related to the IRA Note, a fixed interest rate of 3.00%, payable annually in December, a maturity date of December 9, 2031, full recourse against the Position Holder Trust, and security in the form of a segregated sinking fund account.
For the year ending December 31, 2021, the Trust redeemed in full all New IRA Notes having an outstanding balance of $56,000 or less. The amount paid in connection with the redemption was $9.6 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
For the year ending December 31, 2020, the Trust did a partial redemption of all remaining notes equal to 1/15th of the outstanding balance of those notes and the Trust redeemed in full all New IRA Notes having an outstanding balance of $19,500 or less. The amount paid in connection with the redemption was $9.7 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
Portfolio Information
As of December 31, 2021, the aggregate portfolio (“Portfolio”) administered by the Trust (including Continuing Fractional Interests) consisted of 2,493 Policies of which 356 are life settlement policies and 2,137 are viaticals. Life settlements refer herein to life insurance policies on persons without any particular diagnosis of a terminal illness, while viaticals refer to policies in which the insured had been diagnosed with a terminal illness. As of December 31, 2021, the Portfolio’s aggregate face value was $1.3 billion, of which $1.1 billion was attributable to life settlements and $0.2 billion was attributable to viaticals. As of December 31, 2021, the Portfolio’s aggregate fair value was $292.6 million, of which $280.0 million was attributable to life settlements and $12.6 million was attributable to viaticals. See, “Policy Valuation Methodology” below.
The 10 insurance companies representing the largest aggregate positions in the Portfolio as of December 31, 2021, are listed below:
Value Rank | | | Insurance Company | | Carrier Rating | | Aggregate Face Value | | | Aggregate Fair Value | |
| 1 | | | Transamerica Financial Life Insurance Company | | A | A- (Excellent) | | $ | 121,616,420 | | | | 9.2 | % | | $ | 33,841,767 | | | | 11.6 | % |
| 2 | | | John Hancock Life Insurance Company (U.S.A.) | | A+ (Superior) | | | 108,439,006 | | | | 8.2 | % | | | 33,616,355 | | | | 11.5 | % |
| 3 | | | The Lincoln National Life Insurance Company | | A+ (Superior) | | | 119,629,117 | | | | 9.0 | % | | | 29,677,408 | | | | 10.1 | % |
| 4 | | | AXA Equitable Life Insurance Company | | NR (Not Rated) | | | 91,921,708 | | | | 6.9 | % | | | 22,274,251 | | | | 7.6 | % |
| 5 | | | John Hancock Life Insurance Company of New York | | A+ (Superior) | | | 53,500,000 | | | | 4.0 | % | | | 20,325,000 | | | | 6.9 | % |
| 6 | | | Lincoln Life & Annuity Company of New York | | A+ (Superior) | | | 69,120,000 | | | | 5.2 | % | | | 19,187,712 | | | | 6.6 | % |
| 7 | | | American General Life Insurance Company | | A | A- (Excellent) | | | 73,393,887 | | | | 5.5 | % | | | 17,806,463 | | | | 6.1 | % |
| 8 | | | Massachusetts Mutual Life Insurance Company | | A++ (Superior) | | | 61,282,891 | | | | 4.6 | % | | | 17,455,191 | | | | 6.0 | % |
| 9 | | | Transamerica Life Insurance Company | | A | A- (Excellent) | | | 38,358,515 | | | | 2.9 | % | | | 11,207,009 | | | | 3.8 | % |
| 10 | | | Lincoln Benefit Life Company | | A | A- (Excellent) | | | 39,580,911 | | | | 3.0 | % | | | 10,023,247 | | | | 3.4 | % |
| | | | | | | | $ | 776,842,454 | | | | 58.7 | % | | $ | 215,414,403 | | | | 73.6 | % |
As of December 31, 2021, the Position Holder Trust’s portion of the Portfolio (“PHT Portfolio”), consisted of 2,493 Policies of which 356 are life settlement policies and 2,137 are viaticals. The PHT Portfolio is a subset of the Portfolio. The PHT Portfolio’s aggregate face value as of December 31, 2021, was $0.9 billion, of which $0.7 billion was attributable to life settlements and $0.2 billion was attributable to viaticals, and its aggregate fair value was $190.3 million of which $180.6 million was attributable to life settlements and $9.7 million was attributable to viaticals.
The 10 insurance companies representing the largest aggregate positions in the PHT Portfolio as of December 31, 2021 are listed below:
Value Rank | | | Insurance Company | | Carrier Rating | | | Aggregate Face Value | | | Aggregate Fair Value | |
| 1 | | | Transamerica Financial Life Insurance Company | | A | A- (Excellent) | | $ | 82,293,466 | | | | 9.2 | % | | $ | 22,850,095 | | | | 12.0 | % |
| 2 | | | John Hancock Life Insurance Company (U.S.A.) | | A+ (Superior) | | | 65,851,998 | | | | 7.3 | % | | | 20,410,298 | | | | 10.7 | % |
| 3 | | | The Lincoln National Life Insurance Company | | A+ (Superior) | | | 77,130,242 | | | | 8.6 | % | | | 18,728,090 | | | | 9.8 | % |
| 4 | | | AXA Equitable Life Insurance Company | | NR (Not Rated) | | | 60,592,308 | | | | 6.8 | % | | | 14,545,114 | | | | 7.6 | % |
| 5 | | | John Hancock Life Insurance Company of New York | | A+ (Superior) | | | 36,260,320 | | | | 4.0 | % | | | 13,642,624 | | | | 7.2 | % |
| 6 | | | Lincoln Life & Annuity Company of New York | | A+ (Superior) | | | 46,219,131 | | | | 5.2 | % | | | 12,732,468 | | | | 6.7 | % |
| 7 | | | American General Life Insurance Company | | A | A- (Excellent) | | | 48,944,577 | | | | 5.5 | % | | | 11,335,248 | | | | 6.0 | % |
| 8 | | | Massachusetts Mutual Life Insurance Company | | A++ (Superior) | | | 38,417,994 | | | | 4.3 | % | | | 10,925,896 | | | | 5.7 | % |
| 9 | | | Transamerica Life Insurance Company | | A | A- (Excellent) | | | 25,222,120 | | | | 2.8 | % | | | 7,361,778 | | | | 3.9 | % |
| 10 | | | Lincoln Benefit Life Company | | A | A- (Excellent) | | | 26,638,197 | | | | 3.0 | % | | | 6,720,044 | | | | 3.5 | % |
| | | | | | | | $ | 507,570,353 | | | | 56.6 | % | | $ | 139,251,656 | | | | 73.2 | % |
Approximately 86.3% of the Portfolio’s life insurance assets based on fair value were issued by insurance companies with an independently graded investment-grade credit rating of A- (Excellent) or better as of December 31, 2021. The overall composition of life insurance company credit exposure and the composite credit ratings as of December 31, 2021, are set forth below:
Number | | | Carrier Rating | | % of Portfolio Face Value | | | % of Portfolio Fair Value | | | % of PHT Portfolio Face Value | | | % of PHT Portfolio Fair Value | |
| 206 | | | A++ (Superior) | | | 9.1 | % | | | 8.7 | % | | | 8.8 | % | | | 8.3 | % |
| 973 | | | A+ (Superior) | | | 40.2 | % | | | 42.5 | % | | | 40.0 | % | | | 42.1 | % |
| 1,054 | | | A | A- (Excellent) | | | 34.8 | % | | | 35.1 | % | | | 35.3 | % | | | 35.7 | % |
| 21 | | | B++ (Good) | | | 0.1 | % | | | — | % | | | 0.1 | % | | | — | % |
| 3 | | | B+ (Good) | | | — | % | | | — | % | | | — | % | | | — | % |
| 18 | | | B (Fair) | | | 0.3 | % | | | 0.3 | % | | | 0.3 | % | | | 0.3 | % |
| 1 | | | C++ (Marginal) | | | — | % | | | — | % | | | — | % | | | — | % |
| 217 | | | NR (Not Rated) | | | 15.5 | % | | | 13.4 | % | | | 15.5 | % | | | 13.6 | % |
| 2,493 | | | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
The Portfolio consists of two types of interests: Position Holder Trust interests and Continuing Fractional Holder interests. Most Policies will have both interests because of the Debtors’ sale of fractional interests in the Policies. As of December 31, 2021, the Policy holdings of Position Holder Trust interests and Continuing Fractional Holder interests, as well as the aggregate face value and aggregate fair value, broken-out into the various age ranges is summarized below:
Insured’s Age (between ages) | | Number of Insured | | | Aggregate Face Value | | | Aggregate Fair Value | | | PHT | | | CFH | |
100-109 | | | 3 | | | $ | 3,350,000 | | | $ | 1,749,711 | | | | 61 | % | | | 39 | % |
90-99 | | | 326 | | | | 1,030,156,822 | | | | 269,279,476 | | | | 65 | % | | | 35 | % |
80-89 | | | 33 | | | | 60,081,420 | | | | 9,671,804 | | | | 67 | % | | | 33 | % |
70-79 | | | 209 | | | | 26,977,115 | | | | 3,586,033 | | | | 79 | % | | | 21 | % |
60-69 | | | 994 | | | | 110,965,903 | | | | 6,521,799 | | | | 80 | % | | | 20 | % |
50-59 | | | 892 | | | | 88,721,188 | | | | 1,789,252 | | | | 80 | % | | | 20 | % |
40-49 | | | 36 | | | | 3,482,666 | | | | 3,521 | | | | 81 | % | | | 19 | % |
0-39 | | | — | | | | — | | | | — | | | | — | | | | — | |
Totals | | | 2,493 | | | $ | 1,323,735,114 | | | $ | 292,601,596 | | | | | | | | | |
Policy Valuation Methodology
In assessing and determining the PHT Portfolio’s valuation, the Position Holder Trust has retained Lewis & Ellis, Inc. as its principal actuaries.
The following is a summary of the methodology used to estimate the PHT Portfolio’s fair value measured on a recurring basis. The overall methodology did not change during the current or prior year.
The PHT Portfolio’s value was estimated using an actuarially based approach incorporating net cash flows and life expectancies as determined by a default mortality multiplier based on the 2015 Valuation Basic Table produced by the U.S. Society of Actuaries (“VBT”) as opposed to specific life expectancies of insureds as the mortality multipliers from the VBT Ultimate table provide more accurate longevity projections across the portfolio. A default mortality multiplier for each insured was used to project the PHT Portfolio’s present value of net cash flows (death benefits less premium payments).
Future changes in the longevity estimates and estimated cash flows could have a material effect on the PHT Portfolio’s fair value, and the Trust’s financial condition and results of operations. See Note 6 to the accompanying financial statements included in Item 8. Financial Statements for additional information on the valuation of life insurance policies.
Dissemination of Information
The Position Holder Trust and IRA Partnership have designated the website at www.lpi-pht.com as the recognized channel of information distribution and a primary reference source for all matters pertaining to the Policies, the Trust Interests and the IRA Notes. The Trust and IRA Partnership routinely disseminate material information regarding the Policies by posting information and materials on the website. Holders of interests in the Trust and IRA Partnership, as well as other persons, are directed to the website www.lpi.pht.com for important information respecting the Policies, Trust and IRA Partnership.
Item 1A. Risk Factors.
Not applicable.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Not applicable.
Item 3. Legal Proceedings
Pursuant to the Plan, all causes of action held by the Debtors were assigned to and pursued by the Creditors’ Trust. Accordingly, other than resolution of disputes relating to certain claims held by Investors in accordance with the Plan and the Position Holder Trust Agreement, the Position Holder Trust and IRA Partnership are not involved in any material legal proceedings, other than as noted below.
Michael LaMothe v. Moran et al., Civil Action 2:20-CV-10128, was filed July 22, 2020 in the United States District Court (the “Court”), District of Connecticut (New Haven). LaMothe is an individual who sold investors interests in life insurance policies owned by Life Partners, Inc. LaMothe filed the instant suit against the PHT Trustee, many other bankruptcy professionals, and the PHT’s board members alleging breach of fiduciary duty and waste of corporate assets (among other claims) related to Life Partners Holdings, Inc. LaMothe’s lawsuit was dismissed without prejudice by the Court in Connecticut on August 26, 2021. LaMothe’s motion for reconsideration of that ruling was likewise denied and he filed an appeal (LaMothe v. Moran, et al.; Case No. 21-2295) with the US Court of Appeals for the Second Circuit on September 21, 2021. LaMothe filed his corrected brief with the Court of Appeals on March 4, 2022. If needed, a responsive brief for the Board Members and Trust is expected to be filed no earlier than March 30, 2022. The Trustee believes the case is entirely without merit.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
The Registrants do not have a class of common equity outstanding. There is no trading market for the Position Holder Trust interests, Continuing Fractional interests or the IRA Partnership interests, which we collectively refer to as the “New Interests,” and none is expected to develop. The New Interests cannot be transferred unless the seller delivers an opinion of counsel (acceptable to the Trustee) that the proposed transfer (i) complies with all state and federal securities laws, (ii) will not cause the Trust or the IRA Partnership (as the case may be), to be required to register as an investment company and (iii) will not cause the Trust or the IRA Partnership to be taxed as a corporation. In addition, the Plan forbids the Trust from (a) listing the New Interests on any exchange or quotation system, (b) taking any action, directly or indirectly to develop a trading market, (c) acting as a broker/dealer or (d) disseminating information or otherwise facilitating trading activities.
During the year ending December 31, 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 1,846,542 units for $0.3 million for the year ending December 31, 2021. The Partnership redeemed 937,269 Member Interest for $0.2 million for the year ending December 31, 2021. The Trust redeemed 20,011,309 units for $3.7 million for the year ending December 31, 2020. The Partnership redeemed 7,231,667 Member Interest for $1.4 million for the year ending December 31, 2020.
As part of the redemption the Trust redeemed 1,156,938 units for $0.2 million from 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.
On June 24, 2021, CFunds Life Settlement, LLC (“Contrarian”) 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 opinion as to whether any investor should accept 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 held by the Partnership Interests validly tendered and not validly withdrawn. The transfer of all Interests was effected on August 31, 2021.
In 2021, the Trust made a distribution to Unit holders for the amount of $45.0 million based on the holder’s Pro Rata share of the outstanding Units. The Trust distributed $30.0 million to the Unit holders for the year ending December 31, 2020.
The payment of distributions is at the discretion of our Trustee and the Governing Trust Board after taking into account various factors, including our financial condition, maturities, cash flows, premium requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of distributions, and other considerations that our Board deem relevant from time to time.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
The statements in this discussion and analysis concerning expectations regarding the Position Holder Trust’s and the IRA Partnership’s future performance, liquidity and capital resources, as well as other non-historical statements are forward-looking statements that involve substantial risks and uncertainties. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects” and variations of these words and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements include these words. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward- looking statements, including the factors set forth below and elsewhere in this report:
| · | uncertainties and estimates related to the valuation of life insurance policy assets reflected on our financial statements. |
| | |
| · | uncertainties and estimates related to our ability to make cash distributions in satisfaction of payment obligations as life insurance policies mature. |
| | |
| · | the reliability of assumptions underlying our actuarial models, including life expectancy estimates. |
| | |
| · | risks relating to the validity and enforceability of the life insurance policies in our portfolio. |
| | |
| · | our reliance on information provided and obtained by third parties. |
| | |
| · | increasing cost-of-insurance (premiums) on the life insurance contracts in our portfolio. |
| | |
| · | our limited operating history. and |
| | |
| · | general economic outlook, including prevailing interest rates. |
These forward-looking statements are based on current expectations, estimates and projections about us, our beliefs and our assumptions and the information currently available to us. Although we believe that the assumptions for these forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Consequently, no representation or warranty can be given that the estimates, opinions, or assumptions made in or referenced will prove to be accurate. The actual results of the Trust and IRA Partnership could differ materially from those suggested or implied by any forward-looking statements. We undertake no obligation to update our forward-looking statements.
You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this report.
Business Overview
The Position Holder Trust and the IRA Partnership came into existence on December 9, 2016, as a result of the Plan of Reorganization confirmed pursuant to the Chapter 11 bankruptcy proceeding initiated in 2015 by Life Partners Holdings, Inc. The Trust’s primary asset is its interest in a life insurance portfolio of 2,493 Policies, with an aggregate fair value of $292.6 million and an aggregate face value of approximately $1.3 billion at December 31, 2021. The Trust’s portion of the Portfolio has a fair value of $190.3 million and a face value of $0.9 billion at December 31, 2021. Adjustments in the calculation of aggregate fair value of the Portfolio may occur over time as maturities ensue in the Portfolio and life expectancies change.
The Bankruptcy Court organized the Trust and IRA Partnership in order to liquidate the assets of the Debtors in a manner calculated to conserve, protect and maximize the value of the assets, and to distribute the proceeds thereof in accordance with the Plan. The Trust and IRA Partnership have no other business interests nor operations and will not acquire any additional life insurance policies. The IRA Partnership’s sole assets are beneficial interest units in the Trust.
Continuing Operations
While the Position Holder Trust is a liquidating trust with no intent to continue or to engage in a trade or business, the nature of the life insurance policies assets being liquidated are such that it is not practical or advantageous to simply liquidate the Policies by disposing of them. In this regard, there is no viable secondary market for the Policies, nor is there another practical means of disposing of them or monetizing them in the near term.
The Position Holder Trust expects that fulfilling its liquidating purpose will require a significant amount of time. As such, 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 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 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.
The Plan requires that the continuing fractional holders pay premium calls within 60 days of the day the Trust sends an invoice. The failure of a continuing fractional holder to timely pay a premium call on a position results in a premium default with respect to that position. Upon a premium default, the continuing fractional holder is deemed to have contributed its position to the Trust in exchange for Units. Section 5.05(c) of the Plan requires that the Trust reduce the number of Units issued upon a default by 20% – the subsection (c)(i) discount.
The Partnership operations consist entirely of its interests in the operations of the Trust and will continue as long as the Trust is liquidating its assets. The Partnership utilizes the equity method of accounting for its interests in the Trust and recognizes its proportionate interest in the results of the Trust’s continuing operations accordingly.
Covid-19 Pandemic Update
The novel coronavirus (COVID-19) pandemic has not had a material adverse effect on the Trust’s operations during the year ending December 31, 2021. 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. As of December 31, 2021, management has not made a determination as to how COVID-19 has impacted the Trust’s mortality figures and there remains uncertainty if or how much future mortality might be impacted by the pandemic.
Distribution
In 2021, the Trust made distributions to Unit holders of $45.0 million based on the holder’s Pro Rata share of the outstanding Units. The Trust distributed $30.0 million to the Unit holders for the year ending December 31, 2020.
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 1,846,542 units for $0.5 million for the year ending December 31, 2021. The Partnership redeemed 937,269 Member Interest for $0.2 million for the year ending December 31, 2021. The Trust redeemed 20,011,309 units for $3.7 million for the year ending December 31, 2020. The Partnership redeemed 7,231,667 Member Interest for $1.4 million for the year ending December 31, 2020.
As part of the redemption the Trust redeemed 1,156,938 units for $0.2 million from 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.
Tender Offer
On June 24, 2021, CFunds Life Settlement, LLC (“Contrarian”) 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 opinion as to whether any investor should accept 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 held by the Partnership Interests validly tendered and not validly withdrawn. The transfer of all Interests was effected on August 31, 2021.
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. In 2022 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 received 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 received 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.
Results of Continuing Operations
2021 Compared to 2020
Net increase in net assets for the year ended December 31, 2021 was $76.9 million as compared to a net increase in net assets of $58.8 million for the same period last year. The following are the components of net change in net assets resulting from operations for the years ended December 31, 2021 and 2020:
| | Years Ended December 31, | |
| | 2021 | | | 2020 | | | Change | | | % Change | |
| | | | | | | | | | | | |
Income | | $ | 87,109,047 | | | $ | 68,264,556 | | | $ | 18,844,491 | | | | 28 | |
Expenses | | | 10,171,999 | | | | 9,417,789 | | | | 754,210 | | | | 8 | |
| | | | | | | | | | | | | | | | |
Increase in net assets | | $ | 76,937,048 | | | $ | 58,846,767 | | | $ | 18,090,281 | | | | 31 | |
The following table provides a roll-forward of the fair value of life insurance policies for the years ended December 31, 2021 and 2020:
| | 2021 | | | 2020 | |
| | | | | | |
Balance at January 1, | | $ | 159,179,912 | | | $ | 172,242,734 | |
Realized gain on matured policies | | | 87,067,964 | | | | 116,516,353 | |
Unrealized loss on policies held | | | (2,090,621 | ) | | | (48,860,066 | ) |
Change in estimated fair value | | | 84,977,343 | | | | 67,656,287 | |
| | | | | | | | |
Matured policies, net of fees | | | (117,225,608 | ) | | | (143,525,300 | ) |
Premiums paid | | | 63,392,585 | | | | 62,806,191 | |
Balance at December 31, | | $ | 190,324,232 | | | $ | 159,179,912 | |
The change in estimated fair value of the Trust’s life insurance Policies includes realized gains on matured policies in addition to unrealized losses on policies which is affected by changes in valuation assumptions, including mortality and discount rates. On a quarterly basis, management compares actual maturities to projected maturities to refine and validate its analysis. See, Note 6, “Fair Value Measurements” to the accompanying consolidated financial statements in Item 8. Consolidated Financial Statements for more information on the valuation of life insurance policies.
Expenses
Below is a comparison of expenses from 2021 to 2020.
| | Years Ended December 31, | |
| | 2021 | | | 2020 | | | $ Change | | | % Change | |
| | | | | | | | | | | | |
Interest expense | | $ | 461,077 | | | $ | 751,290 | | | $ | (290,213 | ) | | | (39 | ) |
Legal fees | | | 1,043,764 | | | | 1,995,981 | | | | (952,217 | ) | | | (48 | ) |
Administrative and filing fees | | | 291,476 | | | | 1,281,309 | | | | (989,833 | ) | | | (77 | ) |
Insurance | | | 182,168 | | | | 165,467 | | | | 16,701 | | | | 10 | |
Professional fees | | | 8,040,493 | | | | 5,789,055 | | | | 2,251,438 | | | | 39 | |
Bad debt expense (recovery) | | | (377,641 | ) | | | (959,404 | ) | | | 581,763 | | | | 61 | |
Other general and administrative | | | 530,662 | | | | 394,091 | | | | 136,571 | | | | 35 | |
| | | | | | | | | | | | | | | | |
Total expenses | | $ | 10,171,999 | | | $ | 9,417,789 | | | | 754,210 | | | | 8 | |
The Trust had an increase of $0.8 million in expenses in 2021 versus 2020. The increase in expenses is driven by an increase in professional fees associated with the servicing fee expensed instead of netted against maturity proceeds beginning in November 2020, an increase in professional fees of $1.6 million due to additional fees associated with transfer of intermediary responsibilities from ATLES to the Trust, an increase in other general and administrative expenses associated with renewal fees for the Veritex line of credit, and due to reduction in bad debt recovery as compared to 2020. The increase in expenses is offset by a decrease in interest expense due to the pay down of the notes payable balance, decreases in administrative and filings fees due to termination of bankruptcy, and a decrease in legal fees due to termination of Sunlife case in 2020.
Results of Operations for the Partnership - 2021
The net increase in net assets for the year ended December 31, 2021 was $44.4 million as compared to a net increase in net assets of $33.9 million for the same period in the last year.
The Partnership recognizes income on its respective portion of the Trust which is controlled by its investment in the Trust’s life insurance Policies and the changes in their aggregate fair value. The primary increase in income and net assets is due to the change in valuation of the investment portfolio as describe above in the section related to the Trust.
In 2021 the Partnership made a distribution of $26.9 million based on its share of the distribution from the Trust.
2020 Compared to 2019
Net increase in net assets for the year ended December 31, 2020 was $58.8 million as compared to a net increase in net assets of $63.4 million for the same period last year. The following are the components of net change in net assets resulting from operations for the years ended December 31, 2020 and 2019:
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | Change | | | % Change | |
| | | | | | | | | | | | |
Income | | $ | 68,264,556 | | | $ | 73,981,532 | | | $ | (5,716,976 | ) | | | (8 | ) |
Expenses | | | 9,417,789 | | | | 10,575,682 | | | | (1,157,893 | ) | | | (11 | ) |
| | | | | | | | | | | | | | | | |
Increase in net assets | | $ | 58,846,767 | | | $ | 63,405,850 | | | $ | (4,559,083 | ) | | | (7 | ) |
The following table provides a roll-forward of the fair value of life insurance policies for the years ended December 31, 2020 and 2019:
| | 2020 | | | 2019 | |
| | | | | | |
Balance at January 1, | | $ | 172,242,734 | | | $ | 186,251,760 | |
Realized gain on matured policies | | | 116,516,353 | | | | 106,836,877 | |
Unrealized gain (loss) on policies held | | | (48,860,066 | ) | | | (35,629,018 | ) |
Change in estimated fair value | | | 67,656,287 | | | | 71,207,859 | |
| | | | | | | | |
Matured policies, net of fees | | | (143,525,300 | ) | | | (129,965,627 | ) |
Premiums paid | | | 62,806,191 | | | | 44,748,742 | |
Balance at December 31, | | $ | 159,179,912 | | | $ | 172,242,734 | |
The change in estimated fair value of the Trust’s life insurance Policies includes realized gains on matured policies in addition to unrealized (losses) on policies which are affected by unwinding the discount over time, and changes in valuation assumptions, including mortality, cost of insurance and discount rates. On a quarterly basis, management compares actual maturities to projected maturities to refine and validate its analysis. See, Note 6, “Fair Value Measurements” to the accompanying consolidated financial statements in Item 8. Financial Statements for more information on the valuation of life insurance policies.
Expenses
Below is a comparison of expenses from 2020 to 2019.
| | Years Ended December 31, | |
| | 2020 | | | 2019 | | | $ Change | | | % Change | |
| | | | | | | | | | | | |
Interest expense | | $ | 751,290 | | | $ | 861,738 | | | $ | (110,448 | ) | | | (13 | ) |
Legal fees | | | 1,995,981 | | | | 2,207,395 | | | | (211,414 | ) | | | (10 | ) |
Administrative and filing fees | | | 1,281,309 | | | | 1,036,086 | | | | 245,223 | | | | 24 | |
Insurance | | | 165,467 | | | | 156,628 | | | | 8,839 | | | | 6 | |
Professional fees | | | 5,789,055 | | | | 5,008,744 | | | | 780,311 | | | | 16 | |
Bad debt expense | | | (959,404 | ) | | | (1,644,769 | ) | | | 685,365 | | | | (42 | ) |
Other general and administrative | | | 394,091 | | | | 2,949,860 | | | | (2,555,769 | ) | | | (87 | ) |
| | | | | | | | | | | | | | | | |
Total expenses | | $ | 9,417,789 | | | $ | 10,575,682 | | | | (1,157,893 | ) | | | (11 | ) |
The decrease in total expenses of $1.2 million is primarily due to the fees paid in 2019 totaling $2.5 million to Vida Capital, Inc for termination of the policy services provided by it to the Trust (see Item 1. Description of Business, “Administration and Operations”). The decrease in expenses is offset by an increase in professional fees associated with change in servicer and due to addition of servicing fee to expenses starting November 2020.
Under the agreement with Vida Capital, Inc. the old Servicing Company was entitled to its servicing fee upon the maturity of the individual life insurance policies and the Trust received its portion of the proceeds from the maturity, net of these fees. As such, the Trust accounted for servicing costs as a reduction of the related maturity proceeds. Starting November 1, 2020, under a new servicing agreement with NorthStar Life Services, LLC, the Trust is charged a monthly fixed servicing fee and maturity proceeds are no longer reduced by servicing costs. Accordingly, beginning November 1, 2020 the servicing fee is charged to expense monthly as incurred.
Results of Operations for the Partnership - 2020
The net increase in net assets for the year ended December 31, 2020 was $33.9 million as compared to a net decrease in net assets of $38.2 million for the same period in the last year.
The Partnership recognizes income on its respective portion of the Trust which is controlled by its investment in the Trust’s life insurance Policies and the changes in their aggregate fair value. The primary increase in income and net assets is due to the change in valuation of the investment portfolio as describe above in the section related to the Trust.
On August 3, 2020 the Partnership made a distribution of $17.6 million based on its share of the distribution from the Trust, net of the amount owed by the Partnership to the Trust.
Investing Activities
During the year ended December 31, 2021, the Position Holder Trust paid premiums on Policies totaling $63.4 million on the PHT Portfolio. In addition, the Trust received $128.4 million from the maturity of life settlements during the year ended December 31, 2021. During the year ended December 31, 2020, the Position Holder Trust paid premiums on Policies totaling $62.8 million on the PHT Portfolio and received maturities of life settlements of $138.9 million.
Financing Activities
The Position Holder Trust paid $9.6 million and $9.7 million of its outstanding notes payable during the years ended December 31, 2021 and 2020, respectively.
The Trust redeemed 1,846,542 units for $0.5 million for the year ending December 31, 2021. The Trust redeemed 20,011,309 units for $3.7 million for the year ending December 31, 2020.
The Trust paid $45.0 million and 30.0 million of distributions, of which approximately $26.9 million and $18.0 million was paid to the IRA Partnership, for the year ended December 31, 2021 and 2020, respectively.
Off-Balance Sheet Arrangements
As of December 31, 2021, and 2020, the Position Holder Trust and IRA Partnership had no off-balance sheet arrangements.
Liquidity and Capital Resources
Overview and Cash Flow
The principal source of the Trust’s operating liquidity is the Trust’s share of the death benefits from the maturity of life insurance policies, interest income and refund of premiums paid on behalf of others. The principal uses of that liquidity include payment of premiums on policies, liquidation of existing debt, payment of general and administrative expenses and distribution to the unit holders, if any.
The primary needs for working capital are to pay premiums on Policies and expenses relating to the administration of the Trust and its assets. The Trust is authorized for the use of collected death benefits, called the “Maturity Funds Facility,” from which the Trustee may borrow on a short-term revolving basis to fund its premium reserves. The Trust is also entitled to access the cash surrender value included in the beneficial ownership registered in its name to use for any purpose permitted by the Position Holder Trust Agreement, including to satisfy its share of the premium obligations relating to the Policies. If any such use results in a decrease in the death benefit payable under the related Policy, the decrease will be taken out of the Position Holder Trust’s share of the maturity proceeds of the Policy or, if the Trust’s share is insufficient, the Trust must make up the difference. The Trust believes that these financial resources, in addition to proceeds from maturities, line of credit, and Maturity Funds Facility, are sufficient for it to continue its operations and to issue funds, as necessary, throughout the twelve months after the date of this report.
Capital Resources
Effective as of January 29, 2021, the Trust renewed the revolving credit facility with the Veritex for an additional 2-year term. As part of the renewal, the revolving credit facility was increased to $25.0 million and shall bear interest at the rate of 5% per annum. The Veritex Credit Facility will continue to be secured by a lien on the Position Holder Trust’s assets.
In accordance with the Plan, the Trust issued New IRA Notes of $35.9 million in exchange for claims against the Debtor’s estate and the incidental interests in life insurance policies. Those policies collateralize the Trust’s obligations under the notes. Interest accrues at 3% of outstanding balance and is paid annually in December. Principal is due in full on December 9, 2031. In accordance with the New IRA Notes, beginning in December 2017, the Trust began making annual payments to a sinking fund for the principal payment due at maturity. Such fund is included in restricted cash on the accompanying balance sheet.
For the year ending December 31, 2021, the Trust redeemed in full all New IRA Notes having an outstanding balance of $56,000 or less. The amount paid in connection with the redemption was $9.6 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
For the year ending December 31, 2020, the Trust did a partial redemption of all remaining notes equal to 1/15th of the outstanding balance of those notes and the Trust redeemed in full all New IRA Notes having an outstanding balance of $19,500 or less. The amount paid in connection with the redemption was $9.7 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
As of December 31, 2021, and December 31, 2020, the outstanding balances of the New IRA notes was $6.5 million and $16.1 million, respectively. The sinking fund associated with these notes had balances of $37.5 thousand and $308.8 thousand at December 31, 2021 and 2020, respectively.
Liquidity
At December 31, 2021, the Position Holder Trust had $94.9 million of cash primarily consisting of $63.6 million held to pay policy premiums on behalf of Trust and the continuing fractional holders, $4.3 million held to pay continuing fractional holders for maturities collected, $26.6 million held as collateral deposits on debt, policy premiums, and future distributions, and $0.4 million was available to pay for operating expenses of the Trust.
At December 31, 2020, the Position Holder Trust had $100.4 million of cash primarily consisting of $61.2 million held to pay policy premiums on behalf of Trust and the continuing fractional holders, $6.3 million held to pay continuing fractional holders for maturities collected, $31.9 million held as collateral deposits on debt, policy premiums, and future distributions, and $1.0 million was available to pay for operating expenses of the Trust.
The Trust’s total outstanding liabilities decreased by $16.8 million from $56.4 million at December 31, 2020, to $39.6 million at December 31, 2021. The decrease was mainly attributable to the expenditure of cash to pay outstanding liabilities related to notes payable and a decrease in maturity liabilities and premium liabilities.
During the years ended December 31, 2021 and 2020, the Position Holder Trust paid premiums on Policies totaling $63.4 million and $62.8 million, respectively on the PHT Portfolio. Also, for the years ended December 31, 2021 and 2020, there were maturities received of $128.4 million and $138.9 million, respectively.
The Position Holder Trust paid $9.6 million and $9.7 million of its outstanding notes payable during the years ended December 31, 2021 and 2020, respectively. There were no new financing activities during the years ended December 31, 2021 and 2020.
The Position Holder Trust paid $45.0 million and $30.0 million in distributions during the years ended December 31, 2021 and 2020, respectively.
The Trust has a liquidity risk associated with the payment of premiums by the continuing fractional interest holders. Under the Plan, the Trust bills continuing fractional interest holders for their share of premiums due over the coming twelve months. If a continuing fractional interest holder fails to pay its share of the premiums on a position, the continuing fractional interest holder defaults and the position is deemed to have been contributed to the Trust in exchange for units. The Trust is then responsible for the premium payments related to the defaulted interest. Therefore, a significant increase in the non-payment by continuing fractional interest holders may adversely affect the liquidity of the Trust.
Critical Accounting Policies
Position Holder Trust
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. 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’ life expectancy 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 at receipt of a death notice or verified obituary for an insured party and determined based on the difference between the death benefit and the estimated fair value of the policy at maturity.
Income Taxes
No provision for state or Federal income taxes 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 remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions of them.
The Financial Accounting Standards Board 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 December 31, 2021 and 2020.
Use of Estimates
The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“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’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 fraction holders to default on their premium obligations, increasing the Trust’s positions and its premium payment burden. The Trust management is still evaluating 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’s balances may exceed the FDIC insurable amounts as such in those cases the cash and cash equivalents are not insured.
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:
· | financial assets (or a group of financial assets) measured at amortized cost will be required to be presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset at purchase |
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· | credit losses relating to available-for-sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities. The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value |
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· | the income statement will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount |
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· | disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about credit quality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities as well as an aging analysis for securities that are past due |
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.
IRA Partnership
Equity Method Accounting
The Partnership accounts for its investment in the PHT using the equity method of its share of earnings or loss less distributions received. The Partnership and the Trust are closely connected, with a common trustee and common management. As a result of this common oversight and control, as well as the Partnership’s position as the majority holder of the Trust’s beneficial interest units, the Partnership is considered to have significant influence under the provisions of ASC 323, resulting in the application by the Partnership of the equity method of accounting.
Earnings attributable to the Partnership’s interests in the Trust and recognized under the equity method represented approximately $44.5 million at December 31, 2021 and $34.0 million at December 31, 2020.
Due to Life Partners Position Holders Trust
The Partnership does not have its own cash accounts, and its operating expenses and distributions to its Unit holders are paid on behalf of the Partnership by the Trust. The Partnership settles its liabilities to the Trust through reduction of the funds it receives from distributions made by the Trust.
Income Taxes
No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the members rather than the Partnership. The Partnership is a limited liability company with taxable income or loss passing through to the members. In certain instances, however, the Partnership may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due by members. Such payments on behalf of the members are deemed distributions to them.
The Financial Accounting Standards Board (the “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 Partnership’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 Partnership has no material uncertain income tax positions as of December 31, 2021 or December 31, 2020.
Use of Estimates
The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Partnership 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.
Risks and Uncertainties
The Partnership, due to the nature of its assets and operations, is subject to significant risks and uncertainties affecting the Trust which encounters economic risk. The two main components of economic risk potentially impacting the Partnership’s interest in the Trust are market risk and concentration of credit risk. 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. 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 deteriorating financial condition of the carrier or otherwise. It is reasonably possible that future changes to estimates involved in valuing the Trust’s life insurance policies could change and result in material effects on the Partnership’s financial position and results of operation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of potential economic loss principally arising from adverse changes in the fair value of financial instruments. As of December 31, 2021, we did not hold any amount of financial instruments for trading purposes.
Item 8. Consolidated Financial Statements
Index to Consolidated Financial Statements
Life Partners Position Holder Trust
Report of Independent Registered Public Accounting Firm
To the Unit Holders, Trustee, and Governing Trust Board
Life Partners Position Holder Trust
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Life Partners Position Holder Trust (the “Trust”) as of December 31, 2021 and 2020, the related statements of operations, changes in net assets, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Trust as of December 31, 2021 and 2020 and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Trust’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Life Insurance Policies – Refer to Notes 1 and 6 to the financial statements
Critical Audit Matter Description
The Trust’s valuation of life insurance policies is a critical estimate within the financial statements. The Trust uses a probabilistic method of valuing life insurance policies, which the Trust believes to be the preferred valuation method in its industry. The Trust engages an independent actuarial firm to prepare an actuarial analysis to calculate 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 of the life insurance policies are the Trust’s estimate of the insureds’ longevity, anticipated future premium obligations, and the discount rate.
We identified the Trust’s valuation of life insurance policies as a critical audit matter. This matter required a higher degree of auditor judgment and specialized knowledge to audit the estimated fair value of the life insurance policies. The principal considerations for our determination include the judgments required in the selection of a discount rate and mortality assumptions, both unobservable inputs, and the application of the valuation model used by the Trust, and their independent actuary, to estimate the fair value.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to this critical audit matter included the following, among others:
· | We obtained an understanding of management’s process to develop their fair value estimate and ensure accuracy of key data used in their estimation process. We also evaluated the design of key controls used by management to develop their fair value estimate. |
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· | We performed testing over the completeness and accuracy of the significant data used by management and the Trust’s engaged actuary to develop the fair value estimate for life insurance policies. Such data includes policyholder information, policy value, annual premium and projected outlays, and future maturity estimates. We also validated the accuracy of the discounted cash flow analysis, including assessment of the discount rate utilized. |
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· | Given the complexity of the valuation of the life insurance policies noted above, we engaged an independent outside actuarial firm to assist us with evaluating the reasonableness of the significant assumptions and methodologies that were developed and used by management and the Trust’s engaged actuary and to assess whether reasonable and acceptable actuarial and valuation techniques were utilized. The actuaries performing these procedures have significant industry expertise as it relates to life settlement contract valuation. |
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· | We also evaluated the adequacy of the Trust’s disclosures in Note 6 in relation to the valuation of life insurance policies. |
/s/ Plante & Moran, PLLC
We have served as the Trust’s auditor since 2017.
Chicago, Illinois
March 16, 2022
LIFE PARTNERS POSITION HOLDER TRUST
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
| | 2021 | | | 2020 | |
Assets | | | | | | |
Cash | | $ | 425,675 | | | $ | 950,399 | |
Maturities receivable | | | 22,926,955 | | | | 34,144,775 | |
Prepaids and other assets | | | 736,944 | | | | 564,985 | |
Restricted cash and cash equivalents | | | 94,514,226 | | | | 99,496,379 | |
Life insurance policies | | | 190,324,232 | | | | 159,179,912 | |
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Total assets | | $ | 308,928,032 | | | $ | 294,336,450 | |
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Liabilities | | | | | | | | |
Notes payable | | $ | 6,541,334 | | | $ | 16,138,211 | |
Premium liability | | | 27,708,630 | | | | 30,708,458 | |
Maturity liability | | | 4,078,582 | | | | 5,871,936 | |
Accounts payable | | | 541,082 | | | | 479,922 | |
Distributions payable | | | 160,584 | | | | 255,305 | |
Accrued expenses | | | 537,200 | | | | 2,979,480 | |
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Commitments and Contingencies (Note 2) | | | | | | | | |
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Total liabilities | | | 39,567,412 | | | | 56,433,312 | |
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Net Assets | | $ | 269,360,620 | | | $ | 237,903,138 | |
See accompanying notes to consolidated financial statements
LIFE PARTNERS POSITION HOLDER TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
| | 2021 | | | 2020 | |
Income | | | | | | |
Change in fair value of life insurance policies | | $ | 84,977,343 | | | $ | 67,656,287 | |
Other income | | | 2,131,704 | | | | 608,269 | |
Total income | | $ | 87,109,047 | | | $ | 68,264,556 | |
Expenses | | | | | | | | |
Interest expense | | $ | 461,077 | | | $ | 751,290 | |
Legal fees | | | 1,043,764 | | | | 1,995,981 | |
Administrative and filing fees | | | 291,476 | | | | 1,281,309 | |
Insurance | | | 182,168 | | | | 165,467 | |
Professional fees | | | 8,040,493 | | | | 5,789,055 | |
Bad debt expense (recovery) | | | (377,641 | ) | | | (959,404 | ) |
Other general and administrative | | | 530,662 | | | | 394,091 | |
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Total expenses | | $ | 10,171,999 | | | $ | 9,417,789 | |
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Increase in net assets resulting from operations | | $ | 76,937,048 | | | $ | 58,846,767 | |
See accompanying notes to consolidated financial statements
LIFE PARTNERS POSITION HOLDER TRUST
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
| | 2021 | | | 2020 | |
Net assets, beginning of year | | $ | 237,903,138 | | | $ | 212,734,754 | |
Distributions to unit holders | | | (45,000,005 | ) | | | (30,000,937 | ) |
Redemption of units | | | (479,561 | ) | | | (3,677,446 | ) |
Net increase in net assets resulting from operations | | | 76,937,048 | | | | 58,846,767 | |
Net assets, end of year | | $ | 269,360,620 | | | $ | 237,903,138 | |
Net asset value per unit: | | | | | | | | |
Number of units | | | 1,236,955,963 | | | | 1,226,958,714 | |
Net assets per unit | | $ | 0.22 | | | $ | 0.19 | |
See accompanying notes to consolidated financial statements
LIFE PARTNERS POSITION HOLDER TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED
DECEMBER 31,
| | 2021 | | | 2020 | |
Cash flows from operating activities: | | | | | | |
Net increase in net assets resulting from operations | | $ | 76,937,048 | | | $ | 58,846,767 | |
Adjustments to reconcile net increase in net assets to net cash used in operations: | | | | | | | | |
Change in fair value of life insurance policies | | | (84,977,343 | ) | | | (67,656,287 | ) |
Change in assets and liabilities: | | | | | | | | |
Prepaids and other assets | | | (171,959 | ) | | | (327,919 | ) |
Premium liability | | | (2,999,828 | ) | | | (2,474,831 | ) |
Maturity liability | | | (1,793,354 | ) | | | (2,387,929 | ) |
Accounts payable | | | 61,160 | | | | 263,753 | |
Distributions payable | | | (94,721 | ) | | | (86,263 | ) |
Accrued expenses | | | (2,442,280 | ) | | | 723,529 | |
Net cash flows used in operating activities | | | (15,481,277 | ) | | | (13,099,180 | ) |
Cash flows from investing activities: | | | | | | | | |
Premiums paid on policies | | | (63,392,585 | ) | | | (62,806,191 | ) |
Net proceeds from maturity of policies | | | 128,443,428 | | | | 138,928,022 | |
Net cash flows provided by investing activities | | | 65,050,843 | | | | 76,121,831 | |
Cash flows from financing activities: | | | | | | | | |
Payments on notes payable | | | (9,596,877 | ) | | | (9,659,670 | ) |
Redemption of Units | | | (479,561 | ) | | | (3,677,446 | ) |
Distributions to Unitholders | | | (45,000,005 | ) | | | (30,000,937 | ) |
Net cash flows used in financing activities | | | (55,076,443 | ) | | | (43,338,053 | ) |
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Net (decrease) increase in cash | | | (5,506,877 | ) | | | 19,684,598 | |
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Cash and cash equivalents, beginning of year | | | 100,446,778 | | | | 80,762,180 | |
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Cash and cash equivalents, end of year | | $ | 94,939,901 | | | $ | 100,446,778 | |
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Supplemental cash flow information: | | | | | | | | |
Cash | | $ | 425,675 | | | $ | 950,399 | |
Restricted cash and cash equivalents | | | 94,514,226 | | | | 99,496,379 | |
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Total cash and cash equivalents | | $ | 94,939,901 | | | $ | 100,446,778 | |
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Cash paid for interest | | $ | 484,160 | | | $ | 773,147 | |
See accompanying notes to consolidated financial statements
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 1 - Operations and Significant Accounting Policies
Operations
Life Partners Position Holder Trust (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. (the “Debtors”), 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 on November 1, 2016. Life Partners Holdings, Inc. was the parent company of Life Partners, Inc., a Texas corporation, and its wholly-owned subsidiary LPI Financial Services, Inc., a Texas corporation. From 1991 until 2014, Life Partners, Inc. was a specialty financial services company engaged in the business of purchasing individual life insurance policies from third parties by raising money from the offer and sale to investors of “fractional interests” in such policies. LPI Financial Services, Inc. was organized to bill and collect certain fees charged to investors in connection with the business. Life Partners and LPI Financial Services also filed for protection under Chapter 11 of the Bankruptcy Code.
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 December 31, 2021, there were 6,454 holders of the 1,236,955,963 Units outstanding. As of December 31, 2020, there were 6,497 holders of the 1,226,958,714 Units outstanding. The Trust owns a portfolio of life insurance policies. A portion of the policies is encumbered by the economic interest of continuing fractional interest holders. As of December 31, 2021, the Trust’s portion of the portfolio consists of 2,493 life insurance policies, with a fair value of $190.3 million and an aggregate face value of approximately $0.9 billion. As of December 31, 2020, the Trust’s portion of the portfolio consists of 2,739 life insurance policies, with a fair value of $159.2 million and an aggregate face value of approximately $1.0 billion. The fair value of the interests in the life insurance policies owned by continuing fractional interest holders are not reflected in the financial statements of the Trust.
Description of Securities
Units represent beneficial interests in the Trust, and all holders of Units are entitled to receive cash distributions from the Trust in accordance with their respective pro rata shares. A Trust beneficiary’s respective ‘‘Pro Rata Share’’ means the ratio, expressed as a percentage, of (i) the number of Units which such Trust Beneficiary is the registered owner, to (ii) the total number of Units outstanding as of the measurement date, subject to modification for purposes of distributing any recovered assets.
Under the Plan, the Trustee will distribute at least annually to the Unit holders all of the distributable cash (as defined in the Position Holder Trust Agreement) generated during each calendar year, subject to any reserve established by the Trustee reasonably necessary to maintain the value of the Trust’s assets or to meet claims and contingent liabilities. All distributions by the Trust will be made in accordance with such holder’s Pro Rata share of the outstanding Units.
Covid-19 Pandemic Update
The novel coronavirus (COVID-19) pandemic has not had a material adverse effect on the Trust’s operations during the year ending December 31, 2021. 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. As of December 31, 2021, management has not made a determination as to how COVID-19 has impacted the Trusts mortality figures and there remains uncertainty if or how much future mortality might be impacted by the pandemic.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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 1,846,542 units for $0.5 million for the year ending December 31, 2021. The Trust redeemed 20,011,309 units for $3.7 million for the year ending December 31, 2020.
Included in the redemption in 2021, the Trust redeemed 1,156,938 units for $0.2 million held by the Life Partners Creditors’ Trust. Included in the redemption in 2020, the Trust redeemed 6,526,269 units for $1.2 million 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. In 2022 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 received 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 receives 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.
Distribution
The Trust paid $45.0 million and 30.0 million of distributions, of which approximately $26.9 million and $18.0 million was paid to the IRA Partnership for the year ended December 31, 2021 and 2020, respectively. The distribution was based on the number of Units held and deducting any unit holder obligations for unpaid premiums.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Summary of Significant Accounting Policies
Basis of Presentation
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 will require 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 consolidated 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. 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 consolidated 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’ life expectancy 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 at receipt of a death notice or verified obituary for an insured party and determined based on the difference between the death benefit and the estimated fair value of the policy at maturity.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Premiums Receivable
The Trust assumed the Debtors’ receivables related to life insurance policy premiums and service fees that were paid by 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’ 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, as previously modified by the Bankruptcy Court.
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 December 31, 2021 and 2020, the allowance for doubtful accounts was $0.3 million and $1.0 million, respectively, and fully offset for receivables assumed from the Debtors on the effective date. Outstanding receivable balances may be recoverable pursuant to the Trustee’s set-off rights under the Plan.
Maturities Receivable
Maturities receivable consist of the Trust’s portion of life insurance policy maturities that occurred, but payment was not 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 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 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 remit directly to state tax authorities amounts otherwise due to Unit holders. Such payments on behalf of the Unit holders are deemed distributions of them.
The Financial Accounting Standards Board has provided guidance for how uncertain tax positions should be recognized, measured, disclosed, and presented in the consolidated 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 December 31, 2021 and 2020.
Use of Estimates
The preparation of these consolidated financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated 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.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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 consolidated 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’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’s balances may exceed the FDIC insurable amounts as such in those cases the cash and cash equivalents are not insured.
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:
| · | financial assets (or a group of financial assets) measured at amortized cost will be required to be presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset at purchase |
| | |
| · | credit losses relating to available-for-sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities. The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value |
| | |
| · | the income statement will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount |
| | |
| · | disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about credit quality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities as well as an aging analysis for securities that are past due |
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.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
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’ 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 December 31, 2021, and 2020, the Trust has $94.5 million and $99.5 million, respectively, in restricted cash and cash equivalents. The restricted cash and cash equivalents accounts are for: maturities, premium reserves, premium obligations, and collateral deposits on debt.
Note 4 - Life Insurance Policies
As of December 31, 2021, the Trust owns an interest in 2,493 policies of which 356 are life settlement policies and 2,137 are viaticals. As of December 31, 2020, the Trust owns an interest in 2,739 policies of which 407 are life settlement policies and 2,332 are viaticals (the “PHT Portfolio”). The PHT Portfolio’s aggregate face value is $0.9 billion as of December 31, 2021 of which $0.7 billion is attributable to life settlements and $0.2 billion is attributable to viaticals. The PHT Portfolio’s aggregate face value is $1.0 billion as of December 31, 2020 of which $0.8 billion is attributable to life settlements and $0.2 billion is attributable to viaticals. The PHT Portfolio’s aggregate fair value is $190.3 million as of December 31, 2021 of which $180.6 million is attributable to life settlements and $9.7 million is attributable to viaticals. The PHT Portfolio’s aggregate fair value is $159.2 million as of December 31, 2020 of which $153.7 million is attributable to life settlements and $5.5 million is attributable to viaticals.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Life expectancy reflects the probable number of years remaining in the life of a class of persons determined statistically, affected by such factors as heredity, physical condition, nutrition, and occupation. It is not an estimate or an indication of the actual expected maturity date or indication of the timing of expected cash flows from death benefits. See “Life Insurance policies,” in Note 6, “Fair Value Measurements”. The following table summarizes the Trust’s life insurance policies grouped by remaining life expectancy as of:
As of December 31, 2021:
Remaining Life Expectancy (Years) | | Number of Life Insurance Policies | | | Face Value | | | Fair Value | |
0-1 | | | 0 | | | $ | 0 | | | $ | 0 | |
1-2 | | | 1 | | | | 3,298 | | | | 2,681 | |
2-3 | | | 3 | | | | 2,052,445 | | | | 994,282 | |
3-4 | | | 86 | | | | 138,284,017 | | | | 42,512,877 | |
4-5 | | | 190 | | | | 421,616,744 | | | | 109,869,222 | |
Thereafter | | | 2,213 | | | | 334,851,375 | | | | 36,945,170 | |
Total | | | 2,493 | | | $ | 896,807,879 | | | $ | 190,324,232 | |
As of December 31, 2020:
Remaining Life Expectancy (Years) | | Number of Life Insurance Policies | | | Face Value | | | Fair Value | |
0-1 | | | 0 | | | $ | 0 | | | $ | 0 | |
1-2 | | | 1 | | | | 46,395 | | | | 34,398 | |
2-3 | | | 6 | | | | 7,221,086 | | | | 2,249,751 | |
3-4 | | | 93 | | | | 154,462,044 | | | | 37,115,382 | |
4-5 | | | 200 | | | | 426,793,251 | | | | 84,401,748 | |
Thereafter | | | 2,439 | | | | 408,906,636 | | | | 35,378,633 | |
Total | | | 2,739 | | | $ | 997,429,412 | | | $ | 159,179,912 | |
Estimated premiums to be paid by the Trust for its portfolio during each of the five succeeding fiscal years and thereafter as of December 31, 2021, are as follows:
2022 | | $ | 64,039,227 | |
2023 | | | 60,185,453 | |
2024 | | | 52,423,714 | |
2025 | | | 44,408,673 | |
2026 | | | 37,298,929 | |
Thereafter | | | 131,435,391 | |
Total | | $ | 389,791,387 | |
The amount of $389.8 million represents the estimated total future premiums payable by the Trust. The Trust is required to pay its portion to keep the life insurance policies in force during the life expectancies of all the underlying insured lives. The estimated total future premium payments could increase or decrease significantly to the extent that insurance carriers increase the cost of insurance on their issued policies or that actual mortalities of insureds differ from the estimated life expectancies. If the continuing fractional holders default on their future premium obligations, the Trust’s premium liability may increase.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The Plan requires that the continuing fractional holders pay premium calls within 60 days of the day the Trust sends an invoice. The failure of a continuing fractional holder to timely pay a premium call on a position results in a premium default with respect to that position.
The Trust anticipates funding the estimated premium payments from maturities of life insurance policies. It also maintains premium reserves and access to lines of credit.
Note 5 - Notes Payable
Effective January 30, 2019, the Trust had a $15 million revolving credit facility with Veritex Community Bank of Dallas, Texas (Veritex Credit Facility), with an initial 2-year term and interest at 6%. Effective January 29, 2021, the Trust renewed the revolving credit facility for an additional 2-year term. As part of the renewal, the revolving credit facility was increased to $25.0 million and shall bear interest at the rate of 5% per annum. The Veritex Credit Facility will continue to be secured by a lien on the Position Holder Trust’s assets. There are no amounts outstanding as of December 31. 2021 and December 31, 2020.
In accordance with the Plan, the Trust issued New IRA Notes of $35.9 million in exchange for claims against the Debtor’s estate and the incidental interests in life insurance policies. Those policies collateralize the Trust’s obligations under the notes. Interest accrues at 3% of outstanding balance and is paid annually in December. Principal is due in full on December 9, 2031. In accordance with the New IRA Notes, beginning in December 2017, the Trust is required to make annual payments to a sinking fund for the principal payment due at maturity. Such fund is included in restricted cash on the accompanying balance sheet.
For the year ending December 31, 2021, the Trust redeemed in full all New IRA Notes having an outstanding balance of $56,000 or less. The amount paid in connection with the redemption was $9.6 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
For the year ending December 31, 2020, the Trust did a partial redemption of all remaining notes equal to 1/15th of the outstanding balance of those notes and the Trust redeemed in full all New IRA Notes having an outstanding balance of $19,500 or less. The amount paid in connection with the redemption was $9.7 million and only funds set aside in a sinking fund established pursuant to the Bankruptcy Plan for that purpose was used. Accrued interest on all New IRA Notes through the redemption dates was paid as well.
As of December 31, 2021, and December 31, 2020, the outstanding balances of the New IRA notes was $6.5 million and $16.1 million, respectively. The sinking fund associated with these notes had balances of $37.5 thousand and $308.8 thousand at December 31, 2021 and 2020, respectively.
Future scheduled principal payments on the long-term debt are as follows as of December 31, 2021:
Year ending December 31, | | Note Payable | |
2022 | | $ | 0 | |
2023 | | | 0 | |
2024 | | | 0 | |
2025 | | | 0 | |
2026 | | | 0 | |
Thereafter | | | 6,541,334 | |
Total | | $ | 6,541,334 | |
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 6 - Fair Value Measurements
The Trust carries its life insurance policies at fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value measurements are classified based on the following fair value hierarchy:
Level 1 — Valuation is based on unadjusted quoted prices in active markets for identical assets and liabilities that are accessible at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
Level 2 — Valuation is determined from pricing inputs that are other than quoted prices in active markets that are either directly or indirectly observable as of the reporting date. Observable inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Valuation is based on inputs that are both significant to the fair value measurement and unobservable. Level 3 inputs include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value generally require significant management judgment or estimation.
The balances of the Trust’s assets measured at fair value on a recurring basis as of December 31, 2021 and 2020, are as follows:
| | As of December 31, 2021 | | | As of December 31, 2020 | |
| | | | | | |
Assets: Investments in Life Insurance Policies | | | | | | |
Level 1 | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
Level 2 | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
Level 3 | | $ | 190,324,232 | | | $ | 159,179,912 | |
| | | | | | | | |
Total Fair Value | | $ | 190,324,232 | | | $ | 159,179,912 | |
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Quantitative Information about Level 3 Fair Value Measurements
Life insurance policies | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | |
Fair Value | | $ | 190,324,232 | | | $ | 159,179,912 | |
| | | | | | | | |
Face Value | | $ | 896,807,879 | | | $ | 997,429,412 | |
Valuation Techniques | | Discounted cash flow | | | Discounted cash flow | |
| | | | | | | | |
Unobservable Inputs | | Discount rate, Mortality assumptions | | | Discount rate, Mortality assumptions | |
| | | | | | | | |
Weighted average discount rates: | | | | | | | | |
Life settlements | | | 15.0 | % | | | 26.7 | % |
Viaticals | | | 20.0 | % | | | 27.3 | % |
| | | | | | | | |
Mortality assumptions - 2015 VBT mortality multipliers: | | | | | | | | |
Life settlements | | 85% - 90 | % | | 90% - 100 | % |
Viaticals | | | 350 | % | | | 350 | % |
In assessing and determining the PHT Portfolio’s valuation, the Position Holder Trust has retained Lewis & Ellis, Inc. as its principal actuaries.
The following is a summary of the methodology used to estimate the PHT Portfolio’s fair value measured on a recurring basis and within the above fair value hierarchy. The overall methodology did not change during the current or prior year.
The PHT Portfolio’s value was estimated using an actuarially based approach incorporating net cash flows and life expectancies as determined by a default mortality multiplier based on the 2015 Valuation Basic Table produced by the U.S. Society of Actuaries (“VBT”) as opposed to specific life expectancies of insureds as the mortality multipliers from the VBT Ultimate table provide more accurate longevity projections across the portfolio. A default mortality multiplier for each insured was used to project the PHT Portfolio’s present value of net cash flows (death benefits less premium payments and servicing company compensation).
As of December 31, 2021, the default mortality multipliers used are 90% for the life settlement males, 85% for the life settlement females, and 350% for the viaticals regardless of gender. As of December 31, 2020, the default mortality multipliers used are 100% for the life settlement males, 90% for the life settlement females, and 350% for the viaticals regardless of gender. On a quarterly basis, the Trust compares actual mortalities to expected mortalities to refine its analysis. The Trust compares actual to expected mortalities to evaluate and refines the mortality multipliers; such that they reasonably “validate” based on the Trust’s analysis of trends.
The Trust continually evaluates and updates its forecasts of future premium obligations for individual policies. The Trust considers these potential changes to estimated future cash flows in its consideration of the discount rate.
The monthly net cash flows with interest and survivorship were discounted to arrive at the PHT Portfolio’s estimated value as of December 31, 2021, and December 31, 2020. Future changes in the longevity estimates and estimated cash flows could have a material effect on the PHT Portfolio’s fair value, and the Trust’s financial condition and results of operations.
Life Expectancy Sensitivity Analysis
Life expectancy estimates are a significant input in the fair value determination. Future changes in the life expectancy estimates could have a material effect on the Portfolio’s fair value, which could have a material effect on its financial condition and results of operations.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The tables below reflect the effect on the PHT Portfolio’s fair value if the actual life expectancy experienced is 5% less or 5% more than is currently estimated. If the life expectancy estimates increase by 5% or decrease by 5%, the change in estimated fair value of the life insurance policies would be as follows:
As of December 31, 2021, Life Expectancy Months Adjustment | | Average Life Expectancy | | Fair Value | | Change in Fair Value |
-5% | | | | $ | 205,107,243 | | | $ | 14,783,011 | |
No change | | 4.8 years | | $ | 190,324,232 | | | — | |
+5% | | | | $ | 174,841,781 | | | $ | (15,482,451) | |
As of December 31, 2020, Life Expectancy Months Adjustment | | Average Life Expectancy | | Fair Value | | Change in Fair Value |
-5% | | | | $ | 173,516,265 | | | $ | 14,336,353 | |
No change | | 4.7 years | | $ | 159,179,912 | | | — | |
+5% | | | | $ | 144,277,667 | | | $ | (14,902,245) | |
Discount Rate
The discount rate is another significant input in the fair value determination. The Trust’s estimate incorporates market factors, the size of the portfolio, and various policy specific quantitative and qualitative factors including known information about the underlying insurance policy, its economics, the insured and the insurer.
The effect of changes in the weighted average discount rate on the death benefit and premiums used to estimate the PHT Portfolio’s fair value has been analyzed. If the weighted average discount rate increased or decreased by 2 percent and the other assumptions used to estimate fair value remained the same, the change in estimated fair value would be as follows:
As of December 31, 2021, Rate Adjustment | | Fair Value | | Change in Fair Value |
+2% | | $ | 176,945,811 | | | $ | (13,378,421) | |
No change | | $ | 190,324,232 | | | — | |
-2% | | $ | 205,683,115 | | | $ | 15,358,883 | |
| | | | |
As of December 31, 2020, Rate Adjustment | | Fair Value | | Change in Fair Value |
+2% | | $ | 151,012,859 | | | $ | (8,167,053) | |
No change | | $ | 159,179,912 | | | — | |
-2% | | $ | 168,255,950 | | | $ | 9,076,038 | |
Future changes in the discount rates used by the Trust to value life insurance policies could have a material effect on the fair value of the Portfolio, which could have a material adverse effect on the Trust’s financial condition and results of operations.
The Trust re-evaluates its discount rates at the end of every reporting period in order to estimate the discount rates that could reasonably be used by market participants in a transaction involving the Trust’s life insurance policies. In doing so, the Trust engages third party consultants to corroborate its assessment, engages in discussions with other market participants and extrapolates the discount rate underlying actual sales of insurance policies.
LIFE PARTNERS POSITION HOLDER TRUST
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
In the first quarter of 2021, the Trust’s actuarial firm, Lewis and Ellis, modified the discount rate used to value the portfolio. This change had a material impact on the fair value of the Trust’s portfolio. These changes were made as a result of i) The full on-boarding by NorthStar of the Trust’s portfolio, which produced more clarity into premium streams, the Trust’s ability to track insureds and thus deaths. ii) The majority of premium streams have been fully optimized. This not only improves clarity into the Trust’s payment obligations, it also resulted in cost savings for the Trust. iii) The importance of having specific LEs for the senior life settlement portion of the portfolio has been diminished by the fact that the average age of the insureds has now surpassed the age of 90, and iv) the Trust has now exited bankruptcy which increases the marketability of the Trust’s portfolio.
Credit Exposure to Insurance Companies
The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit or 10% of total fair value of the Trust’s life insurance policies as of December 31, 2021:
Carrier | | Percentage of Face Value | | | Percentage of Fair Value | | | Carrier Rating | |
Transamerica Financial Life Insurance Company | | | 9.2 | % | | | 12.0 | % | | A | |
John Hancock Life Insurance Company | | | 7.3 | % | | | 10.7 | % | | A+ | |
The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit or 10% of total fair value of the Trust’s life insurance policies as of December 31, 2020:
Carrier | | Percentage of Face Value | | | Percentage of Fair Value | | | Carrier Rating | |
Transamerica Financial Life Insurance Company | | | 10.2 | % | | | 13.5 | % | | A | |
The Lincoln National Life Insurance Company | | | 10.0 | % | | | 11.5 | % | | A+ | |
Changes in Fair Value
The following table provides a roll-forward of the fair value of life insurance policies for the years ended December 31, 2021 and 2020:
| | 2021 | | | 2020 | |
| | | | | | |
Balance at January 1, | | $ | 159,179,912 | | | $ | 172,242,734 | |
Realized gain on matured policies | | | 87,067,964 | | | | 116,516,353 | |
Unrealized loss on policies held | | | (2,090,621 | ) | | | (48,860,066 | ) |
Change in estimated fair value | | | 84,977,343 | | | | 67,656,287 | |
| | | | | | | | |
Matured policies, net of fees | | | (117,225,608 | ) | | | (143,525,300 | ) |
Premiums paid | | | 63,392,585 | | | | 62,806,191 | |
Balance at December 31, | | $ | 190,324,232 | | | $ | 159,179,912 | |
Other Fair Value Considerations— All assets and liabilities except for the life insurance policies, which includes cash, maturities and premium receivable, notes payable and premium and maturity liability, are accounted for at their carrying value which approximates fair value.
Report of Independent Registered Public Accounting Firm
To the Unit Holders, Manager, and Advisory Committee
Life Partners IRA Holder Partnership, LLC
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Life Partners IRA Holder Partnership, LLC (the “Partnership”) as of December 31, 2021 and 2020, the related statements of operations, changes in net assets, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
The Partnership’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Plante & Moran, PLLC
We have served as the Partnership’s auditor since 2017.
Chicago, Illinois
March 16, 2022
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
BALANCE SHEETS
DECEMBER 31,
| | 2021 | | | 2020 | |
Assets | | | | | | |
Investment in Life Partners Position Holder Trust | | $ | 160,464,925 | | | $ | 143,078,791 | |
Total assets | | $ | 160,464,925 | | | | 143,078,791 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Distributions payable | | $ | 85,557 | | | $ | 109,934 | |
Due to the Life Partners Position Holder Trust | | $ | 358,013 | | | $ | 254,047 | |
Total liabilities | | $ | 443,570 | | | $ | 363,981 | |
Net assets | | $ | 160,021,355 | | | $ | 142,714,810 | |
See accompanying notes to financial statements
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
| | 2021 | | | 2020 | |
Income | | | | | | |
Equity income from Life Partners Position Holder Trust | | $ | 44,457,156 | | | $ | 33,969,760 | |
Expenses | | | | | | | | |
Professional fees | | | 25,000 | | | | 25,700 | |
Income and franchise tax expense | | | 54,589 | | | | 49,249 | |
Increase in net assets resulting from operations | | $ | 44,377,567 | | | $ | 33,894,811 | |
See accompanying notes to financial statements
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
| | 2021 | | | 2020 | |
| | | | | | |
Net assets, beginning of year | | $ | 142,714,810 | | | $ | 128,153,422 | |
Distributions to IRA Partnership Interest Holders | | | (26,892,941 | ) | | | (17,963,859 | ) |
Redemption of IRA Partnership Member Interests | | | (178,081 | ) | | | (1,369,594 | ) |
Increase in net assets | | | 44,377,567 | | | | 33,894,811 | |
Net assets, end of year | | $ | 160,021,355 | | | $ | 142,714,810 | |
Net asset value per unit: | | | | | | | | |
Number of units | | | 736,885,944 | | | | 737,912,834 | |
Net asset per unit | | $ | 0.22 | | | $ | 0.19 | |
See accompanying notes to financial statements
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
| | 2021 | | | 2020 | |
Cash flows from operating activities | | | | | | |
Net increase in net assets resulting from operations | | $ | 44,377,567 | | | $ | 33,894,811 | |
Adjustments to reconcile net increase in net assets to net cash used in operations: | | | | | | | | |
Change in investment in Life Partners Position Holder Trust | | | (44,457,156 | ) | | | (33,969,760 | ) |
Change in assets and liabilities | | | | | | | | |
Due to Life Partners Position Holder Trust | | | 103,966 | | | | 199,307 | |
Net cash provided by operating activities | | | 24,377 | | | | 124,358 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Distributions from Life Partners Position Holder Trust | | | 26,892,941 | | | | 17,963,859 | |
Redemption of Life Partners Position Holder Trust units | | | 178,081 | | | | 1,369,564 | |
Net cash provided by investing activities | | | 27,071,022 | | | | 19,333,423 | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Redemption of Partnership Member Interests | | | (178,081 | ) | | | (1,369,564 | ) |
Distributions to IRA Partnership Interest Holders | | | (26,917,318 | ) | | | (18,088,217 | ) |
Net cash used in financing activities | | | (27,095,399 | ) | | | (19,457,781 | ) |
| | | | | | | | |
Net increase in cash | | | 0 | | | | 0 | |
| | | | | | | | |
Cash at the beginning of the year | | | 0 | | | | 0 | |
Cash at the end of the year | | $ | 0 | | | $ | 0 | |
See accompanying notes to financial statements
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Note 1 - Operations
The Life Partners IRA Holder Partnership, LLC (“IRA Partnership” or “Partnership”) was created on December 9, 2016, pursuant to the Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al. (the “Debtors”), 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 on November 1, 2016. Life Partners Holdings, Inc. was the parent company of Life Partners, Inc., a Texas corporation, and its wholly-owned subsidiary LPI Financial Services, Inc., a Texas corporation. From 1991 until 2014, Life Partners, Inc. was a specialty financial services company engaged in the business of purchasing individual life insurance policies from third parties by raising money from the offer and sale to investors of “fractional interests” in such policies. LPI Financial Services, Inc. was organized to bill and collect certain fees charged to investors in connection with the business. Life Partners and LPI Financial Services also filed for protection under Chapter 11 of the Bankruptcy Code.
In connection with its formation and the inception of its activities on December 9, 2016, the Partnership issued limited liability company interests (“Member Interests”) in satisfaction of claims against the Debtors. The only assets of the Partnership are beneficial interest units of the Life Partners Position Holder Trust (the “Position Holder Trust” or “Trust”). The Partnership held 736,885,944 and 737,912,834 units as of December 31, 2021 and December 31, 2020, respectively, of the Trust’s outstanding units totaling 1,236,955,963 and 1,226,958,714 as of December 31, 2021 and December 31, 2020, respectively. The sole purpose of the Partnership is to hold Trust interests to permit holders of Member Interests to participate in distributions of the proceeds of the liquidation of the Trust. The Partnership was created to allow IRA Holders to hold an interest in an entity classified as a partnership for federal tax purposes, rather than the assets of a grantor trust, such as the Position Holder Trust. The Partnership’s sole asset is its investment in the Trust and it engages in no other business activity.
The Bankruptcy Court organized the Trust and the Partnership in order to liquidate the assets of the Debtors in a manner calculated to conserve, protect and maximize the value of the assets, and to distribute the proceeds thereof to the Trust’s securities holders in accordance with the Plan. The Trust and IRA Partnership have no other business interests nor operations and will not acquire any additional life insurance policies in the future. The Trust’s beginning assets and liabilities were contributed pursuant to the Plan as of December 9, 2016.
Covid-19 Pandemic Update
The Partnership’s only investment is in the Life Partners Position Holder’s Trust. As such, the Partnership’s income is largely dependent on the Trust’s operations and the Partnership would be significantly impacted by any adverse effects of the novel coronavirus (COVID-19) pandemic on the Trust’s operations.
The novel coronavirus (COVID-19) pandemic has not had a material adverse effect on the Trust’s operations during the year ending December 31, 2021. 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. As of December 31, 2021, management has not made a determination as to how COVID-19 has impacted the Trusts mortality figures and there remains uncertainty if or how much future mortality might be impacted by the pandemic.
Member Interest 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.
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
The Partnership redeemed 937,269 and 7,231,667 Member Interests for $0.2 million and $1.4 million for the years ending December 31, 2021 and December 31, 2020, respectively.
Included in the redemptions, the Partnership redeemed 627,686 and 4,826,966 Member Interests for $0.1 million and $0.9 million from the Life Partners Creditors’ Trust in 2021 and 2020, respectively. The Partnership and the Life Partners Creditors’ Trust have common governing board members. The redemption was executed to reduce the administrative burden of the Partnership and to facilitate the expected termination of the Life Partners Creditor’s Trust. The Interests were redeemed at the same price per Interest as all other redemptions performed at the same or similar time and in accordance with the Motion approved by the U.S. Bankruptcy Court for the North District of Texas.
Distributions
The Trust paid $45.0 million and 30.0 million of distributions, of which approximately $26.9 million and $18.0 million was paid to the IRA Partnership for the year ended December 31, 2021 and 2020, respectively. The distribution was based on the number of Units held and deducting any unit holder obligations for unpaid premiums.
Note 2 - Significant Accounting Policies
Equity Method Accounting
The Partnership accounts for its investment in the PHT using the equity method of its share of earnings or loss less distributions received. The Partnership and the Trust are closely connected, with a common trustee and common management. As a result of this common oversight and control, as well as the Partnership’s position as the majority holder of the Trust’s beneficial interest units, the Partnership is considered to have significant influence under the provisions of ASC 323, resulting in the application by the Partnership of the equity method of accounting.
Earnings attributable to the Partnership’s interests in the Trust and recognized under the equity method represented approximately $44.5 million at December 31, 2021 and $34.0 million at December 31, 2020.
The following table presents summarized Trust financial data:
Balance Sheet Data:
| | December 31, 2021 | | | December 31, 2020 | |
Life insurance policies | | $ | 190,324,232 | | | $ | 159,179,912 | |
All other assets | | | 118,603,800 | | | | 135,156,538 | |
Total Assets | | $ | 308,928,032 | | | $ | 294,336,450 | |
| | | | | | | | |
Total Liabilities | | $ | 39,567,412 | | | $ | 56,433,312 | |
| | | | | | | | |
Net Assets | | $ | 269,360,620 | | | $ | 237,903,138 | |
LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2021 AND 2020
Income Statement Data:
| | December 31, 2021 | | | December 31, 2020 | |
Change in the fair value of life insurance policies | | $ | 84,977,343 | | | $ | 67,656,287 | |
Other income | | | 2,131,704 | | | | 608,269 | |
Total income | | $ | 87,109,047 | | | $ | 68,264,556 | |
| | | | | | | | |
Total expenses | | $ | 10,171,999 | | | $ | 9,417,789 | |
| | | | | | | | |
Net increase in net assets resulting from operations | | $ | 76,937,048 | | | $ | 58,846,767 | |
Distributions Payable
Distributions payable are distributions declared by the IRA Partnership pending payment.
Due to Life Partners Position Holders Trust
The Partnership does not have its own cash accounts, and its operating expenses and distributions to its Unit holders are paid on behalf of the Partnership by the Trust. The Partnership settles its liabilities to the Trust through reduction of the funds it receives from distributions made by the Trust.
Income Taxes
No provision for state or Federal income taxes has been made as the liability for such taxes is attributable to the members rather than the Partnership. The Partnership is a limited liability company with taxable income or loss passing through to the members. In certain instances, however, the Partnership may be required under applicable state laws to remit directly to state tax authorities amounts otherwise due by members. Such payments on behalf of the members are deemed distributions to them.
The Financial Accounting Standards Board (the “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 Partnership’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 Partnership has no material uncertain income tax positions as of December 31, 2021 or December 31, 2020.
Use of Estimates
The preparation of these financial statements, in conformity with generally accepted accounting principles in the United States of America (“GAAP”), requires the Partnership 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.
Risks and Uncertainties
The Partnership, due to the nature of its assets and operations, is subject to significant risks and uncertainties affecting the Trust which encounters economic risk. The two main components of economic risk potentially impacting the Partnership’s interest in the Trust are market risk and concentration of credit risk. 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. 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 deteriorating financial condition of the carrier or otherwise. It is reasonably possible that future changes to estimates involved in valuing the Trust’s life insurance policies could change and result in material effects on the Partnership’s financial position and results of operation.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
Item 9A. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of December 31, 2021 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-13(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The Trust and Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) and 15d-15(f). The Trust and Partnership carried out an evaluation under the supervision and with the participation of the Trust and Partnership’s management, including the Trust and Partnership’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Trust and Partnership’s internal control over financial reporting. The Trust and Partnership’s management used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) to perform this evaluation.
The Trust and Partnership’s management concluded that the Trust and Partnership’s internal control over financial reporting was effective as of December 31, 2021.
This annual report does not include an attestation report of the Trust and Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Trust and Partnership’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Trust and Partnership to provide only management’s report in this annual report.
Item 9B. Other Information
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the name, age and positions of the Trustee and Manager, as well as the members of the Governing Trust Board and Advisory Committee. The Registrants do not have any other officers or employees.
NAME | | AGE | | POSITION |
Michael J. Quilling | | 63 | | Trustee of Position Holder Trust and Manager of the IRA Partnership |
| | | | |
Bert Scalzo | | 60 | | Governing Trust Board Member, Chairperson of the Governing Trust Board and Advisory Committee Member |
| | | | |
Robert L. “Skip” Trimble | | 82 | | Governing Trust Board Member and Advisory Committee Member |
| | | | |
Philip R. Loy | | 76 | | Governing Trust Board Member and Advisory Committee Member |
| | | | |
Glenda Pirie | | 58 | | Governing Trust Board Member and Advisory Committee Member |
| | | | |
Brent Berry | | 59 | | Governing Trust Board Member and Advisory Committee Member |
The members of the Governing Trust Board also serve as the members of the Creditors’ Trust Governing Trust Board and as members of the Advisory Committee to the IRA Partnership. There are no family relationships between or among the Trustee or any of the members of the Governing Trust Board. Further, neither the Trustee nor any member of the Governing Trust Board over the previous ten years has: (1) had any bankruptcy petition filed by or against such person or any business entity of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time. (2) had any conviction in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses). (3) been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities or (4) been subject to any determination or ruling found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission not subsequently reversed, suspended or vacated, finding such person to have violated a federal or state securities or commodities law.
There are no committees of the Governing Trust Board or of the Advisory Committee to the IRA Partnership. The business backgrounds and certain other information about the Trustee and the members of the Governing Trust Board are set forth below:
MICHAEL J. QUILLING – Trustee of Position Holder Trust and Manager of the IRA Partnership
Mr. Quilling was appointed by the Governing Trust Board on December 13, 2018 to replace Eduardo S. Espinosa and to serve as the Trustee of the Position Holder Trust and the sole Manager of the IRA Partnership. Mr. Quilling is an attorney and is the founding partner of Quilling Selander Lownds Winslett & Moser, PC. He has been appointed on numerous occasions by state and federal courts around the country to serve as a receiver for businesses and individuals including several companies involved in the fractionalized life settlement business. The Governing Trust Board selected him due to his substantial experience and knowledge of the life settlement industry.
BERT SCALZO – Member of the Governing Trust Board and Advisory Committee
Mr. Scalzo was appointed to both Boards by the Bankruptcy Court effective as of December 9, 2016. Mr. Scalzo also served as Chairman of the Unsecured Creditors’ Committee in the Debtors’ bankruptcy. Mr. Scalzo has served since 2015 as a Senior Product Manager Database Tools for IDERA, Inc. where he has developed product roadmaps, designed and implemented features and performed marketing and sales support for multiple leading database tools. From 2014 to 2015, Mr. Scalzo was the Chief Architect Database Solutions for HGST, Inc., a subsidiary of Western Digital Corporation where he was responsible for the design and marketing of flash-based Oracle and MySQL database appliances. Mr. Scalzo was the Chief Architect Database Solutions for Quest Software from 2000 to 2014, where he developed product roadmaps, designed and implemented features and performed marketing and sales support for multiple leading database tools with annual sales of over $800 million per year. We believe that the Bankruptcy Court approved Mr. Scalzo based upon his position as a creditor representative where he spent countless hours talking and corresponding with numerous investors plus his substantial experience and expertise with respect to complex database management tools and systems.
ROBERT L. “SKIP” TRIMBLE - Member of the Governing Trust Board and Advisory Committee
Mr. Trimble was appointed to both Boards by the Bankruptcy Court effective as of December 9, 2016. Mr. Trimble has served as a principal of Catlyn Capital Corp., a Dallas-based real estate investment firm, since 1996. His responsibilities included the negotiation and documentation of the acquisition, financing and disposition of over $3.0 billion of commercial real estate. Mr. Trimble was a partner with the law firm of Winstead, McGuire, Sechrest & Trimble prior to entering the real estate development business in 1981. Mr. Trimble obtained both his economics undergraduate and graduate law degree from Southern Methodist University, where he graduated cum laude from law school. Upon graduation from law school, Mr. Trimble worked as a trial attorney in the Tax Division of the U.S. Department of Justice. We believe that the Bankruptcy Court approved Mr. Trimble based upon his substantial experience and expertise with respect to corporate and transactional legal matters and the life insurance industry.
PHILIP R. LOY – Member of the Governing Trust Board and Advisory Committee
Mr. Loy was appointed to both Boards by the Bankruptcy Court effective as of December 9, 2016. Mr. Loy founded American Viatical Services, LLC, a leading life insurance underwriter and provider of life expectancy reports and served as its President until his retirement in 2016. Prior thereto, Mr. Loy served as a property, casualty, life and health insurance agent for W.S. Pharr & Debtor from 1991 until 1994 and was the owner of Davis & Loy Insurance in Atlanta, Georgia from 1987 until 1991. Mr. Loy has served on the board of directors of the Life Insurance Settlement Association since 1998 and has served on the board of directors of the National Viatical Association from 1997 until 2000. We believe that the Bankruptcy Court approved Mr. Loy based upon his substantial experience and expertise with respect to the life insurance and life settlement industries.
GLENDA PIRIE – Member of the Governing Trust Board and Advisory Committee
Ms. Pirie was appointed to both Boards by the Governing Trust Board in March of 2020. She was an investor in insurance policies sold by Life Partners and holds units in the Trust. She was a member of the Unsecured Creditors Committee during the bankruptcy proceedings and was very active in that role. She has substantial knowledge of the background and operations of the Trust. Mrs. Pirie brings to the board the perspective of the smaller investors of the Trust.
BRENT BERRY – Member of the Governing Trust Board and Advisory Committee
Mr. Berry was appointed to both Boards by the Governing Trust Board in August of 2018. He is a real estate investor and financial consultant. Previously he was a software executive and business consultant. He graduated from the University of Wisconsin with a degree in business management. Mr. Berry was selected due to his background and expertise in finance.
Terms of Office
The Trustee may be removed by a vote of four or more members of the Governing Trust Board, with or without Good Cause, or by an order of the Bankruptcy Court for Good Cause after application by one or more members of the Governing Trust Board and upon notice and a hearing. “Good Cause” is defined as a breach of trust committed in bad faith, intentionally or with reckless indifference to the interest of any Position Holder Trust Beneficiary, conviction of a crime (other than traffic violations), or incapacity. In the event of the resignation, removal or death of the Trustee, the Governing Trust Board will appoint a successor upon the vote of three or more members.
The members of the Governing Trust Board have been appointed and approved by the Bankruptcy Court to serve until their death, incapacity, resignation or removal. The chair of the Governing Trust Board is elected by a majority vote of the members of the Governing Trust Board. A member of the Governing Trust Board may be removed at any time for Good Cause by a majority vote of the remaining Governing Trust Board members or by an order of the Bankruptcy Court after application by one or more Governing Trust Board members, the Trustee, the trustee of the Creditors’ Trust, registered owners of more than 30% of the Position Holder Trust interests, including IRA Partnership Interests and New IRA Notes, or registered owners of more than 30% of the Creditors’ Trust interests, and upon notice and a hearing. The Bankruptcy Court has retained jurisdiction for this purpose.
Any vacancy on the Governing Trust Board shall be promptly filled by a majority vote of the remaining members, with input from the Trustee and the trustee of the Creditors’ Trust. In the event of a tie, the chair of the Governing Trust Board will have the deciding vote. If all members of the Governing Trust Board resign or otherwise cease to serve at once, the Trustee shall promptly file a motion with the Bankruptcy Court to appoint successor members to fill all five vacancies. The Governing Trust Board has adopted a code of ethics for the Governing Trust Board or the Trustee or Manager.
Pursuant to the Position Holder Trust Agreement and the IRA Partnership Agreement, the Manager of the IRA Partnership must be the same person as the Trustee, but the Manager may be removed or replaced at any time, with or without cause, and a new Manager selected by, in each case, members of the IRA Partnership holding 75% of the outstanding units thereof.
Financial Experts
As the Trust and the IRA Partnership are not operating entities except to the extent of the management of the liquidation of the Policies, the Governing Trust Board operates without an audit committee. The Board, through the Trustee and the Chief Financial Officer, engages financial advisors with expertise in the valuation of the Policies.
Item 11. Executive Compensation
The compensation payable to the Trustee and members of the Governing Trust Board and Advisory Committee were approved by the Bankruptcy Court. The Trustee receives compensation of $500 per hour and expense reimbursement for services rendered in his capacity as Trustee and Manager of the IRA Partnership. The Governing Trust Board members receive an annual compensation set by a supermajority of the Governing Trust Board, in the amount of $85,000 (Board Chair) $75,000 (Vice-Chair) and $40,000 (other Board members) per annum, payable monthly in arrears. In addition, Governing Trust Board members receive reimbursement of reasonable and actual out-of-pocket expenses incurred in performing their duties and are entitled to engage their own legal counsel and advisors. The cost of such engagement is to be paid by the Creditors’ Trust and/or Position Holder Trust, as determined and allocated by the Governing Trust Board.
The Position Holder Trust and IRA Partnership do not have any equity-based compensation plans. Also, there are no potential payments that would be due to the Trustee, Manager or members of the Governing Trust Board and Advisory Committee upon termination from their respective positions, except for compensation described above that has accrued and remains unpaid as of the date of termination.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except for the IRA Partnership, Anchorage, and Contrarian, no individual person, the Trustee or member of the Governing Trust Board or Advisory Committee, nor all of their members as a group, owns more than one percent of the outstanding Position Holder Trust Interests or IRA Partnership Interests, or of all outstanding Continuing Fractional Interests based on the aggregate face amount of death benefit in all Policies. The IRA Partnership holds approximately 60% of the Position Holder Trust Interests.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as disclosed below, there have been no transactions or presently proposed transactions to which the Registrants have been or will be participants with any of the members of the Governing Trust Board, Advisory Committee or the Trustee or Manager, or any members of their immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing, directly or indirectly, in which the amount involved exceeded or will exceed $120,000. In addition to their work as members of the Governing Trust Board, Bert Scalzo and Brent Berry, performed consulting services on behalf of the Trust and received $41,100 and $232,250 during 2021 for such services, respectively. The Registrants are not considered to be a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of the members of the Governing Trust Board or Advisory Committee and no representation is made by the Registrant regarding the independence of any of the members of the Governing Trust Board or Advisory Committee.
Item 14. Principal Accounting Fees and Services
Plante & Moran, PLLC, served as the independent registered public accounting firm for the Position Holder Trust and the IRA Partnership and audited their respective financial statements for the years ended December 31, 2021 and 2020.
Aggregate fees for professional services rendered to us by our independent registered public accounting firm are set forth below.
| | Year Ended December 31, 2021 | | | Year Ended December 31, 2020 | |
Audit Fees – Trust | | $ | 271,948 | | | $ | 285,101 | |
Audit Fees - Partnership | | | 26,500 | | | | 25,700 | |
Audit-Related Fees | | | — | | | | — | |
Tax Fees | | | — | | | | — | |
All Other Fees | | | — | | | | — | |
Total | | $ | 298,448 | | | $ | 310,801 | |
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements:
Our financial statements identified in the accompanying Index to Financial Statements at page 25 herein are filed as part of this Annual Report on Form 10-K. (a)(2) Financial Statement Schedules:
The schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto. (a)(3) Exhibits:
*** Filed herewith.
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIFE PARTNERS POSITION HOLDER TRUST | |
| | | |
Date : March 16, 2022 | By: | /s/ Michael J. Quilling | |
| | Michael J. Quilling Michael J. Quilling, Trustee | |
| LIFE PARTNERS IRA HOLDER PARTNERSHIP, LLC | |
| | | |
Date : March 16, 2022 | By: | /s/ Michael J. Quilling | |
| | Michael J. Quilling | |
| | Michael J. Quilling, Manager | |
